The TPI is another step forward towards the ECB getting real FED-like powers and centralizing debt. We live in historic times.
Of course they have to, otherwise Italy is bankrupt.
But I don’t see the euro lasting another 10-15 years.
Germany needs the EU more than Italy, in many ways. Particularly with herr Putin knocking at the door. They'll come around.
The question is whether a more federal eu is possible, and if northern states are willing to pay for the south.
Now, with the current economic situation in Germany, and the gas issue hanging over their heads, I think this is quite different to the 2008 crisis. Germany might be less and less willing to pay for everything
Essentially, weapons manufacturers aren’t able to do business with Germany because Germany isn’t able to fund projects that take more than one year to deliver. That leads to horrific procurement problems like showing up to NATO exercises without enough tents, or spending 10 years evaluating a helmet for German heads that the US already uses.
Without overhauling their government, he concludes that the best Germany can do to help NATO is to give funds to other countries that have more capable procurement processes.
Would the government do that? Probably not, they might buy some tanks and spent the money for other things, so a different part of the economy is benefited. But when looking at the overall economy / gross product, it doesn't really matter.
That is only one of many, many German industries that would suffer from the demise of the Eurozone. The benefits of the common currency sustaining demand across the continent waaaaay outstrip any perceived "loss of control" for the German economy.
Okay, if the government actually cannot spent the money (even partially) at all, then yeah, the original claim would be true. I don't think this would be the case though.
The German people are better off subsidizing other Europeans to buy their cars, like Ford did with their workers.
To me this sounds a bit like the broken window fallacy [0]. That it’s good if sometimes a window gets broken, because it generates economic activity. But this ignores the fact that economic value was destroyed in the process.
Those subsidies could be used in other ways as well, perhaps by helping startups grow.
——
[0]: https://en.m.wikipedia.org/wiki/Parable_of_the_broken_window
Value gets destroyed in the process of using anything, so much that we have a special word for it: depreciation.
Cars and other machines will wear out after enough use. Even more static goods like windows (usually the seals) fail with time and need to be replaced.
Yeah, but the imports then also become massively cheaper, so it might even out: Germany will just start importing more stuff e.g. from Poland instead of producing it locally.
And this way, they lose their main advantage: a strong economy that focuses on export. They can't have their cake and eat it too. Especially when their auto industry is set to lose greatly with the EV transition (which they still try to slow down).
This take is utterly naive. What you "get in return" from being a massive exporter is not all quantifiable. It's soft power, influence, prestige. When everyone uses your machinery, you control the standards and their evolution, you control the market.
Plus, even going back to purely economic terms, you can absolutely export and then keep the accumulated money sitting in coffers, financializing the gains (lower borrowing costs etc etc), or invest in local research to extend your advantage, and so on and so forth. None of these options require importing anything.
*Still a strong economy in the grand scheme of things, but during period of contraction unable to support short-term generalized expansion of foreign labor. I do think they are in a position to expand foreign labor again in the long term (although it may require finding a way to refactor their energy policies).
This seems to be exactly that.
The trick here is that it's not 'sovereign debt' as being held by one country , but rather it's a 'package of debt' with a normalize rate and more guarantee...
It's what Pro-EU have been advocating for decades , to avoid 'spread' within eu-zone...
For simplification let's say they spend 10% of their anual budget servicing debt at an average of 5% interest rate
If the base interest rate rises by 50 bps, you could argue the average debt held by PIGS would eventually rise by the same amount, _at least_!
So now you have 5.5% interest rates, which is a 10% increase
So the anual budget used to service the debt would also increase by 10%, from 10% to 11%
By buying bonds from these countries you pressure the yields down
At least in Spain, the government chooses helicoptering money over investment every single time. Or prestige projects (High Speed Rail) over practical ones (freight corridors with no so fast trains for people?), higher salaries for public employees (already high compared to private economy), public pensions, etc.
The only demands seems to be higher taxes every year for everyone else. No optimization, just raising and raising taxes every time.
This is not sustainable. Savings and income are taking a nosedive for everyone who's not sucking into the public budget.
This situation is going to explode, and it's going to be ugly, not only for us.
I'm pretty worried about it, honestly. Meanwhile half the country is cheering because the government is very good at selling their narratives and cooking the stats. The reality is we're getting poorer pretty fast.
