Erm, Hellooo, Guardian? Knock, knock, anybody home?

Given the (apparent) largesse of the German taxpayer to the Irish in terms of the financial bailout, perhaps it\’s the least Ireland can do, to send two of its most famous sons to the Federal Republic to say thank you to the kind citizens of Stuttgart, Munich and Berlin for all those euros being repatriated to Dublin, Cork and Galway.

Ignorant twattery.

The money flow is the other way. The German banks lent too much to Ireland….even to the point of setting up a German bank under an Irish nameplate so as to lend lots to all sorts of dodgy characters all over the world.

The Irish government, in the single biggest mistake of the whole crisis, then guaranteed all of those loans from Germany to Irish banks. And are gouging the Irish citizenry to pay it all back.

The Irish are being impoverished to save the German banking system, not the other way around.

18 comments on “Erm, Hellooo, Guardian? Knock, knock, anybody home?

  1. This ignorance arises because the Left never consider that money borrowed has to be repaid. They think the only cost is the interest payments. Hence its fine for the State to borrow trillions because you never have to pay it back, and the loans from the EU to Ireland are effectively ‘free money’ in their eyes.

  2. Are you sure about this? A loan is a loan. A gift is a gift. The two are not the same.

    If someone loans me money and I use it well, to build up a business for instance, I am not in any way impoverished by paying it back. Although it would be nicer to keep it all. I should say thank you to the nice man at the bank who lent me the money.

    I do not dispute that the Irish government’s actions were stupid, but the flow of money has been:

    1. To Ireland in the form of massive CAP subsidies and other EU goodies
    2. To Ireland in the form of German loans.

    We can agree the Irish pissed all this away.

    3. Now there is a flow of money back from Ireland to pay back those loans.
    4. In the near future those nice German tax payers will be sweating blood to give the Irish some more of their money through some form of support for the Euro.

    I don’t know about anyone else around here, but I think the blame is with the Irish who pissed all that money away. Well, not all of it. They used some of it to turn Ireland from a priest-ridden quasi-theocracy stuck in the Middle Ages into a giant Used Car sales yard. Only with more Del Boy-ish politicians than most Used Car yards. Still, that’s a bit of a plus isn’t it?

    I tend, for once, to agree with the Guardian.

  3. SMFS

    As usual, you miss the point.

    The loans were made not to the Irish government or the Irish people, but to dodgy companies and individuals who then defaulted on those loans. If a lender lends stupidly to poor risks in the expectation of an asset price bubble continuing to inflate, then when that asset price bubble bursts and the borrowers default the LENDER should bear the cost of their bad lending decisions. If the lender goes bust as a consequence, well, tough, really. They shouldn’t have lent the money. That’s how it SHOULD work. But everyone’s so terrified of allowing big banks to fail that they don’t allow this normal commercial process to happen. They bail out the stupid lenders, don’t they?

    That was Ireland’s mistake. No way should those dud commercial loans EVER have been taken on to the public balance sheet and the Irish people forced to sweat blood to pay them off. The idiotic German banks should have gone bust. As they will soon anyway because of the stupid loans they have made to EVERY OTHER highly-indebted Eurozone country.

    The bailouts of Ireland, Greece, Portugal are in fact disguised bailouts of German (and French) banks who have lent far too much to countries, companies and individuals that can’t pay it back. The German economy has benefited hugely from both the interest payments on those loans and the exports that those loans have funded.

    Perhaps it is time that the German people paid for the awful commercial decisions made by their banks, instead of hammering everyone else into the ground while they extol the virtues of austerity and exports. German prosperity is built on the debt of their Eurozone partners. It’s an unsustainable bubble and a bloody disgrace.

  4. ‘Ignorant twattery’. Such an elegant summary of much of the Graun’s output on almost any subject, save for the contents of the sports pages.

