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When the elites wine and dine together and hand out prizes to each other

What I learned studying history at university about Charlemagne I have mostly forgotten other than the broad brush of his historical presence. I know where he is buried because his Frankish home base was Aachen on the extreme west of Germany bordering with the Netherlands. I have spent a lot of time in that area (given my association with the University of Maastricht) and have visited the cathedral that houses his grave. What I can recall is that he was a Christian imperialist who forcibly imposed “Germanic” rule on most of what is now Western Europe. But while he largely restored the old “Holy Roman empire”, this “unity” did not last long after his rule ended. That is, he dramatically failed to embed a lasting unity. I think it is appropriate then that yesterday, the President of the ECB, Jean-Claude Trichet, was awarded the famous The Karlspreis which is in honour of Charlemagne. The Germans think it is about unity or at least that is what they claim it is about. The other analogy with Charlemagne is that just as he sought to impose his religious views on the “heathens”, Trichet is also seeking to impose another religion on the people of Europe – neo-liberalism. It is a religion that has failed to provide succour to those who have had to endure it. It works well for the “priests” as all religion seem to. But it is imposing harshness and calamity on the rest. Anyway, in Aachen yesterday, it was another one of those days when the elites wine and dine well together and hand out prizes to each other.

A group of citizens in Aachen set up a prize – – in 1949, which they say was intended to advance the aim of “integrating West Germany into a supranational Europe” after the appalling behaviour of the Germans during the Second World War. It was initially conceived as the “Charlemagne Prize of the City of Aachen” and was to be awarded “for service in the cause of West European unification, world peace and humanity”.

If you read back through the documents you see strong religious (Roman Catholic) overtones which was consistent with Charlemagne’s imposition of Christianity (Roman Pope-style) on whoever he conquered. This was a strongly anti-muslim period in Europe. What changes?

Anyway, fast track to June 2, 2011 – and the scene is the Town Hall in Aachen – and the 2011 Karlpreis is awarded to Mr Humanity himself Jean-Claude Trichet, President of the ECB. He joins an “illustrious” group which included German Chancellor Angela Merkel (won the prize in 2008) and Bill Clinton (won the prize in 2000).

What you might say – a prize for unification and humanity to the boss of the ECB?

Hasn’t the Euro experiment largely failed to meet the needs of the people who use it? Hasn’t the crisis torn apart any sense of common purpose in Europe, with the wealthier north against the poorer south? Hasn’t the crisis proven that the common currency zone is incapable of withstanding significant negative deand shocks without imposing massive costs on the less advantaged and without extraordinary intervention (bailouts etc) which arguably flout the original design principles?

Yes, yes, and yes.

In their “reason for decision (“Begründung des Direktoriums der Gesellschaft”) the awarding panel claim that the European unity is dependent on the Euro surviving as a currency under the management of the ECB. They claimed that the Euro is a “success story” (“eine Erfolgsgeschichte”) having withstood the global financial crisis. They claim that the ECB has been crucial to the fact that “300 million citizens of the Eurozone … can trust their currency” (“300 Millionen Bürgerinnen und Bürgern der Eurozone bewiesen, dass sie auf ihre Währung vertrauen können”).

The organisers didn’t mention that at least 15.529 million of these citizens (or 9.9 per cent of the active working age population) can no longer earn that currency because they have been made unemployed by the austerity policies promoted by Trichet and his European ruling class elite. See the latest Eurostat Labour Force data, April 2011 to see how poorly the labour market in the EMU is faring. Mentioning that data might have complicated the narrative of the prize-giving committee somewhat.

It is true, on one level, that the ECB has been responsible for the continuation of the Eurozone over the course of the crisis, with several national governments now dependent on it buying their official paper in secondary bond markets at heavily discounted to par prices for their solvency. As soon as the ECB stops acting as a “fiscal agent” then the member states will go broke – one after another.

The EMU has failed as a monetary system and has failed to unify Europe. Like Charlemagne’s religious unification, the “unity” which is tied up in the common currency is oppressive and will fail in the longer-term unless serious design changes are made to the system.

The EMU is not akin to a monetary union that might exist in a normal federation (say like Australia or the United States). The stunning feature that was deliberately left out of the system by the ruling elites intent on imposing a neo-liberal agenda of central bank rule and fiscal policy passivity was that the EMU does not have a “national government” that takes responsibility for fiscal policy and can control the central bank – that is, the democratic process does not regulate economic policy as it does in true federations.

Each of the member states effectively agreed to operate with a “foreign currency” that was issued by an unelected central bank. To keep national governments in check the system imposed tight fiscal rules (Stability and Growth Pact). The elites also imposed a multilateral system of surveillance on the member states to discipline the individual governments. In effect, the rest of Europe is now living the legacy of (and being punished for) the 1920s hyperinflation in Germany not to mention the military excesses of the same nation a decade or so later with the Bundesbank morphing into the ECB.

The upshot has been that in the face of the first large negative demand shock to hit the region, the nation states have quickly found they cannot use fiscal policy in a responsible way to protect its economy from rising unemployment and collapsing income. In a normal federation, the national government can always ensure the solvency of the constituent parts via fiscal transfers. In the legal design of the EMU, there is no such role specified and attempts by the member states to cushion the demand collapse quickly raised the ire of the Euro elites with the ECB leading the charge to impose austerity on errant governments.

In a normal federation, the Greek or Irish governments would have been perfectly capable of limiting the damage of the demand collapse. But in the EMU they are constrained and are now being forced to impose pro-cyclical fiscal retrenchments which are the last thing their economies need and which violate all known macroeconomic common-sense.

However, the only thing between Greece becoming insolvent and its current parlous state has been the “quasi-fiscal” intervention of the ECB. In taking up this role – by way of the ad hoc bailouts and secondary bond market purchases, the ECB has become a sort of “fiscal tsar”.

But in exercising this power it has mis-used its position to force harsh austerity programs onto government which are now imposing severe costs on the people who live in these nations (for example, Greece and Ireland).

In the UK Guardian yesterday (June 2, 2011) – Greece agrees to more cuts and tax rises as price of next bailout – we read that social unrest and political instability is increasing as a result of the the Greek government announcing:

… fresh austerity measures … in an effort to restore waning confidence in its economic performance a year after securing €110bn (£96bn) in emergency loans, the biggest bailout in western history.

The plan will “include savage spending cuts, tax rises and the acceleration of a huge privatisation programme”. The elites which include the Euro bosses, the IMF bosses etc have not been satisfied with the damage they have imposed on the Greek economy already. They want more. 16 per cent (and rising) unemployment is not enough for this lot.

The Guardian reports that “tens of thousands of protesters … [converge] … daily on public squares” protesting at the policies.

The so-called “troika” (the IMF, EU and ECB) has recently upped the ante – with by demanding “extended foreign supervision of the day-to-day running of Greece’s public finances” and insisting that “the privatisation programme, the plan’s centrepiece, is overseen by a foreign agency”.

The problem is of-course that with the rest of the world (bar China) still mired in slow or declining growth rates it is nigh on impossible to grow when private spending is flat, unemployment is rising and government net spending is being slashed. The elites claim the aim is to reduce deficits but cuts like this increase deficits because the automatic stabilisers turn hostile.

The elites know that but are seizing this chance to further embed their position power and that of the private larger corporations (not the street corner capitalists who are also going under). The EMU situation is a classic case of the needs of a few (including wealthy banks in Germany and France) being nurtured at the expense of millions.

Revolutions follow when that culture is perpetuated.

Anyway, with that setting, it is easy to appreciate the arrogance visible in the Trichet’s Acceptance speech in Aachen yesterday (June 2, 2011).