Maybe germans have some fucking great plan because in 10 years they won't sell many cars here.
-All countries can't be net exporters at the same time. If Germany want to be a net exporter, somebody have to be a net importer.
-High public debt in your own currency supported by your central bank it's not problematic. High private debt is very problematic.
-For the same import/export ratio, if you reduce public expenditure, or the GDP will fall, or the private debt will grow. That's mathematics.
-The current agreements of the Euro-Area forbid investment in industrial policies. If Spain wanted to spend money in creating some kind of industry that compete with Germany and protect it until is competitive, it would not be allow to do that.
-Government spending in Spain could be better (if it was allowed, that it's not), but it's better than nothing, at least that you want the economy to collapse after a high grow of private debt.
-The program of support of the PIGS(1) public debt of the ECB is not to help the PIGS, is for protecting the Euro. The moment they stop doing it, the Euro is done. That's how well this currency union was designed, that if follows its rules it disintegrate.
(1) -By the way, it seems that we can call 120 million person PIGS and nobody think is a bad thing.
The Eurozone is like Asimov's Foundation, periodically going through predictable crisis to modify its equilibriums while going from strength to strength.
Yes but the Euro is not an own currency of any single country which is why a country in Eurozone can potentially go bancrupt. this led to players betting against Italy in the last Euro crisis until the „whatever it takes“ bailout guarantee. Challenge is there now is unbounded spending across Euro countries with no end in sight. It all just feels like a race of who can spend faster until the party is over.
That's simply not true. Just look to the data. If it was true, you would see grow in those countries. And also look to the difference in economic indicators between the countries that are in the € and those that are not. Being in the Euro is not so good deal like they try to sell us.
The "whatever it takes" didn't saved Italy or the PIGS, it saved the €. And it was a direct monetization of public debt that it's against the treaties (at least in spirit).
Think about it, in order to save the €, the ECB had to go against the treaties that define the Euro. If that don't tell you that the problem is the treaties and not in specific countries, nothing will do.
I've had this convo before on HN: under the guise of brevity, it's an example of literal casual racism. But folks here refuse to accept it, even when supported by the fact that all serious mainstream publications have forbidden its use in print.
I do think it's a bad thing because it needlessly creates a North/South divide. If these countries are in trouble, the whole Euroblock is in trouble.
-It's a common market, so not import taxes are allowed. That means that any new industry will have to compete with developed companies already established.
-Public companies are encourage to be privatized, so, you can't keep an industrial base that it's not, for now, competitive.
-The result is desindustrialization. Then those desindustrialized countries are accused of not being competitive.
-In some cases, at the European level they realize that they are losing the strategic edge to other blocks, and some kind of program at the federal level is created. Like the current thing with the chips. Of course this programs never will result of giving the edge to one of the PIGS.
In practice this is gamed in many ways, and there have been winners and losers.
In your opinion. Many economists don't agree, in fact I'd say most of them say it probably leads to inflation eventually (as we see now ahem...)
If after a pandemic, an energetic crisis, a global politic crisis and a war in Europe, the explanation for inflation is "public debt", maybe there is some bias there to be examined.
In practice, measuring literally all prices is very hard, so governments measure a small subset and then call a change in that basket "inflation". The baskets were perhaps once a reasonable proxy but now it leads to problems, because it causes people to lose sight of what inflation really is. Higher gas prices is not inflation, it's just higher gas prices. Higher everything prices is inflation, but unless the money supply increases it's impossible for all prices to rise. With a stable monetary base a price rise in some essentials will cause other products to lower prices to try and juice demand that's falling away, or they will disappear entirely as society gets poorer (i.e. price = infinity) but companies going bankrupt because they can no longer sell their products doesn't affect statistical measures of prices. So these are very imperfect proxies.
Suffice it to say that high public debt means economic activity is being distorted in favour of the state's priorities over those of the citizens. History provides many examples of where that leads when taken too far.
If public debt doesn't matter btw, why does private debt matter? Simply publicly print away all private debt and viola problem solved. In fact why can't we all be billionaires?
Public debt is a private asset.
They are trying to build cars there. Germany's trade surplus also leads to German companies investing more money abroad than at home.
Also, what is Germany supposed to do? What are they doing wrong? EZB is not controlled by Germany, Germany in fact always complained about the low interest rates.
