Tag Archives: The Euro

The Zollvererin roots of Germany’s sovereign power grab

When we try to understand the actions of Germany, with respect to the Eurozone, we have to look first at the Zollvererin league.

The Zollvererin was a stepping stone to a united Germany, and it is supposed that the Euro will be the bridge that leads to a united Europe (why else are there imaginary bridges on the notes).

But the logic immediately breaks down there. The Zollvererin was a currency which united the disparate Germanic states, of what had been the core of the Holy Roman Empire, after the excesses of Napoleon. But they were relatively homogeneous (certainly compared to the EU of today) and they were facing an existential threat (they couldn’t know that French imperial power was sundered at that stage) so first they united in commerce, and then ultimately in war (under Bismark against the French).

There is a large degree of myth making in the foundation tales of any nation, for Germany the primary myth it is the inevitability of Germany. There were epochs where events got in the way of a united Germany but there is a definite sense that regardless of all hindrances Germany would be one. So Germany became one again to crush the French (rather than say, wily politicians used the war to allow Prussia to dominate central Europe).

If you approach it from the perspective that there was a natural progression towards Germany, much as water flows towards the sea, then the Zollvererin was a vital prerequisite of the united Germany (as it allowed links of commerce and  culture to be forged under the protection of this initially international institution, which became ultimately federal, albeit is some detours in between).

It is almost as if, given that the Zollvererin facilitated the inevitable, then the Zollvererin must have been a necessary precondition to the united Germany; which is of course a logical fallacy.

But that is what Claude Levy-Strauss argues myths are for, to hide our internal contradictions, the conquering of cognitive dissonance.

This myth also fails to note that most currency unions end in failure, so it is not sufficient precondition for political union.

Compounding this, there is the German tendency towards Hegelianism, that conflation of what is rational, with what is moral. The Germans have never been a logical people, but the see themselves as so, and therefore make the mistakes of the fundamentalist; they confuse believing that they are correct in thought and action with “right”, and so introduce the false dichotomy that those who disagree with them are either stupid or clever (but corrupt).

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Know thyself, and know thine enemy.

The citizens are revolting

 

Chatting with the #occupiers of Dame Street has been interesting, if not very revealing.

What seems to be happening is that they:

  1. know that something is wrong and,
  2. know that they are not happy.

What then seems to happen is that the #occupiers then interpolate these two facts and then engage in a process of  confabulation wherein they explain these two facts using whatever schema that they believe explains the social reality of the world around them.

Consequently every one of them seem to have their own story, founded on their personal prejudices, that is internally consistent  with their view of the world. There are some commonalities. At lot of mentions of the reintroduction of a gold standard, and plenty of discussion on how the IMF is raping the country. These thoughts are probably emerging from the Seomra Spraoí contingent of the Anarcho-Communist community, who remember the Argentinian default so well.
They are obviously wrong about a gold standard, there is nothing intrinsically valuable about gold beyond our desire for it. The only benefit is that it stems inflation, and reintroducing it would copper fasten the wealth of those who have it now, and enforce an era of deflation (making those who are wealthy now, wealthier, year after year).

And they are wrong about the IMF. The IMF want to see a European solution to a European problem (and they are lending to us at the lowest long term rates). The ECB want their money back (they have lent 104 Billion of short term money to the insolvent Irish banks @ 1.25 % – 3 cheers for Super Mario)

It is the oligarchs from the European Commission who are the enemy. They own the euro (and have allowed the Germans to fuck it up). And in the words of Brian Hayse they need a “win”. They need to salvage some form of victory from this mess. The EU civil servants have been completely undermined by the council of ministers from the start of this crisis. They need to show that their policies work somewhere. They can’t “win” in Greece, nor in Portugal. So they have to win in Ireland.

Ireland following their policy of perpetual poverty through decades of deflation will show the rest of Europe that at a higher, almost moral level, the commission is right after all.

Our permanent government is facilitating them.

Our elected government are too economically illiterate to raise objections.

Which is why we need the #occupiers. Their lack of coherence would suggest that they will accomplish little directly.

But, there are second order effects to consider. If our government are too economically illiterate to counter the arguments emerging from their civil servants. And if their civil servants are entirely in thrall to the European Commission then who is left to counter the proposals of the commission.

And parse the words of István Székel carefully. What they propose is perpetual poverty driven by decades of deflation. They that Ireland  will collapse it’s expenditure, but will not tackle the underlying perversities in the property sector that has undermined the constitution of the country.

For as long as property assets remain over priced (and they are still over priced) then they (as non-traded factors) will undermine our trading competitiveness.  But to allow a resetting of the property sector would demand a fresh injection of capital into the banks. Allowing the private and business rental sectors to hit their real economic level would require that rents would collapse: undermining NAMA,the buy-to-let housing sector (which by strange coincidence is dominated by civil servants with second homes), and so the banks would be hit by another wave of foreclosures.