He gave the assembled audience a lecture on the need for European unity and that the role of European institutions was vital.

His message was to become clear but he knew he had to blur it somewhat early on – presumably while the audience was still awake. He said that advancing “peace and security”:

… calls for continuing to strengthen Europe’s institutional framework. In the economic and financial fields it demands to reinforce in a decisive way the institutions of the economic and monetary union.

By institutions, I do not mean technocrats making complex decisions remote from citizens.

I mean the rules and organisations that preserve our core values and guide our actions towards the common good.

Institutions that build trust between peoples and nations in Europe.

Institutions that foster cooperation for mutual benefit.

Institutions that manage our interdependence by preparing collective decisions.

You will be already noting the tension in the message – Brussels is remote from the citizens in southern Europe. It is where the elites lunch and talk and make decisions that are then imposed on the people. Even the decision to create the EMU was taken away from the citizens when it became obvious that supportive national referenda would fail. Quick march – goose-step-style to Portugal and impose the Lisbon Treaty – determined by the elites and eliminating any complication that democracy might bring.

The entire behaviour of the EMU since it was created has been remote from the citizens. For a time it did not matter because the world economy was growing and times were (relatively) better. But now, with the fabric of European life being torn apart by continued recession and the remote elites in Brussels and Frankfurt demanding even harsher policies be imposed on the member states, the detachment of the citizens is obvious and will matter.

Trichet had the audacity to declare the EMU a success – “EMU is the area where Europe has progressed furthest” and is “an unprecedented achievement in the history of sovereign nations – a goal to which generations of Europeans have aspired”.

I am always circumspect when making statements about places I do not live nor share in any outcomes but if the EMU is the exemplar of long-held European aspirations then they have not wished for much.

By any economic standards, the EMU has failed – exactly in the way that the critics predicted it would when it was created. It is incapable of defending itself against external demand shocks. There are other reasons for its failure (relating to disparate labour markets, lack of internal migration etc) but the major reason why Greece and Ireland (and Portugal) are now effectively insolvent is because they surrendered their currency sovereignty. The Euro is the problem not the basis for a solution.

After praising how successful the EMU has been, he then went onto the main agenda of his speech – to lay down some more law for the future. He said:

Just as the success of the euro as a currency is due to well-designed institutions, addressing EMU’s difficulties requires a major strengthening of the rules and organisations that govern fiscal and economic policies.

Looking at the euro area today, we see clearly that countries that abide by the rules of the single currency can thrive and prosper. Sound policies and a healthy economy are strongly correlated.

But we also see the opposite. Countries that have not lived up to the letter or the spirit of the rules have experienced difficulties.

He fails to mention that the earliest breaches of the SGP were Germany and France. He also fails to mention that Spain and Ireland can hardly be said to be fiscal profligates (defined within the harsh SGP rules).

Then he said that fundamental “governance” reforms were required and he saw this as a two-stage process. The first stage would provide :

… financial assistance in the context of a strong adjustment programme.

He supported on-going IMF intervention and austerity being imposed on nations that breach the SGP criteria and he considers this process should be taken out of the political sphere (“governments and opposition – unite behind the effort”).

The second stage would consolidate the undermining of basic democracy in member states. He said:

Would it go too far if we envisaged, at this second stage, giving euro area authorities a much deeper and authoritative say in the formation of the country’s economic policies if these go harmfully astray? A direct influence, well over and above the reinforced surveillance that is presently envisaged? …

In the new concept, it would be not only possible, but in some cases compulsory … for the European authorities – namely the Council on the basis of a proposal by the Commission, in liaison with the ECB – to take themselves decisions applicable in the economy concerned … One way this could be imagined is for European authorities to have the right to veto some national economic policy decisions. The remit could include in particular major fiscal spending items and elements essential for the country’s competitiveness.

So take economic policy setting off the elected government and transfer it to Brussels (or somewhere where the elites hang out).

So allow elite bureaucrats and mainstream economists (who have failed in every respect to present a meaningful explanation of how the crisis developed) to cut wages in individual countries, increase working hours, reduce welfare and work standards including safety etc, to cut pension entitlements, to reduce access to public education and hospitals, and all the rest of the “elements” that the mainstream claim are “essential for the country’s competitiveness”.

He then specifically outlined the type of central authority he envisages.

In this Union of tomorrow, or of the day after tomorrow, would it be too bold, in the economic field, with a single market, a single currency and a single central bank, to envisage a ministry of finance of the Union?

Not necessarily a ministry of finance that administers a large federal budget. But a ministry of finance that would exert direct responsibilities in at least three domains: first, the surveillance of both fiscal policies and competitiveness policies, as well as the direct responsibilities mentioned earlier as regards countries in a “second stage” inside the euro area; second, all the typical responsibilities of the executive branches as regards the union’s integrated financial sector, so as to accompany the full integration of financial services; and third, the representation of the union confederation in international financial institutions.

It is clear that one solution to the EMU design flaws is to create a national fiscal authority that can make spending transfers to regions (member states) that are enduring a negative demand shock. The creation of such an authority could clearly advance the public purpose of the federation and cross state boundaries seamlessly dispensing a common currency.

So under that schema it would be the same as exists in the US or Australia or any other federation where the national government has currency sovereignty. But to render this consistent with our pretensions to democracy, such a body has to be elected and regularly accountable at the ballot box for its performance.

Already, in sovereign nations like the US etc the conservatives are trying to give so-called “fiscal commissions” more discretionary power over the elected representatives of the people. The whole central bank independence agenda over the last three decades is about the diminution of responsibility of our elected representatives.

Please read my blog – Central bank independence – another faux agenda – for more discussion on this point.

But the fact remains we can throw our government out if we do not like the fiscal policies it introduces.

So democratic pretensions could only be aligned with sound fiscal design in a monetary union such as the EMU if there were fundamental political changes in Europe – and the creation of a truly dominant supra-national government.

Belgian economist Paul De Grauwe, who many consider to be a progressive voice in the current debate, comes close to recognising this as the solution. He said in a recent paper – The Governance of a Fragile Eurozone – that:

a budgetary union is the instrument of collective action and internalization. By consolidating (centralizing) national government budgets into one central budget a mechanism of automatic transfers can be organized. Such a mechanism works as an insurance mechanism transferring resources to the country hit by a negative economic shock. In addition, such a consolidation creates a common fiscal authority that can issue debt in a currency under the control of that authority. In so doing, it protects the member states from being forced into default by financial markets. It also protects the monetary union from the centrifugal forces that financial markets can exert on the union.

But he recognises that “(t)his solution of the systemic problem of the Eurozone requires a far-reaching degree of political union” and it “is clear, however, that there is no willingness in Europe today to significantly increase the degree of political union. This unwillingness to go in the direction of more political union will continue to make the Eurozone a fragile construction”.

His approach is different to the one I propose – exit and restore currency sovereignty. He says that Europe “can move forward by taking small steps”. Which are?

1. Formalise the existence of the European European Financial Stability Facility (EFSF) and the European Stabilization Mechanism (ESM) into the creation of a European Monetary Fund which would provide funds to trouble nations but with conditionality (that is, “an austerity package”). He claims that austerity should be imposed so that “economic growth gets a chance” but that seems to be a soft “fiscal contraction expansion” argument.

How does growth get a chance when private spending is flat, the nation is in external deficit and you are cutting public spending? Answer: you cannot get growth unless there is spending. Some sector has to be adding to demand growth for output growth to occur.

Trying to suggest that it is about “degrees of austerity” misses the fundamental macroeconomics issue – spending equals income.