  5. SMFS, I take it we can assume you don’t like the Irish then? Perhaps you don’t realize this, but the ECB is run by the Germans, for the Germans. The original interest rate was selected to benefit the Germans, as they were in economic difficulties at that time. That interest rate was too low, however, for Ireland and Spain. In both countries, the inflation rate was higher than the interest rate, and in such a circumstance it makes sense to buy a house. Both countries had housing bubbles.
    In addition, banks (and all businesses) offer two types of bonds – secured and unsecured. The unsecured bonds offer higher yield, as they are richer, because in the case of bankruptcy the holder losses everything, while the proceeds from the sale of the bank are divided up between the holders of the secured bonds. Both the Irish government and the IMF said the Irish taxpayers shouldn’t have to pay the unsecured bonds, but the EU, protecting the German banks, said they had to.

  6. Frances Coppola – “As usual, you miss the point.”

    Always such a sensible way to start.

    “The loans were made not to the Irish government or the Irish people, but to dodgy companies and individuals who then defaulted on those loans.”

    Sorry but how are these companies and individuals not a sub-set of the Irish people? Aided and abetted by the government? These people did not fly in from Mars did they?

    “If a lender lends stupidly to poor risks in the expectation of an asset price bubble continuing to inflate, then when that asset price bubble bursts and the borrowers default the LENDER should bear the cost of their bad lending decisions.”

    Well yes and no. There is plenty of blame to go around here. I think the borrower and the lender should pay a price. Normally they do. The actions of the Irish government were beyond stupid. But the lender is not the only person to blame. The lender does not exploit or cheat anyone by lending. Even by lending poorly. Because some onus exists on the borrower not to borrow to invest in a bubble and some exists for the government not to encourage them to do so. Not 100% but not 0 either.

    “If the lender goes bust as a consequence, well, tough, really. They shouldn’t have lent the money. That’s how it SHOULD work.”

    Sure. More or less. No one is defending the stupidity of the Irish government. Just the idea that the German banks are evil for lending. They are not.

    “That was Ireland’s mistake. No way should those dud commercial loans EVER have been taken on to the public balance sheet and the Irish people forced to sweat blood to pay them off.”

    So we are in 100% agreement on that.

    “The bailouts of Ireland, Greece, Portugal are in fact disguised bailouts of German (and French) banks who have lent far too much to countries, companies and individuals that can’t pay it back.”

    As it is working out, so far it looks that way.

    “The German economy has benefited hugely from both the interest payments on those loans and the exports that those loans have funded.”

    I am inclined to doubt this. The interest payments are likely to be low – and the German banks would have found customers somewhere as everyone wants loans. The exports is a much tougher question, but I think we can agree that the laws of economics are not flouted for long and whatever the Germans got, they are about to loose. The people who really benefited are the people who consumed that money – the early retirees of southern Europe. The Germans got to work longer hours for a little money. The Greeks got to sit on the beach and drink ouzo. As TW would point out, the proof of the pudding is in the consumption, not in the production. The Germans made it but the Greeks and Italians ate it. As did the Irish.

    “Perhaps it is time that the German people paid for the awful commercial decisions made by their banks, instead of hammering everyone else into the ground while they extol the virtues of austerity and exports. German prosperity is built on the debt of their Eurozone partners. It’s an unsustainable bubble and a bloody disgrace.”

    This is not true. German prosperity is built on the hard work, diligence, thrift etc etc of the German people. They did the hard work in holding down wages and restructuring their economy. They have thrived as a result. Yes their exports went up. So what? That does not make them prosperous. It makes other people richer. There is simply no denying the benefits of thrift and austerity. Suppose that the slate was wiped clean. All the southern European debts vanish. Is the problem solved? No, as the south does not work, they will be in a mess again in a few years. Even if the Euro is abolished, wiping away the debts will not solve the problem – the southern Europeans will be much poorer and they will still be unproductive. They can either lift their productivity or they can join a race for the bottom with China through a series of devaluations until their average wages are competitive. I doubt this appeals.

    Banks do have some obligation to lend wisely. But people have an obligation to borrow wisely. The EU is basically about ripping the Germans off. A hidden form of reparations. It has been since the start. The Germans have paid and paid and paid. Now they have said they have paid enough. Good for them. Time for other people to actually work for a living.