The Brussels oligarchs want to avoid realising these losses and allow the slow inflation of the Eurozone to eat into them (which will take a generation). But with our leaders incapable of leading then we are defenceless.

Every set of oligarchs are conservative. They are the ones whom the current system suits, hence they fear change. They therefore fear revolt, and change is all they really fear. Highly visual dissent causes them pause for though. The Irish are remarkable. Every country that has ever required an IMF bailout has rioted, except us. While Irish people hurting Irish people for the sake of European money will never be useful, in the absence of real governmental leadership, public dissent – of a peaceful kind – will be all that protects us from the powerful

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Mario Draghi “Italian inflation izza best inflation”

Mario Draghi lets Trichet know how he really feels

 “Prediction is difficult, particularly about the future” :- Neils Bohr

The markets are not predictable, they never have been, and they probably never will be.

The most accurate predictor of today’s prices are yesterday’s prices, a concept know as “the random walk”. Prices today are approximately the same prices as yesterday, plus or minus some error – whether plus or minus, none can tell.

When new information arrives, this alters the beliefs of traders (what they believe the future holds in store for them), and they act. Their actions drive prices up, or drive them down. The upward or downward movement of price, and it’s amplitude is a function of this new information. If a 31 year old loses 2 Billion of your dollars  this will have an effect, an obviously negative effect, on your share value.

This gets priced in, and the market moves onwards. When information enters the system it provokes change, the more new information, the more change and so the greater the volatility of the price.

This is why central bankers move slowly. There is a long courtship between the central bankers and the traders. Like the ugliest teens at a parish dance, they flash and signal to each other what their intentions might be – neither might be happy about where they might end up, but they have few alternatives. The only thing worse than going home alone, is the shock of being publicly rejected by someone fuglier than themself.

So they signal, tentatively they make eye contact, they smile, they wink, and they send their friends to sound the other out. They do this to scope out their potential futures eager to avoid sharp shocks.

Central bankers have had a tradition of moving calmly, slowly and signalling with coded phrases: Strong vigilance”, heightened alertness”, etc.  what their future intentions might be.

The mandate of the ECB is to support “price stability”. Broadly this is and anti-inflationary policy, but also a  low volatility strategy.

With Super Mario, dropping an unexpected rate cut on the market, in response to the current chapter of the Greek crisis, can only lead to wider volatility on the stock markets, while also fuelling inflationary pressures (the ECB target inflation rate is 2%, the Eurozone rate is now 3%). This will also lead expectations to change, and expectations about the future are always priced today.

If Super Mario is to act so differently to his predecessor (and on his first day on the Job) then we can assume that the ECB’s hard limit on inflation has softened considerably. The future will have low-interest rates and high inflation – a good time to owe money. Unless I’m wrong – the future is the hardest thing to predict.

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We are where we are

Our problems are great; we have a banking crisis where a housing boom has blown a hole though our banking system, and the economy itself.

There is a deficit crisis, which has arisen out of taxation system, which taxed, certain, narrow parts of the economy too heavily while expanding the government spend in the economy too quickly.

And, we are part of a Euro crisis where structural imbalances within the Eurozone – it is not, unfortunately, an optimal currency area, but I don’t want to get too technical – where structural imbalances within the Eurozone have been a great boon to Germany and as we can see a terrible burden upon Greece, Ireland, Portugal, Spain and Italy.

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Our Crises

We’re in the midst of three crises 1) a deficit crisis – caused by fifteen years of marketing oriented politics. 2) a banking crisis caused by us electing bullshit artists, and, 3) a Euro crisis, which has much more to do with Germany than it has to do with Ireland. We’re just caught in the middle of it.

The IMF move is not an attempt to save the banks; it’s an attempt (and one, I believe, which is doomed to failure) to save the Euro as it is.

Some people, like McWilliams and Gurdgiev, say that we should just leave the Euro and default on our loans, but as H.L. Mencken said “for every complex problem, there is a simple solution, and its usually wrong”

Returning to a currency of our own would be of great benefit to the multinational sector (who have access to foreign supplies of capital), but would involve great cost on small business. They would have to start opening new currency accounts so that they would be able to smooth out currency price fluctuations. And of course find the money to put in these accounts. Returning to our own currency would create a new set of costs on business.

Are we better off in the Euro than outside? Probably yes

Can the euro be sustained as it is? Probably no

But when a person’s solution involves the emmiseration of German pensioners (by refusing to pay back their life savings) and they don’t bother to tease out the consequences of such a move then they are just talking shite.

A devaluation of the Euro is vital, but is probably politically unviable for the Germans. Germany is constitutionally prohibited from engaging in the bailout of another European State, they are not allowed lend money to a member state at a rate which is lower than the rate offered to Germany. Either about 2 Trilion in cash has to be printed, or Germany leaves the Euro (with maybe Austria, and the  Netherlands in tow) and the currency submits to a market devaluation as capital flies to this new German currency.

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