2. Joint issue of Eurobonds – so the nations issue debt for which they are mutually responsible for. This idea has been around for sometime now and has been opposed because it introduces so-called “moral hazard” (why should a risky nation not just issue more debt than it should) and penalises low risk nations (with good ratings).

De Grauwe proposes to overcome these problems by creating a two-tier system: Blue jointly-issued bonds if a nation is below the SGP debt ratio (60 per cent) and red nation-issued bonds if they are above the 60 per cent.

My problem is two-fold. First, a sovereign nation should be moving forward by eliminating sovereign debt issuance given that a sovereign government is never revenue constrained as the monopoly issuer of the currency. So entrenching a more complicated system of bond market welfare seems to be a regressive step – a sort of “soft” neo-liberalism.

Second, it accepts the SGP public debt limit as being meaningful and optimal. Debt ratios have gone above this limit exactly because the demand collapse has been so profound in some nations. These are the very nations that are likely then to be penalised by bond markets who will shun the “red bonds”. The solution is to eliminate the influence of the parasitic bond markets and that requires an exit from the EMU and the reinstatement of sovereign currencies.

3. Coordination of economic policies – De Grauwe notes in a supportive way (“an important step forward”) that the:

The European Commission has proposed a scoreboard of macroeconomic variables (private and public debt, current account imbalances, competitiveness measures, house prices) that should be monitored, and that should be used to push countries towards using their economic policy instruments so as to create greater convergence in these macroeconomic variables. Failure to take action to eliminate these imbalances could trigger a sanctioning mechanism very much in the spirit of the sanctioning mechanism of the Stability and Growth Pact

But he says more has to be done because “National governments have relatively little control over many of the macroeconomic variables targeted by the European Commission”.

He says that:

… any policy aimed at stabilizing local economic activity must also be able to control local credit creation.

He notes that the ECB was created to oversee union-wide monetary conditions but that it should also “deal with excessive bank credit in parts of the Eurozone … to restrict bank credit in some countries more than in others by applying differential minimum reserve requirements, or by imposing anti-cyclical capital
ratios. These can and should be used as stabilizing instruments at the national level”.

While many are holding out De Grauwe’s position as being progressive I just see it as a softer neo-liberalism.

– Make the pain less but draw it out for longer.

– Maintain anti-democratic policy power at the union and individual country level in the hands of the ECB.

– Create a central “IMF” which can impose conditionality on elected governments.

– Maintain the powerless of individual governments by forcing them to use a foreign currency and thus remain hostage to the bond markets.

So it is a matter of degrees he is arguing about.

The problem is that these “reforms” will still punish a nation that encounters a serious negative demand shock. Such a nation still faces insolvency and the only adjustments that would be possible include internal devaluation (attacking wages and welfare) and fiscal austerity.

I don’t see any of that as being progressive when the option is for a government restore its currency sovereignty, float its currency and then take political responsibility for its actions. That is what I thought democracy was about and it certainly is the optimal way of organising a monetary system.

The creation of a truly dominant supra-national government is also not what Trichet is proposing. He wants an unelected bureaucracy to rule without any accountability to the people and impose whatever regime the elites deemed suitable at any point in time. It would amount to the destruction of democracy. I don’t see much fundamental difference between his viewpoint and that of De Grauwe at the substantive level.


Just as Charlemagne was a Christian imperialist, Trichet is seeking to impose another religion on the people of Europe – neo-liberalism. It is a religion that has failed to provide succour to those who have had to endure it. It works well for the “priests” as all religion seem to. But it is imposing harshness and calamity on the rest.

I suppose it is nice that the European elites get together regularly in relatively sumptuous surrounds, and drink and eat well, and present each other with prizes and honours etc. Better someone is happy in all the mess they have created.

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    This Post Has 48 Comments
    1. Well Trichet’s mob have the keys to Ireland and Greece already, and I do not see much progress there. And there was I thinking neo liberals disliked bureaucracy.

    2. Hi Bill,

      So here’s the question then: is all this a conscious, co-ordinated effort to destroy democracy and impose unelected pan-European rule or do these guys genuinely believe in what they’re saying? As you say, in the end it’s all quite simple as “spending = income”. I remember when Barack Obama was elected he was explaining the reason the government needed such a huge deficit was because private spending had collapsed and public spending had to increase to plug the gap. I thought at that point that he got it. To be fair to Gordon Brown, he said the same things. Can European economic officials really be so retarded they think less private spending combined with less government spending can somehow rescue an economy and not just cause more damage?

      There have been conspiracy theorists for years now saying that money would be used as the weapon to take control of the world and destroy democracy. I’ve never bought into it, thinking it required too much secret co-ordination between the major power-brokers in the world (business, finance, media) to push us in that direction. This quote from Trichet is truly terrifying:

      “Would it go too far if we envisaged, at this second stage, giving euro area authorities a much deeper and authoritative say in the formation of the country’s economic policies if these go harmfully astray? A direct influence, well over and above the reinforced surveillance that is presently envisaged?”

    3. My suggestion: the Greek unemployed should all move to Germany and Belgium and immediately claim unemployment benefits. The problem would be fixed within weeks.

    4. “But the fact remains we can throw our government out if we do not like the fiscal policies it introduces.”

      In principle, but you have already discussed at length previously how all parties are captive of the same economic dogma so in practice throwing out one government invites more of the same from its replacement. We won’t have democracy until we have politicians who are not universally captive of one single dogma.

    5. thinking it required too much secret co-ordination between the major power-brokers in the world (business, finance, media) to push us in that direction.
      Well, as they are all owned by a small milieu, it wouldn’t require that much co-ordination and we are being pushed in that direction.

      Whether Trichet believes it or not is largely irrelevant. He seems to fit perfectly with Denis Rancourt’s definition of a service intellectual:

      “Service intellectuals maintain a mental environment that preserves privilege. Service intellectuals maintain intellectual discipline – constantly identifying, isolating, and neutralizing true intellectuals, however few there are. ”

      …albeit one gifted with extraordinary, undemocratic executive power.

    6. The practical question to answer is not if EZ nations will recover their monetary sovereignty. They will. The two officially proposed paths to there – continuation of ad-hoc policies or a vain attempt to more “union” – will do that with, respectively, huge and greater-than-huge costs.

      The practical question to answer is if one can propose policies that can minimize costs and be accepted to the point that they will be enacted, given that the overwhelming majority actual judgment of people in the EZ is in favor of the single currency continuation.

    7. The word “troika” is, of course, Russian. Nowdays, English-speakers sometimes use it to denote sets of three members in human affairs, like three persons or three organisations.

      But the original use was distinctly ominous : Troikas were the three-person local committees, comprised by the local party commissar, the local police chief and the Cheka representative, that were established during the period officially named by the Communist Party as “Red Terror”, a response to the so-called White Terror, during Russia’s Civil War.

      If all three members of a Troika were to sign on it, they could decide and implement the immediate execution of any local person for “anti-Soviet activity” without a trial.

      I suppose there is still a faint resonance in today’s triumvirate of IMF, WB and ECB from the original meaning, even though they mete out their brand of terror a bit more gradually.

    8. Dear Bill
      The EMU is not even about European unification because of the 27 members of the EU only 17 are members of the Eurozone. Of the 15 older EU members, Britain, Denmark and Sweden are not part of the Eurozone. What kind of unity is this? In my opinion, not only is the EMU nonsense but also the entire EU.