But, instead of that, Germany preferred to enjoy access to a common market and devaluated Mark (that is basically what the Euro is) while pontificating from a high horse.
Instead of a functional monetary union we get this mess. And now we all have to be solidary with Germany energy problems. We will see.
Can you elaborate on that? What are the ideas that Germany opposed?
A lot of this reads like Germany is the boogie man and every other European country is their poor victim. That's a little bit to one-sided for me.
Very different countries can't be in a functional monetary and banking union without a common fiscal capacity. In terms of the USA it would be like there was a Fed without a treasure. Or another way to see it, it's like the countries in the Euro use a foreign currency that they don't control. If you are interested I recommend this prescient article by Wynne Godley (1).
So, if the design of the Euro is bad, why don't change it? Because for some countries is very advantageous. Germany being the best example, they are an export powerhouse that now have unrestricted access to the common market and, because is a common currency, it will no appreciate or devaluate following the commercial balance. Of course, this is sell like they don't want to finance the lazy pigs in the south.
(1) - https://www.lrb.co.uk/the-paper/v14/n19/wynne-godley/maastri...
If we do this fiscal union, are all countries willing to adopt German fiscal discipline? Are all countries ok with levelling out retirement age? Social benefits?
Also, why are you not mentioning that Germany already agreed to the EU taking on common debt during the corona crisis? That the new government is very much pro further integration?
I hear a lot about what Germany is doing wrong. What are the others doing wrong? Germany was desolat themselves after the reunification, they were called the sick man of Europe. They then did harsh and brutal labour market reforms, and a bunch of luck probably as well. Now they are an economic powerhouse. With 0 natural resources, they are all imported.
It's not the Germans fault that Italy has loads of debt. It's not the Germans fault that Spain built useless ghosttowns in the middle of nowhere. They can only export what others are willing to import. And they are not exactly exporting cheap cars at dumping prices, are they?
Sure, Germany is far from perfect and they do lots of things in their own self interest. But maybe the other countries can also try to do better? How long did the Italians keep Berlusconi in power? Draghi threw the towel today, again, because the parties in parliament are unwilling to cooperate to better Italy.
Maybe try to copy what Germany is doing well, instead of feeling like a victim of German evilness.
> are all countries willing to adopt German fiscal discipline?
Most of them have already, you just don't read about it. If anything, German authorities have been excellent at gaming the EU framework, siphoning state aids to this or that industry with all the possible loopholes they could find, while everyone else had to renounce (or even denounce) the practice.
> Are all countries ok with levelling out retirement age?
The pension age in Germany is 65 years ("and 10 months", in my best Lester Freamon accent). In profligate Italy? 67. So yeah, let's have that.
> Social benefits?
Honestly, you don't want to trade benefits with the army of temp workers that Italian "reforms" have generated. They get hardly any paid holiday or sickness, can be fired with no recourse year by year, and so on. German workers get trade union representation at board level, something that simply does not exist in Italy even in the most enlightened companies. They get loads of paid holidays and so on.
> Now they are an economic powerhouse. With 0 natural resources
Ah yes, the Ruhr never existed. From wikipedia: "The Ruhr was at the centre of the German economic miracle Wirtschaftswunder of the 1950s and 1960s, as very rapid economic growth (9% a year) created a heavy demand for coal and steel." All that coal must have been a dream.
Italy had an economic boom in the postwar age too. After all, they were fellow victims of Allied carpet-bombing of industrial infrastructure, and fellow enjoyers of the Marshall Plan. The main difference is that Italy made a few bad choices in the '80s (and possibly another one in the late '90s, when they accepted an Euro/Lira rate too low).
In any case, this attitude is not constructive. It's good that the German political classes, at least, have finally realized that the hipocrisy of privately benefiting from a sclerotic status quo while publicly denouncing it, could not go on forever. Let's build the United States of Europe, everyone doing their bit so we can fulfil the federal dream and be done with these petty rivalries from 200 years ago.
I had to look up what that means. I'm not German. Now what?
> So yeah, let's have that.
Yeah, let's. Italian pensions are about 90% of the former salary? Germany is 50%. Italians make higher payments tough as well. The difference is, Germany is doing that from a much lower debt ratio.
Temp workers are a thing in Germany as well, they get no inion representations. And again, the difference here: German economy is doing well.