  7. Jean – “Perhaps you don’t realize this, but the ECB is run by the Germans, for the Germans. The original interest rate was selected to benefit the Germans, as they were in economic difficulties at that time.”

    I kind of doubt the ECB is run by Germans for Germans. But of course as the largest economy in Europe, the interest rate that Germany needs is going to be an important factor for the ECB. No matter who runs it. I doubt that the rate chosen was ideal for Germany but a botched running average but no matter.

    “That interest rate was too low, however, for Ireland and Spain. In both countries, the inflation rate was higher than the interest rate, and in such a circumstance it makes sense to buy a house. Both countries had housing bubbles.”

    As did everyone else. So to recap – the Germans saved a lot of money, which they are about to lose, and the Irish and Spanish got nice houses. Which end of this deal would you rather be on?

    “Both the Irish government and the IMF said the Irish taxpayers shouldn’t have to pay the unsecured bonds, but the EU, protecting the German banks, said they had to.”

    Which was stupid. A stupid decision by the Irish government. Perhaps aided and abetted by the ECB with the French and Germans behind them, but basically the buck stops with the Dail.

    It does not change the fact that when someone gives me money which I then splurge on a massive spending spree and promptly default, I am a massive beneficiary. The bank suffers reputational loss and if I splurge enough they go broke. But the real losers are the nice savers who forewent their consumption to save their money which was then lent to me. In this case, the Spanish and Irish have lots of nice houses and have spent decades in early retirement and/or on the dole. The French and German banks look stupid. The Germans have worked hard only to see other people piss their money away. They are not the bad guys here – even if their government and the ECB acted stupidly.

  8. SMFS,
    Remember that no one forced German banks to lend their money to moronic Irish bankers or deceitful Greek politicians. Just as the Irish government did, foreign banks investing in Ireland allowed themselves to remain blissfully ignorant of one of the biggest asset price bubbles in financial history.

    Indeed, in late 2008, Deutsche Bank even estimated that all but a mere 2% of the comically incompetent Anglo Irish Bank’s loanbook was in immaculate condition. The reality, as had been noted by numerous commentators years before, was that Anglo would be lucky to recover half the value of the money they had loaned out.

    Even though Anglo was loaned much of this money by equally incompetent German banks, for some reason it was decreed that a third party, called the Irish taxpayer, would be compelled to repay these private debts. Whether you think this makes economic sense or not, I though that the moral repugnance of this arrangement would be clear to any observer.

    On another note, Chelsea fans (for I am one) may be interested to know that, in a roundabout way, some of MY BLOODY MONEY has been confiscated from me and given, via Anglo Irish Bank, to one of Roman Abramovich’s investment vehicles. Eventually, it may even find its way into John Terry’s wage packet. Whatever this is, capitalism at its best it is not.

  9. Jack Costello – “Remember that no one forced German banks to lend their money to moronic Irish bankers or deceitful Greek politicians.”

    Sure. Although I am not entirely sure that is 100% true. The French banks certainly came under political pressure to support the EU project and I bet the German, especially the German State banks, did too. But it is not important. Let’s accept that the German banks did not have to lend to anyone.

    But it is usually a good thing when they do isn’t it? Loans help people. If not for foreign loans places like South Korea would be poverty-stricken sh!tholes to this day. Admittedly Congo still is, but at least the banks tried.

    “Just as the Irish government did, foreign banks investing in Ireland allowed themselves to remain blissfully ignorant of one of the biggest asset price bubbles in financial history.”

    For which they should suffer. Rightly.

    “Even though Anglo was loaned much of this money by equally incompetent German banks, for some reason it was decreed that a third party, called the Irish taxpayer, would be compelled to repay these private debts. Whether you think this makes economic sense or not, I though that the moral repugnance of this arrangement would be clear to any observer.”

    A decision made by the Irish government. So who is the loser here? The Irish are probably neutral – they took some money, had a great time with it, got some nice buildings built, and now they have to pay it back. Unfair because it strikes down people at random and rewards others equally randomly – if you sold at the top, you’re laughing, if you bought you’re not. The banks will probably be saved. Their managers will all get their pensions. The big losers are the German savers. They saved their money. They worked hard. They put off consumption. And now they are going to get an economic down turn, inflation which is going to turn their savings to toilet paper, and they will lose the money they lent to the banks (well no, they won’t. They will be paid back by the government who will take it from them in taxes but the general point remains).