      As you pointed out, the EMU is an elite project, but so is the entire EU. There are no Europeans, except in a geographic sense, and therefore there is no popular enthusiasm for the EU. That’s why participation in the elections for the EU parliament is so low. Political centralization is not the same as national unification. To compare German and Italian unification in the 19th century and Polish unification in the 20th century with the EU is laughable. In these German and Italian unifications, subnational states were abolished and replaced by a nation-state. In the EU, powers are transfered from nation-states to a multinational entity. Actually, not all EU members are nation-states. Belgium, for instance, is a binational state.

      It should be obvious by now that a common passport does not creat a single nation. There used to be 280 million people who all had a Soviet passport. There was however no Soviet nation, and as a result the Soviet Union fell apart. When a Swede is in Portugal or Greece, he is in a foreign country, even though the Portuguese and Greeks now have a European passport like the Swedes. In Norway, the Swede may feel much more at home than in Greece or Portugal, even though Norway is not a member of the EU. Citizenship is something different from nationality, and political borders are different from national borders. Some people in Southern Slovakia may be citizens of Slovakia, for instance, but they are members of te Hungarian nation.

      We should unite what is similar and keep separate what is different. In the EU there still are 25 languages spoken, so at a minimum there are 25 nations. A nation speaks one language. A multilingual nation is a nonsensical concept. A common language unites and different languages divide. A nation is first and foremost a language community. Putting different nations in one political entity will only create a pseudo-unity.

      Unfortunately, in nglish today there is a tendency to use the word nation for any country. This blog does it too. However, one big problem in the world today is that most countries have several nations in them. Binational or multination countries are inherently less stable and cohesive than nation-states. That’s why Australia is more solid than Canada and the Netherlands more solid than Belgium.

      Regards. James

    9. @James
      (1) What European passport are you talking about? Austria is member of the EU and EMU but I still have an Austrian Passport issued by the government of Austria.
      (2) A multilingual nation is a nonsensical concept. Next time you are in Switzerland can you please tell this to your Swiss hosts. That because of its 3 languages Switzerland is a nonsensical concept.

    10. The fact that the core Euro countries (Germany and France) are immune to “market discipline” fosters the misconception that they are more virtuous than the peripheral Euro countries and the political sentiment that the small countries should be punished for their lazy, profligate ways rather than helped. So much for European unity.

    11. What I find amusing is that nobody has pointed out that a German surplus with the rest of the Eurozone by definition *causes* other countries to go into debt.

      Nobody is calling for the Germans to wind their neck in or increase their imports.

    12. “I still have an Austrian Passport issued by the government of Austria.”

      To a standard format prescribed by Europe.

      Next you’ll be telling me Chanel do sunglasses because they have their name on them or the Irish central bank issue Euros because the coins have ‘Eire’ on them.

    13. …and Trichet goes down as another failed central banker.

      Some Conservatives — especially British Tories — used to note that the EU was similar in many ways to a Soviet-style bureaucracy. I always used to think this comparison was unfair — and with regard to the legal and legislative functions of the union, I still do.

      The EMU and its institutions, on the other hand, ARE like a Soviet-style bureaucracy. When I see Trichet collect some non-award and announce what good health the EMU is in, I cannot help but think of the Soviet Apparatchiki circa 1980.

    14. Well Neil,

      the problem is that Germans are completely brain-washed in regard to competitiveness and export-driven growth. I must know that because I’m living in Germany. A nation of 80 million little mercantilists. There ‘s a strong mental resistance even among economists to acknowledge the existence of some basic accounting identities. The general belief is that any nation which is thrifty and industrious can be an export superstar. Thus I’m surrounded by people who are basically waiting for some UFOs to kick off interstellar trade which would enable the world to run a trade surplus.

      In regard to the passport you are dead wrong. From the technical perspective there might be a EU guideline? They like to micro-manage things over there in Brussels. But from a legal perspective things look very different. If I drive drunken in Germany they can’t confiscate my driving license because it is an official foreign Austrian document. All they can do is prohibit me from driving on German soil. The European nation states are not dead yet. They will be dead if Jean-Claude has his way to impose the rule of the few (The ECB Governing Council ;~) on European nation states. Then we’ll have a sort of ECB oligarchy.

      And YES Chanel does sunglasses. You can’t just buy a license and stick the Chanel logo on any sunglasses you might regard as cool. The rules whether your sunglasses can come into existence as Chanel sunglasses are determined solely by Chanel.

    15. James Schipper, “We should unite what is similar and keep separate what is different. In the EU there still are 25 languages spoken, so at a minimum there are 25 nations.”

      -I think such ideas need to be treated very very cautiously. What about where “nations ” live intermingled such as in Northern Ireland, Singapore, Kenya, South Africa, Bosnia etc etc. I think it is important to cast your lot in with your geographic neighbors whilst respecting their differences. The Sure Start pre-school group that my niece went to in central Manchester did not have a single child who’s mother had English as a first language. My Niece was born in Japan, has an English father and a Japanese mother so what is her “nation” supposed to be??? In terms of currency union I think it simply should be a case of one government, one currency. If people do not want to share a government, then they should avoid sharing a currency. People of different “nations” may successfully share a government (such as in India, Singapore, Switzerland etc). In Northern Ireland people who speak the same language and live 100m apart can’t bear to share the same government- that’s a disaster. British and German people living in the UK and Germany not wanting to share the same government is no disaster at all. It does the UK a world of good to see that things we mess up are done well elsewhere.

    16. The first men to be created were called the Socerer of Fatal Laughter, the Socerer of the Night, Unkempt, and the Black Socerer. … They were endowed with intelligence, they succeeded in knowing all that there is in the world. When they looked, instantly they saw all that is around them, and they contemplated in turn the arc of heaven and the round face of the earth … [Then the Creator said:] “They know all … what shall we do with them now? Let their sight reach only to that which is near; let them see only a little of the face of the earth! … Are they not by nature simple creatures of our making? Must they also be gods?”

      – The Popol Vuh of the Quiché Maya

    17. “In a normal federation, the Greek or Irish governments would have been perfectly capable of limiting the damage of the demand collapse.”

      Unfortunately there isn’t any normal federation anywhere on Earth at present due to debt limits and other similar stupid self imposed constrains.

    18. @ James.

      Of course, the Swiss people were given a referendum to join enter into the EU Constitution (read: Lisbon Treaty), just like other countries (yet the NO vote was ignored by their career politicans’ in Ireland, France and the Netherlands). In Switzerland, the popular initiative “Yes to Europe!”, calling for the opening of immediate negotiations for EU membership, was rejected in a 4 March 2001 referendum when voters rejected the proposal by 76.8%. They did not want a bar of this ridiclous institution, its currency, or its ruling political elites. They joined the Schengen treaty and extending the freedom of movement from Bulgarian and Romanian workers. If Germans had direct democracy, I doubt they would of let go of their beloved Deutsche Mark. The fact its system of government, rooted in popular sovereignty, allowed it to avoid joining the EU speaks volumes in my book…

      So the claim having “many languages is a nonsensical concept” is a curious concept.

      So the most stable, prosperous system of government that has ever existed (Switzerland) is a “nonsensical concept”? I thought Belgium would taken that prize. What unites the Swiss is its diversity: federalism, direct democracy and Alphine symbolism, which is a wonderfully unifying force of the nation, rather than some career politican or the Crown (cf. Belgium on the verge of dissolution; Spain with its 45% youth unemployment). Furthermore, it is thanks to these three languages that Swiss scientists were able to read the latest scientific literature, absorb it, and go on to make outstanding scientific discoveries by having the latest information at their paws from France, Germany and Italy. Indeed, the greatest scientists of the 19th/20th century (Albert Einstein who studied, lived and produced his best work in Zurich, Marie-Louise von Franz, Emil Theodor Kocher, Vladimir Prelog, Heinrich Rohrer, Richard Ernst, Edmond Fischer, Rolf Zinkernagel, Kurt Wüthrich etc) were Swiss citizens/residents, while some of the greatest discoveries (LSD, Velcro, scanning tunelling microscope, motors for out of space) were made in Switzerland. All this adds to a sense of being a “nation”. Singapore also has four official languages, and is just as innovative (well, actually, the Swiss also have four official languages: you forgot to mention Romansh). The problem with the EU, of course, is that it has no unifying narrative to tell: federalism, direct democracy and European environment and heritage are so sorely lacking.