Sure the Ruhr existed, have you been there lately? Crazy decline since the 70s. Wasn't a coincidence that the heaviest german metal bands come from there.
> The main difference is that Italy made a few bad choices in the '80s
Exactly. That's why they have this huge debt now, which results in the whole Eurozone shaking whenever interest rates go up. That's why we had low interest rates, which the Germans were very unhappy with. Draghi tried to work on that, but now he is out. Seems like a right to far right coalition might ein the election in the promise of flat tax and not raising retirement age. Will that be the Germans fault as well?
> Let's build the United States of Europe, everyone doing their bit so we can fulfil the federal dream and be done with these petty rivalries from 200 years ago.
Yes, please! But that only works if everyone is in and works on themselves. I don't thinkt the attitude of blaming everything on the Germans is very constructive either.
Well, then you've absorbed a biased outlook pushed mostly by the German press.
> Italian pensions are about 90% of the former salary?
Ahaha, they were, maybe, 30 years ago. This has long changed, but obviously these changes take generations to be reflected in stats - and we're obviously not going to kill existing pensioners.
> Sure the Ruhr existed, have you been there lately?
Does it matter? You said the German miracle was achieved with 0 natural resources, and I've just proven that statement to be utterly false - which should maybe prompt you to revise your positions.
The truth is that Germany powercharged its economy with coal; since then they've been good at maintaining that advantage, but it's undeniable that they had an advantage like few other European countries. Another advantage is a largely flat surface that makes it very easy to build transport infrastructure, something much more complex in mountainous areas like most of Italy, Spain, and Greece. In fact, it's half a miracle that Italy developed complex manufacturing districts in the Alpine valleys.
> Draghi tried to work on that
Pretty much every Italian PM since the 90s tried to work on that, with various degrees of success. As shown by the Twitter thread linked in another post, Italy actually shrunk their debt faster than any other country over the last 25 years, with wide-ranging cuts. But 80s stereotypes refuse to die even in the face of facts, generating self-fulfilling prophecies in the speculative markets. It's in everyone's interest, including northern countries', that these stereotypes be removed from the public debate. If this cannot be done, sharing debt is the only other option to stabilize a currency from which norther countries benefit disproportionately. And that's what the ECB is effectively doing, measure after measure. It should have been done 20 years ago, as many people asked; but apparently doing it the hard way was politically necessarily, so here we are.
https://www.oecd.org/italy/PAG2021-ITA.pdf
"Many options to retire below the statutory retirement age result in low average labour market exit ages, at 61.8 years on average against 63.1 years for the OECD average. Granting relatively high benefits to relatively young retirees contributes to the second highest public pension expenditure among OECD countries, at 15.4% of GDP in 2019."
After the reunification, Germany, as a country, is the poster child of economic success. The balance of trade of Germany, has been just ridiculous. Still, the conditions of the average German have not improve, if something, they are worst.
So, where are all that wealth going? I suppose if you ask the politicians they will tell you that to those lazy guys in the south. Well, that's not it. The Germans should take a good look at what's going on there.
Is that the model others should copy?
Also, you keep railing about "the lazy guys in the south". I'm sorry these stereotypes exist. I don't believe them.
Do you seriously believe the problems of the Spanish economy are all because of Germany? There is absolutely not even a single thing that Spain is doing wrong?
https://marketmonetarist.com/2015/07/14/the-euro-a-monetary-...
I this it's still better than Germany importing Russian gas. Their whole decarbonization strategy was based on Russian gas. This is how we ended up with gas labelled as "green".
If you don't like'em, don't buy German cars, buy Seat. Technically also a German car built in Spain. At least you keep the factory workers employed.
I think I will aim for a political solution if you don't mind. There are two possibilities, a functional monetary union and a really democratic union or every country goes its way. Both work for me.
I think this will happen in most places for many reasons - the enormous debt is not just a European problem it's also an American and Chinese problem. Also declining demography, ESG investing and scarce energy resources and bunch of other problems it's not looking great.
If we all just peacefully accept that standards of living have to go down for everyone (climate change is also a hint that we've pushed too far) maybe we can find some path forward.
Alternatively, we could all just agree that "standard of living" != "GDP". In the old days, measuring GDP was a lot easier than measuring the standard of living. They were highly correlated, so we used it as a proxy. But now, it's outdated, and it has been for 50+ years.