    There is more than enough blame to go around here but I don’t see much of it should be put on the Germans. They did the right thing.

    Even if their government is being needlessly obstructive now, in general terms, they are right. The only long term solution to this is for the Greeks to be more like the Germans.

    “Eventually, it may even find its way into John Terry’s wage packet.”

    So not all wasted then.

  10. SMFS

    As Tim pointed out, the loans were not made to the Irish people. They were made to companies and individuals worldwide, using Ireland as an offshore centre.

    No-one is disputing that German people have worked hard. Actually, so have most people throughout the Eurozone – certainly the Irish, who had a flourishing economy until their idiot government decided to bail out banks. But Germany has chosen to export mainly to Eurozone partners, and its banks have chosen to lend large amounts of money to fund those exports. As a consequence Germany’s economy is excessively dependent on exports to highly-indebted countries, which can no longer afford those exports, and its banks are insolvent. It is going to suffer a severe recession and a banking collapse some time very soon – and this will be the consequence of the inept economic management of its own government.

    Why do you have this romantic view that German savers should be spared the consequences of the stupid decisions of their government and THEIR banks, when you are only too keen on Irish and Greek people paying for the stupid decisions of their governments and both their banks AND FOREIGN banks? Utterly illogical.

  11. SMFS

    Oh, and your statement that exports didn’t make the Germans richer, it made other people richer, is quite simply bonkers. So Germans choose to maintain austerity and save lots. They are still richer. And other people are poorer because they have spent more than they could afford and are in debt. So I am absolutely correct to state that Germany’s policy of exporting to other Eurozone countries and funding those exports with lending from German banks has enriched Germany at the expense of the rest. And if you think that Germany was not guilty of coercion and even outright corruption in promoting its loan-funded exports to other Eurozone countries, you don’t know very much about it. Which is why it is a bloody disgrace that Germany is now trying to hold on to its savings, and a disgrace that you think they have the right to do so. No they don’t, and they can’t. The sooner they accept this the better for everyone.

  12. SMFS, look, you’re treating this as a morality tale, when it is actually a perfect example as a tragedy of the commons event.
    When Bush and Paulson had to save the US banking system, the system was roughly 82/83% of US GDP. The banking system in Germany is over 500% of German GDP, the Swiss banking system is over 700% of its GDP, and in Luxembourg the banking system is over 2000% of its GDP. If you want to place blame than you can surely ask where are the European banking regulators? But to place blame on individuals themselves is idiotic. People didn’t buy overpriced houses because they were ‘greedy,’ they bought because they were afraid they wouldn’t be able to in the future. The Greeks actually work longer hours than the Germans; productivity is higher in Ireland and France than in Germany.
    Once the Prussians united Germany they had a plan for the entire continent – a Zollverein (customs union) for all of Europe with Germany as its heart. Problem is this was bad economics 150 years ago, as it’s an even worse economic plan today. Ricardo had already explained absolute and comparative advantage 150 years, but apparently nobody in Germany ever read him. Have you ever noticed that there are no German names in the canon of economics literature? Even tiny little Austria has had three greats. France had Bastiat. Germany? Not a one.

  13. Jean, SMFS

    And of course in Ireland much more property was built than there was a market for. It was a classic debt-funded construction bubble – just as in Spain, and the US, and still to burst in China (heaven help us). The construction firms went bust and the lenders lost their money. And the Irish people are paying for it all. SMFS, where you got the idea that Irish people “had a nice time” with that borrowed money I don’t know. It was not lent to them. Before the construction bubble burst Ireland was a model of fiscal rectitude. Its unmanageable debts arise ONLY from bank bailouts following the property crash.