    19. How can mainstream economists imagine they can manage a modern economy properly when they can’t even get the monetary story right from the 16th-17th centuries?
      please explaain what it is right first

      I looked at the link,there is nothing there

    20. Dear Stephan and Spadj

      I know very well that there is a highly successful trinational country called Switzerland. I admire the Swiss very much. I’m only saying that there is no Swiss nation, no more than there is Belgium nation. Of course, there can be Swiss patriotism. It is best to distinguish patriotism and nationalism. There can be Belgian patriotism, but only Flemish and Walloon nationalism. Patriotism is attachment to a country and loyalty to its institutions, while nationalim is loyalty to a nation. Patriotism is territorial and nationalism is tribal. In nation-states, there is no conflict between patriotism and nationalism, but in binational and multinational states there is. For instance, the Hungarians in Slovakia are territorially Slovak but tribally Hungarian. Their Slovak patriotism and their Hungarian nationalism can be at odds. It can be painful situation.

      Let’s do a little thought experiment. A child from Zürich (German-speaking) enters a room. In the room there are children from Genève (French-speaking), children from Ticino (the Italian-speaking part of Switzerland) and children from Germany. Which group of children would the Swiss child from Zürich join? Obviously the German children. Yet, the German children are foreigners while the children from Genève and Ticino are his compatriots. Citizens of the same country are compatriots but do not necessarily belong to the same nation.

      I once took a bus tour through Europe. The bus driver was Flemish, and there was also a Walloon passenger on board. The Flemish driver spent a lot of time talking to me but never to his Walloon compatriot. Why? I’m Dutch-Canadian and speak Dutch fluently. Having a common language is much more important than having common citizenship.

      Here is a little Flemish poem:

      Er is een Belgische koning.
      Er is ook veel Belgische vertoning.
      Er is een Belgische vlag en een Belgisch lied.
      Maar Belgen, nee, die zijn er niet.

      There is a Belgian king.
      There is also a lot of Belgian ceremony.
      There is a Belgian flag and a Belgian anthem.
      But Belgians, no, they don’t exist.

      Whoever the author of that poem was, he knew the difference between a state and a nation.

      Dear Stone.
      I totally agree with you that separating people when they are geographically commingled is nearly impossible. It could only be done through ethnic cleansing. What is desirable in principle is not always possible in practice. Sometimes people are condemned to live together in the same political space.

      Very well, this is getting a bit off-topic. After all, this a blog about economics. Cheers. James

    21. James Schipper, remember in Europe the two recent examples where sectarian conflict has lead to widespread murder have involved people who share the same language. Serb and Croat are the same language but written in Cyrillic or Roman script. Northern Ireland has two sides far more similar to each other than say Texans and NewYorkers. Sectarian hatred can build up from an almost inperceptible cultural division if we let it.
      I still think whether or not to choose a common goverment should be the political decision and then the common currency should fit in with where a common government has been choosen. The tradgedy with the Euro is that elites who want to impose a common government are trying to do it by the backdoor. They offer a common currency first so that a common government is required in order for the common currency to work.

      Spadj, you list the Swiss conections of the great and the good. The “nation” that seems to me has made the most disproportionate contribution to science are the Jews. What proportion of science Nobel prizes have gone to Jews? It must be getting on for 50%. My point is that people need to live with the people they live amongst in respect and peace.

    22. “In Northern Ireland people who speak the same language and live 100m apart can’t bear to share the same government”

      And going from the sublime to the ridiculous because I was born, in the words of Elisabeth I ” cloven and not crested”, my kids have an Irish passport and my brother’s have an Irish and UK passport.

    23. Dear Stone

      Once again you are making a valid point. A common language is a necessary but not a sufficient condition for nationhood, the former Yugoslavia and the UK being two clear examples. Ultimately, the divisions in the UK and Yugoslavia are mainly historical. People in Northern Ireland hate each other and some Scots want to separate from England because of history. Croats and Serbs are also separated by history more than by anything else. It isn’t really about religion because neither in Yugoslavia nor the UK, including Ulster, are people very religious

      I think that such a backward-looking attitude is profoundly irrational, but it is unfortunately very common. Peter hates or distrusts Paul because of what happened between their grandparents. People in Northern Ireland seem to know about 17th century battles as if they happened yesterday.

      The relations between blacks and whites in the US are also poisoned by the past. Blacks haven’t forgotten about slavery and segregation yet, and that colors their attitude toward whites.

      I also agree with your point that a common currncy should follow a solid political union and not be a (bad) instrument for the promotion of political union. There is a circularity here. A common currency is extoled as a means to further political integration, and now political integration is advocated to protect the common currency. We need a monetary union in order to have a political union, and we need a political union in order to maintain monetary union. Great!

      Even many countries aren’t optimal currency areas. Canada, for instance, isn’t. When oil prices are high, the Canadian dollar tends to rise, but only Alberta has a lot of oil. Most other parts of Canada suffer from higher oil prices, and a higher dollar hinders their exports. It would be different if natural resources were a federal responsibility, but in Canada natural resources are the property of the provinces.

      Regards. James

    24. James Schipper “It would be different if natural resources were a federal responsibility, but in Canada natural resources are the property of the provinces”.

      I suppose local goverment (below the level of the curency issuing level) is best resticted to deciding how to spend grants doled out from a central government pool of all national revenue. The problems crop up when revenue is not pooled and local government can determine how much to spend rather than just what to spend it on.

    25. James Schipper: “Patriotism is territorial and nationalism is tribal.”

      The word nation is one that lacks a clear meaning. I would say that, at systemic level, nationalism is not tribal, but rather genetic or better genomic. The word “nation” comes from the Latin “natio”, birth. My working hypothesis is that nations are quasi-closed domains of human reproduction. This means that for a member of a nation the probability of both parents being members of the same nation is high but not 1.
      Given what is known about genetics, the consequence of quasi-closed reproduction is that nations are genetically different or, better, differentiated. Having quasi-closed domains of reproduction is most vital for a species because it creates genomic diversity. Therefore:
      – It enhances resilience against threats;
      – It fuels evolution through miscige-nation.

      It is hard to believe that genomic differentiation does not manifest itself – in a statistical sense – on culture, psyche and collective attitudes. The touting about “hard-working” and “prudent” countries versus the “lazy” and “profligate” ones in EZ may simply express that the former are genetically well equipped to deal at the societal level with neo-liberal policies and the single currency and the latter are not.

    26. PG “I would say that, at systemic level, nationalism is not tribal, but rather genetic or better genomic.”

      Your description of a “nation” actually fits with what I understood “tribe” to mean. I personally don’t think it matters much whether peoples differences have a genetic basis or not. Its interesting -but an answer either way wouldn’t help deal with the situation. What matters is that we all have to best accomodate the differences of the people we live amongst irrespective of what has led to those differences.