See eg https://archive.nytimes.com/krugman.blogs.nytimes.com/2012/0... for some history of how this wasn't really unexpected. Interestingly in that article higher inflation is seen as a potentially promising tool: "[T]he burden of adjustment might be substantially less if the overall Eurozone inflation rate were higher, so that Spain and other peripheral nations could restore competitiveness simply by lagging inflation in the core countries"
[1] The EU budget is tiny compared to national budgets (or eg federal budget in the US), < 3% of the EU GDP.
And that's almost completely a function of the rate of saving.
But, do compare https://marketmonetarist.com/2015/07/14/the-euro-a-monetary-...
[1] https://en.wikipedia.org/wiki/PIGS_(economics)
[2] https://tradingeconomics.com/ireland/government-debt-to-gdp
I could also refer to you as a complete idiot in this discussion but that would not be civil of me would it?
It's just blatant casual racism at this point.
Whether the ECB should buy PIIGs debt was a big issue during the Eurocrisis. Iirc, the ECB had to create additional mechanisms, some of those were challenged by courts in member nations, and authority ended up resting outside the ECB (which some nations didn't like because it is basically unaccountable). I believe this scheme, although it will almost certainly be challenged again, attempts to move authority for these decisions within the ECB.
Nothing has been fixed (because it can't be fixed with the EU as it is).
Of course that's actually a desirable feature of such institutions. Give them a mission, staff them with technocrats dedicated to the mission, defuse political interference and they'll deliver. The US Supreme Court decided you can't do that (well, in practice, that Democrats can't do that, it will be fine when Republicans do it) but outside the US this is an attractive idea.
However Politicians don't learn, they will always see political advantage from meddling with the independent entity, and then be astonished when such meddling backfires badly.
Take NICE in the UK. The purpose of NICE is to decide how to spend necessarily limited resources to deliver healthcare. How many profoundly deaf 5 year olds being able to hear is worth one grandparent who lives an extra twelve months? If this new drug is $180 to treat one patient while the generic we're using is $5, what sort of benefits does that new drug need to have to justify the price tag? These are the "death panels" Americans were told to be scared of years ago.
But politicians don't care about the general idea of NICE, they care specifically that photogenic Sarah, whose husband happens to work for a news publisher, is dying of a rare illness, and NICE says the $5M drug to cure Sarah's illness isn't "cost effective". Politicians want a photo of them hugging Sarah and promising she'll be OK. They definitely don't want to raise taxes to pay for the drug (higher taxes is unpopular) but they do want that photo (it'd look great on campaign adverts). And hey, the drug maker gives them $50k campaign donation, that's nice. Let's override NICE and divert $5M to get Sarah the drug. Oops, Sarah died anyway, oh well, news moves on.
Years ago the Tories introduced a "cancer fund" where for no discernible reason if you had specifically cancer, there was a separate pool of extra money so that they could be shown to be such compassionate people, who really want what's best for everybody. Well, not everybody of course, just people with cancer for some reason. Of course then photogenic people have something that's not cancer and you look really callous because you rejected them. Wow, it'd sure be easier on politicians if these funding decisions were made by some technocrats instead... oh right.
The reason why the Tories introduced the cancer fund was because NICE refused to pay for cancer drugs that worked. The reason why it is was only for cancer was because there were a large number of new drugs that were effective for cancer and NICE refused to sanction them. The only other group of drugs in a similar place was epilepsy, but the number of people who require this medication is significantly smaller (as in, there is one or two people in the UK who need a certain drug). Btw, the reason why NICE don't like spending money on drugs is because that is money that isn't going to staff wages (those unbiased technocrats again).
Btw, there is a govt full of technocrats...China. Everything there is run very efficiently: the corruption, the concentration camps, tracking of political dissidents...all very efficient.
If you think China's governments are full of technocrats, you just don't understand China at all.
Yes, china have technocratic boards (HST and SEZ are the most known projects lead by technocrats), but don't ever forget that China is run by its political power first, military second, its economic power third, and only then their technocrats. And those only have power in complex areas (i can develop if you want to know what I mean).
And the technocrats lose more ground to the economic powers everyday. Until the military enter and rebalance everything, it will continue.
I'm not even talking about local governors and mayors, if you think they are technocrats and not family members of the military or political, you're dead wrong.
There are little things more political than economics and money.