    Jean, I agree that Germany appears economically incompetent, but I wonder if in fact they are playing for time – trying desperately to expand their international trade to protect themselves from the inevitable crash of their Eurozone exports (over 60% of their external trade) and the probable breakup of the Euro. Everything they have done since the start of this crisis to me suggests that they neither want nor expect the Euro to survive in its current form. Either the German government is spectacularly inept or it has a hidden agenda. I suspect the latter – although as I suggested above, economic ineptness has in my view characterised German government throughout the lifetime of the Euro. They got away with it because other countries were even more inept, but they have left themselves seriously exposed to the coming Euroexplosion.

    Germany may be regarded as a safe haven at the moment, but it won’t remain so. It stands to suffer a more serious crash any other country in the Eurozone, because it will be the last to fall and has much more to lose. Hanging on to its surpluses is actually the worst thing it could possibly do – but sadly its electorate doesn’t see things that way.

  14. Frances Coppola – “As Tim pointed out, the loans were not made to the Irish people. They were made to companies and individuals worldwide, using Ireland as an offshore centre.”

    I kind of doubt many German banks did that – why bother? – but if some did, it is noise. The majority of loans went to the Irish. They were made to Irish people and Irish companies.

    “But Germany has chosen to export mainly to Eurozone partners, and its banks have chosen to lend large amounts of money to fund those exports.”

    Germany has a surplus with China too. Not just Eurozone partners. They did not lend to fund those exports. They lent to build buildings in the main. Which had a flow-on effect of funding exports.

    “Why do you have this romantic view that German savers should be spared the consequences of the stupid decisions of their government and THEIR banks, when you are only too keen on Irish and Greek people paying for the stupid decisions of their governments and both their banks AND FOREIGN banks? Utterly illogical.”

    I don’t. We are in agreement the Germans are about to pay – through massive losses to their banks and recession. But. The Germans got into this mess by not consuming and lending money to others so that they could consume. As it turns out, the Irish really should say thank you to the Germans for all the cash they got. What is more, the Irish, the Greek and Spanish peoples behaved badly. They lived off their credit cards. The Germans did not. They did the right thing. We should keep that in mind.

    Frances Coppola – “Oh, and your statement that exports didn’t make the Germans richer, it made other people richer, is quite simply bonkers. So Germans choose to maintain austerity and save lots. They are still richer.”

    No they are not. They forewent consumption. That by definition means they are poorer. Our wealth is not what we produce but what we consume. If someone gives me a million quid I am rich. If I work hard all day and the State takes 98.5 pence in the pound, I am not. The Germans declined to consume and lent (or as it is turning out, gave) all that money to others so they could consume.

    Put it another way, if the Euro dissolved and each country got its own currency back, the Greek New Drachma would fall, right? That is, they would be poorer. The German New Mark would rise, right? That is, they would be richer. Can we agree on that?

    “And other people are poorer because they have spent more than they could afford and are in debt.”

    Except they won’t be paying it back will they? Whatever the Irish government says I doubt they will either.

    “So I am absolutely correct to state that Germany’s policy of exporting to other Eurozone countries and funding those exports with lending from German banks has enriched Germany at the expense of the rest.”

    No you are not. By definition, when the Germans lent, they forewent consumption. They lived at a lower standard of living than their production suggested they should. To the benefit of the Greeks, Irish, Spanish and so on.

    “Which is why it is a bloody disgrace that Germany is now trying to hold on to its savings, and a disgrace that you think they have the right to do so. No they don’t, and they can’t. The sooner they accept this the better for everyone.”

    They probably can’t, but they do. If people lend their own property to other people they have a reasonable expectation of getting it back. They have no chance of doing so, but they should be paid back.

    Frances Coppola – “And of course in Ireland much more property was built than there was a market for.”

    So you are wrong and a lot of that money was in fact lent to Irish people?

    “SMFS, where you got the idea that Irish people “had a nice time” with that borrowed money I don’t know. It was not lent to them.”