    27. @paul Really? The link works ok for me. Essentially it’s an article describing research that shows that American gold and silver were not responsible for the inflation experienced in Spain and other parts of Europe from the early 1600’s to the middle 1700’s. It established this by confirming that American gold and silver was not present in the currencies used in Europe during that period using mass spectrometry, and that it took another 50 years for American gold and silver to show up in European currency.

    28. James,

      Being part of a mixed race/language/religion marriage and having lived many years in Singapore. Which operates as a 3 language/race multi religion society with English as a umbrella language. I feel you are treading on dangerous thin ice. Skin colour, language and culture are small differences when we look at the huge similarities between humans. We all desire to eat, make love and prosper far above all cosmetic differences. I urge you to resist the temptation to pigeon hole us into neat tidy super sets. Those of us that don’t fit one or other of your designations might get discarded as an inconvenience. IMO it is only a small step from your mindset to ethnic cleansing. Since the Singaporean post WW2 race riots, it’s a fear which is rarely spoken, but still lurks in the deep recesses of many Singaporean minds. I’m sure there are hundreds of similar examples all over the world. Tolerance and maturity is at a premium.

    29. Spadj “some of the greatest discoveries (LSD, Velcro, scanning tunelling microscope, motors for out of space) were made in Switzerland”

      -I hope you are fooling around saying LSD is some acheivement???? I’m sure the Swiss pharma industry has come up with plenty of compounds that actually cure people who are ill. Isn’t LSD just a poison and poisons are all too easy to come up with??

    30. Dear Andrew
      You are in fact agreeing with me by pointing out that the situation in Singapore is latently explosive. This would not be occurring if everybody in Singapore were, for instance, Chinese. However, every country inherits a situation from the past and it has to make the best of it. Singapore is mixed, not because people love diversity so much but because different peope came together or were brought together for economic reasons. When there is diversity and separation is impossible, tolerance and moderation are imperative, or else blood will flow. However, let’s not turn a necessity into a virtue. Better than a diverse country with tolerance is a homogeneous country where little tolerance is necessary. Tolerance is to diversity what warm clothes are to cold weather. In a homogeneous country, tolerance becomes as unimportant as winter clothing in a tropical country.

      Differences in skin color may indeed be trivial, but language and cultural differences are NOT trivial. If you don’t believe me, go live among the Japanese or Taliban. If you live among people whose language you don’t speak, you may as well be deaf-mute. If you live among people whose culture is radically different from your own, you will feel very alienated.

      Whenever a secular political correctie self-righteously tells me that diversity is just wonderful, I urge him to invite Neonazis, religious fundamentalists, fervent creationists and diehard conservatives to his next birthday party so that he can enjoy some diversity. They never follow my advice.

      Cheers. James

    31. Yes, Stone I was joking (especially when people accuse Bill of nonsense) and James, I’m not too sure the German child would stick with Germans. Actually, most of my Swiss Germans, which of course IS a different accent when speaking German, dislike Germans. Furthermore, the key point I was making was one of INSTITUTIONS – Swiss institutions promote diversity – so German, French, Italian, and English are often taught in schools, making most children multi-lingual, and thus able to inter-relate with other languages (cf. Belgium where its more polarised and there is no willingness or effort to share common institutions and cf. further with the EU that tries to force cultures together without free will). The Swiss people came together through their own free will to share common values and institutions. Also, it depends how hot the French ladies are.

    32. James Schipper, the curious thing is that we can conjure up diversity out of nothing so as to constantly create tribal divisions. People in England were probably at least as tribally divided 50 years ago as they are now. The only difference is that then the tribal division was along “class” lines rather than ethnic lines. In India they had/have? a caste system. I’m not saying such things are not stupid, I’m just saying that even if somehow a country was made culturally homogenous, it would not be long before divisions arose. I got the impression that in Singapore the main internal cultural shock is between new arrivals and the “Singaporeans” irrespective of whether the “Singaporeans” have Chinese, Tamil, Malay or whatever as a mother tongue and irrespective of the ethnicity/language of the new arrivals. I think it is very beneficial to have plenty of different countries in the world so each can learn from the others but I think it is a red herring to try and aspire too hard for cultural homogenity within each country.

    33. «He fails to mention that the earliest breaches of the SGP were Germany and France. He also fails to mention that Spain and Ireland can hardly be said to be fiscal profligates (defined within the harsh SGP rules).»

      Perhaps even more so Portugal.

      – Trichet was the first to be bend the rules, in a forced deal imposed by the french at inception of the ECB, that allowed him a few years later to take office before his predecessor could finish his mandate.

      – Trichet turned a deaf ear, just as Greenspan, to BIS chief economist William White’s warnings about a housing bubble, as early as 2003, during a now famed Bankers Annual Convention in Yellowstone.

      – Careful reading of the ECB’s Financial Instability reports, as late as December 2006, betray the same sort of dogmatic blindness as that imputed to the Fed. There’s plenty of delectable quotes in that report, in praise, for example, of the risk diversification benefits of expanding derivative markets. Here’s one that sums it up:

      «With the euro area financial system in a generally healthy condition and the economic outlook remaining relatively favourable, the most likely prospect is that financial system stability will be maintained in the period ahead.»

      – Trichet recently dismissed a lawsuit (By Bloomberg) seeking the disclosure of documents showing how Greece used derivatives to hide loans and triggered the region’s sovereign debt crisis. This snub at transparency is perhaps aimed at protecting the reputation of his successor Mario Draghi, who at the time “helped the firm develop and execute business with major European corporations and with governments and government agencies worldwide.” as Vice Chairman of GS. His tenured spanned Jan 2002 to the very end of 2006, during which the deal was renegociated (2004) so as the extend even further the postponement of Greek’s debt. Sale of the counter-party exposure to NBG, begs further scrutiny (would, in a legally constituted state).


    34. It’s nice that alternative policies as those of Paul De Grauwe are given some consideration.

      “2. Joint issue of Eurobonds – […]

      My problem is two-fold. First, a sovereign nation should be moving forward by eliminating sovereign debt issuance given that a sovereign government is never revenue constrained as the monopoly issuer of the currency. So entrenching a more complicated system of bond market welfare seems to be a regressive step – a sort of “soft” neo-liberalism.”

      I fail to see the complication. Besides you can’t praise the US for having a given system but saying it’s bad for EMU (I’m assuming a federal government would emerge, not just that the liability side would be consolidated).

      “Second, it accepts the SGP public debt limit as being meaningful and optimal. Debt ratios have gone above this limit exactly because the demand collapse has been so profound in some nations.”

      Federal government transfers would reduce the need for greater national debt. People would support Euro-bonds also have proposed a 60% Debt/Gdp *or* 3% deficit.

      “These are the very nations that are likely then to be penalised by bond markets who will shun the “red bonds”.”

      The beauty of it is that, shunning red bonds means buying buy blue bonds, which benefits the same nations. In fact, there is a recent article by Longstaff saying that a large bond market, such as that of the US, by providing participants with a (relatively) safe haven, tempers financial instability.

    35. James,

      So basically you are saying it is better that people conform to a desired “national” norm than accept our differences. Be we Thin, fat, introvert, extrovert, redhead, brunette, bald, short, tall, manic, depressed, cheerful, ironic, funny, boring, blue eyed, boss eyed, ugly, beautiful, Zoroastrian, Catholic, aggressive, passive etc. I don’t buy that idea. If we are in Germany we have to lose our sense of humor? (joke!)

      I would be surprised if you think all Taliban are completely different to all Westerners. The hatred and violence is contrived for the purposes of vested interests and only partly the result of mis-communication. Which btw is derived from our relative isolation and lifestyle differences. In reality there are few intrinsic differences between Taliban and Westerners.

      I presume you think it is acceptable to exert some pressure to conform to the national norm. What are you proposing for those who can’t or won’t adapt to your ideal of a homogenous society? I dare not suggest anything. You are eloquent and plausible and all the more dangerous for it. I really have to call you out on this.

    36. Can I come to the rescue of Jean Claude Trichet here?

      The simplistic (and in my view wrong) consensus, also held by the ECB, is that the “markets” are punishing Greece and Ireland and Portugal because they were spend-thrift and overly indulgent. Therefore fiscal discipline, and a new European finance ministry would solve the problem.

      It is also true that the ECB has provided overwhelming support to Greece, both in direct aid, by buying up 50 bn Euro of Government Debt in the secondary market, to keep interest rates down. (In fact they control interest rates if they wanted to in the illiquid market for Greek debt) And the ECB also helped by providing liquidity to Greek banks, about 150 bn Euro secured by Greek bonds. So that is support which is almost as big as Greek’s GDP!

      As a central banker, he has probably done more to help Greece, then anyone else in Europe. So the Karlspreis is deserved.

      But what next?

      Why does the ECB not help Greece all the way and take it “off the market” for bonds. It could easily lend all the state debt to Greece, all 350 bn Euro of it, on a long term amortizing loan. Perhaps 30 years at 3%. There is no reason why it could not do so, financed by printing money. That would in fact end the Greek Eurocrisis.

      The Loan could be repaid, if Greece started taxing its wealthy citizens. Around 280 bn Euro is in Swiss bank accounts. Held partly by Greek tax dodgers. Tax that, and repay the EU loan. No Greek austerity needed. The money is in Switzerland.

      Here the EU works to the advantage of Greece. Even though it has foreign creditors, it has also a “foreign” European central bank, which can help it out of its predicament. Virtually all its debt is denominated in Euro. Its own currency. It is a question of political will. Like any other soverign country it cannot go bust. The Greeks have to start taxing the wealthy Greeks, and the Europeans provide a cheap loan. Such arrangements can only work in Europe!

      Should somebody pay for this? Of course, the Credit Default Swap speculators who have helped with the panic they created in the press and likely bond manipulations to drive Greece into that state. Billions are bet, all wanting Greece to default. So markets and public opinion get manipulated. So tax CDS holders and CDS sellers each 20% of the nominal value of the CDS. That tax would amount to 30 bn USD! They are the greedy speculators and hedgefunds having driven Europe into that state. And then abolish CDS.

      And then tax the imprudent banks who lend money to Greece, when it was clear that they could not repay.

      All that would be a more political acceptable solution than transfers between European states (which no European wants) or red/blue bonds which would make it even easier for speculators to attack countries. European economists on the whole argue for solutions which would help the financial industry. None of them argue against CDS. Paul Grauwe is no exception. Bill Mitchell’s exposure of him as a neo-liberal is correct.

    37. Andrew “In reality there are few intrinsic differences between Taliban and Westerners.”

      -I’m really with you on this. Years ago, before the whole Taliban thing took off, I spent a holiday in North West Pakistan. The people there were incredibly friendly and welcoming to us. Lots of people from there do actually also live in this part of England too.
      In terms of tribalism taking route or not irrespective of whether it has the obvious props such as ethnicity or cultural difference- just look at the “Crips and the Bloods” in LA. That is tribalism to the point of murder between people with identical ancestry. The prediliction towards tribalism can also be seen in football supporters and ironically it is derby matches such as between Manchester United and Manchester City or between Tottenam and Arsenal etc etc that excite the most passion (and sometimes fights).

    38. Dear Andrew

      In my view, an ideal country is a country like Sweden in 1970, a country with essentially one race, one language and one religion, also a country with modest educational and economic inequalities and with a broad ideological consensus based on social and liberal democracy. If all countries in the world were like that, the Earth would be a much more peaceful and orderly place.

      Let’s look at 4 countries in which in the recent past there have been serious armed conflicts: Turkey, Cyprus, Lebanon and Sri Lnaka. In all of them, diversity was the ultimate cause of the conflict. If everybody in Turkey were Turkish, everybody in Cyprus were Greek, everybody in Lebanon were a Maronite Cristian, and everybody in Sri Lanka were Singalese, none of these conflicts would have taken place. Examples like these can be multiplied easily.

      Let’s do another little thought experiment. In Ruritania everyone is white, Catholic and speaks Ruritanian. Now I wave a magic wand, and as a result half of the population of Ruritania becomes brown, Muslim and Slobodian-speaking. Is the country now better-off than before? I would say no, but a diversitist would have to answer the question in the affirmative.

      I’m not only an anti-diversitist but also an egalitarian. I rather have a country in which everybody has at least basic numeracy and literacy than one in which many people are completely illiterate and innumerate. I also prefer a country in which the average income of the top decile is only 5 times higher than the average income of the bottom decile to a country in which it is 50 times higher. I have little sympathy for conservatives who oppose diversity but who are willing to tolerate extreme inequality.

      I’m quite willing to believe that there are commonalities between the Taliban and us. After all, the Taliban are also members of the human species. However, the fact remains that the Taliban are extremely sexist. They want their women to go out in burkas and keep all females away from any school, and they think that wives should be submissive to their husbands and that women who have premarital sex are sluts who deserve honor killing. It is quite possible that the Taliban make great hosts, but would you want your daughter, sister, niece to grow up in a Taliban-dominated society?

      We are all individuals with our own preferences. I don’t think that people have a duty to conform as long as they remain within the law. Vegetarians shouldn’t feel compelled to eat meat because meat-eaters are the majority. Most Canadian men are interested in hockey. I’m not, and I have no intention of forcing myself to like hockey only to conform to the majority. However, superficial differences are one thing, diversity in more important variables is quite another. Pluralism within a racially, religiously and linguistically homogeneous country is quite compatible with cohesion as long as there are no extreme economic and educational inequalities and considerable ideological consensus.

      As a man of the left, I’m all in favor of solidarity between compatriots. However, it is a simple fact of life that solidarity and affinity go together. We tend to be kind to those of our own kind and like people who are like us. None other than Paul Krugman stated that one reason why so many white Americans are hostile to the welfare state is that blacks benefit disproportionately from it. Many Flemish people deeply resent that the Walloons benefit more from the Belgian welfare state than they do.

      You have to agree with me that basic homogeneity of manners will make social intercourse smoother and will avoid frictions.

      Homogeneity in family values is also very important. Imagine a country in which group A believes that marriages should be love matches, that dowries are a bad idea, that spouses should be equal, that child-rearing should be relatively permissive and that pre-marital sex is not necessarily sinful, while group B believes that marriages should be arranged, that dowries should be paid, that the wife owes total obedience to her husband, that children should be totally obedient to their father and that pre-marital sex is a stain on the family honor. A moment of reflection will reveal that marriges between group A and group B are both improbable and likely to end in failure. The 2 groups will therefore remain endogamous. How’s that for cohesion?

      Unity within diversity is improbable. There can be peace within diversity, but peace is something negative, simply the absence of conflict. People are united by what they have in common, not by their tolerated differences. If 2 neighbors have very little in common, they can have peaceful relations, but it is unlikely that they’ll become good friends. Have you ever heard anyone say, “My husband (wife) and I have nothing in common, but we are very happily married”? Such a statement would be met with incredulity.

      Regards. James

    39. @ matt_us

      You’ve just offered neo-liberals major credibility by stating:

      “None of them argue against CDS. Paul Grauwe is no exception. Bill Mitchell’s exposure of him as a neo-liberal is correct.”

      PDG wrote in 1998:

      “Suppose a country, which we arbitrarily call Spain, experiences a boom which is stronger than in the rest of the euro-area. As a result of the boom, output and prices grow faster in Spain than in the other euro-countries. This also leads to a real estate boom and a general asset inflation in Spain. Since the ECB looks at euro-wide data, it cannot do anything to restrain the booming conditions in Spain. In fact the existence of a monetary union is likely to intensify the asset inflation in Spain. Unhindered by exchange risk vast amounts of capital are attracted from the rest of the euro-area. Spanish banks that still dominate the Spanish markets, are pulled into the game and increase their lending. They are driven by the high rates of return produced by ever increasing Spanish asset prices, and by the fact that in a monetary union, they can borrow funds at the same interest rate as banks in Germany, France etc. After the boom comes the bust. Asset prices collapse, creating a crisis in the Spanish banking system.”

      I challenge you to provide me with an as ancient and prescient prediction from MMT research. Go ahead. I’ll remind you, in time.

      As for Trichet:

      First, you have nothing to say about the criticism I laid forth, so I take it your wholeheartedly endorse it.

      Second, all your praise seems to coalesce around the fact that he was generous in buying Greek bonds. He waited to have his back to the wall to do this, letting what might have been a manageable problem deteriorate to the point of insolubility, barring a default or exit from euro. He dismissed contradictory advice such as that above, focusing, instead, on keeping inflation low as the number one priority.

      It is his obstinate character and arrogance that have made his tenure a total failure (and counting).

    40. “None of them argue against CDS. Paul Grauwe is no exception”

      None of them, who? That is sheer propaganda. You’re not even up to date on Euro legislation which is, as we speak, enacting it.

      Who sends you matt_us?!

    41. matt_us wrote

      “As a central banker, [Trichet] has probably done more to help Greece, then anyone else in Europe. So the Karlspreis is deserved.”

      He has helped (the ECB has helped) only to the extent that an immediate default by Greece (followed by others) was averted. The ECB and central banks in general act in their interest and the interests of the private banks. Nothing wrong with that, I say as a capitalist, but right now, the interests of those banks are set squarely against the welfare of the people of piigs countries.

      Greece was assisted and will continue to be assisted as long as the haircut can be postponed, masqueraded and perfumed and then exhibited in a distorting mirror. German, French and other banks hold a lot of Greek bonds. The ECB could not but “help”, though the help is a bridge-to-nowwhere loan.

      Tricheurs, tous.

    42. @Vassilis Serafimakis
      “Tricheurs, tous”

      That is exactly what the Germans say about the Greeks: απάτη, όλοι. Which of course is nonsense, however you look at it.

      But that really does not help us. I would like to see an Greek view on what should be done with the 280 bn Euro which is held, partly by Greek tax-evaders in Switzerland?

      Why do the Greeks not want to tax the rich and wealthy? I suspect the majority of Greeks do, but the rich and wealthy who make the laws, do not. Is that right?

      And a 350 bn Euro amortising loan at 3% (annual payment 20 bn) is not a road to nowehre loan. It is insignificantly greater what Greece pays already to finance its government debt.

    43. @Anonymous
      “None of them, who? That is sheer propaganda. You’re not even up to date on Euro legislation which is, as we speak, enacting it. ”

      As far as I can see, the EU parliamentarians are suspected of being bribed by hedge funds to alter legislation which would forbid holding naked Credit Default Insurance. (I can show you an article in the Austian paper Der Standard saying exacly that) Instead of saying that naked CDS have to be banned immediately, they allow them. The legislative process in Germany and Europe is in the hands of the financial lobbyfirms and financial laywers who make laws which help hedgefunds, of course.

      As a reminder, naked CDS are bets on the default of countries. You do not have to hold a bond. Banning naked CDS means that you would have to buy a bond. The quickest way to ruin most CDS holders would be to enact European legislation, saying that you would have to hold a bond by, say 1st July, otherwise your CDS will become worthless. That would increase the demand for bonds on Greece, leading to an increase in prices. A lowering of yields. That means an end of the Eurocrisis. Clearly, CDS holders would not have the cash to buy these bonds, as they would typically cost at least 10 times the cost of the CDS bet.

      So why does the EU parliament not enact that legislation straight away? Why do the EU ministers not do that straight away, they discussed it in the middle of May, but dismissed the banning of naked CDS. Why – possibly because they hold CDS themselves – or because they believe the nonsense pumped out by the hedgefund and speculator lobby? No idea – but Europe is doing absolutely nothing to get rid of the speculator scum which drives European countries into ruin.

      As far as Trichet is concerned – I stick to my views. It is ridiculous to suggest that Draghi was part of a Goldman Sachs scheme, trying to fool the EU when that was after his tenure that something like that was enacted by Goldman Sachs. (Whether it is a good idea to let him become ECB chairman – no I do not think so, I think anybosdy who acted for Goldman Sachs should be disqualified form beoming ECB chairman, automatically. And of ocurse, central Banks papers have to be kept confidential. Secrecy and letting markets guess what comes next is of course the mainstay of Central Banking.

      I trust you ar efor high tax on CDS and subsequent abolition – as you have not commented on that.

    44. @anonymous
      “PDG wrote in 1998:”

      What Paul de Grauw wrote in 1998 is a bit simplistic – don’t you think. He describes an asset bubble. Which can happen anywhere, and frequently does. Japan, USA, GB, China,and alos Spain and Ireland. And will do until Central bankers take Asset prices into consideration.

      Now, where is Grauwe’s demand for an inflation rate which is the same across all European countries. So Greece could not have price inflation which is 50% higher than Germany, for example. Which econoic tool does he suggest would avoid this?

      That is what I mean. Where is call to ban CDS? Where is his suggestion to help with a long term amortizing loan at extremely low interest rates? Where is call to tax the rich and wealthy. where is call to tax the money in Switzerland held by tax-evading Greeks to pay off 80% of Greek government debt?

      That is what I mean. Neo-liberal nonsense of blue and red bonds. Which would make it even easier to manipulate a county’s bonds. He is completely unaware that this crisis has been manipulated by the big bond market investors such as PIMCO/Allianz/Deutsche Bank and hedgefunds, who have enough market power to drive half of the European countries into default, thanks to CDS.

      If you find anything which debunks my theory, I will of course change my mind. Until that time I stick with my story. Grauwe and 95% of economists in Europe are “inside Job” economists spouting out neo-liberal nonsense! And nobody asks for a ban of CDS – have not found one yet!

    45. matt us “Should somebody pay for this? Of course, the Credit Default Swap speculators who have helped with the panic they created in the press and likely bond manipulations to drive Greece into that state. Billions are bet, all wanting Greece to default. So markets and public opinion get manipulated. So tax CDS holders and CDS sellers each 20% of the nominal value of the CDS. That tax would amount to 30 bn USD! They are the greedy speculators and hedgefunds having driven Europe into that state. And then abolish CDS.”

      To my mind this whole situation is symptomatic of the dangers of not adequately taxing. It demonstrates how accomodating “net saving desires” creates a destructive glut of un-needed and unproductive financial assets.

    46. @ matt_us

      “What Paul de Grauw wrote in 1998 is a bit simplistic – don’t you think.”

      You have not taken up the challenge and just made a fool of yourself for dismissing this detailed & accurate prophecy as simplistic. You are not worthy of my spending the time to debunk your errors of judgment.

      “That is what I mean. Where is call to ban CDS?”

      And here you show that you failed to read my previous message properly : CDS ban is being enacted by the European parliament. Calling for a ban right is attacking a straw man.

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