    Housing bubble. That means some Irish guy who happened to inherit his Grandmother’s old run down house in Dublin was able to sell it for a vastly inflated sum to some developer. What do you think he did with the cash? Can we agree that he has still got the cash no matter what happens to the developer and the bank? No one is going to ask him to pay it back are they? The Irish as a whole took Germany’s money and paid it to themselves. Now their government, in a stupid decision, we all agree, has said it will try to claw some of this money back in taxes to give back to the Germans.

    “Before the construction bubble burst Ireland was a model of fiscal rectitude. Its unmanageable debts arise ONLY from bank bailouts following the property crash.”

    I am not sure how you reconcile fiscal rectitude with a housing bubble but I know what you mean. Ireland is by no means the worst offender.

    “Either the German government is spectacularly inept or it has a hidden agenda. I suspect the latter – although as I suggested above, economic ineptness has in my view characterised German government throughout the lifetime of the Euro. They got away with it because other countries were even more inept, but they have left themselves seriously exposed to the coming Euroexplosion.”

    The country that gave us the Bundesbank is hardly a model of fiscal ineptness. Compared to them, the French are what? I do think the Germans have a hidden agenda – they want to make the Euro work. That means holding off until everyone has peered into the depths and are sufficiently frightened they will agree to become more like the Germans. As they should.

    At least I hope that is what they are doing.

  15. Jean – “SMFS, look, you’re treating this as a morality tale, when it is actually a perfect example as a tragedy of the commons event.”

    I am not sure that it is a tragedy of the commons. But it is certainly a morality tale.

    “The banking system in Germany is over 500% of German GDP, the Swiss banking system is over 700% of its GDP, and in Luxembourg the banking system is over 2000% of its GDP. If you want to place blame than you can surely ask where are the European banking regulators?”

    Sorry but isn’t this just the nef’s argument that the City is too big and Britain needs to move away from Finance to manufacturing? The German banks are as big as their competence suggests they should be. Or they are about to become so. Switzerland’s banks are not in trouble after all.

    “But to place blame on individuals themselves is idiotic. People didn’t buy overpriced houses because they were ‘greedy,’ they bought because they were afraid they wouldn’t be able to in the future.”

    I am not sure that I am placing the blame on any one individual. Although the Irish government had a clear obligation to spot the bubble and do something about it. Yes, everyone’s actions were rational in context. I don’t see that as important.

    “The Greeks actually work longer hours than the Germans; productivity is higher in Ireland and France than in Germany.”

    I have trouble believing either claim – especially the latter. But it hardly matters.

    “Problem is this was bad economics 150 years ago, as it’s an even worse economic plan today. Ricardo had already explained absolute and comparative advantage 150 years, but apparently nobody in Germany ever read him.”

    Sorry but why is it bad economics? The idea of a united European Customs Area is not a bad one. The problems have only come about because of trying to find a sensible money system for the area.

  16. SMFS

    I think your replies to me and to Jean contain some of the worst economics I’ve ever read. They are so wrong I don’t know where to start, but I will have a go. When will you stop allowing your ideology to trump basic economics?

    Firstly, a fact for you. Over 60% of Germany’s exports are to the Eurozone. Given that, its trade surplus with China looks a tad irrelevant. And China itself is going into recession, will have a major housing bubble burst and banking collapse some time fairly soon and is therefore very likely to cut its imports. It’s not looking good for the German economy, is it? If I were looking at Germany as an investment portfolio, I would say it is insufficiently diversified. Its domestic consumption is too low and it has too many eggs in the Eurozone basket. That is economic mismanagement, driven by an ideological commitment to a fundamentally flawed currency union and an equally ideological and economically nonsensical belief that exports=good, imports=bad. So France, and the rest of the Eurozone, is worse. So what?

    “They forewent consumption. That by definition means they are poorer. Our wealth is not what we produce but what we consume.”

    Rubbish. Wealth is accumulated savings, not consumption. If, over time, I choose to save most of my income instead of spending it, I become wealthier. That is what Germans – and Germany as a whole – have done. Therefore they ARE wealthier than those Eurozone countries that have borrowed to spend and have not saved.

    “…if the Euro dissolved and each country got its own currency back, the Greek New Drachma would fall, right? That is, they would be poorer. The German New Mark would rise, right? That is, they would be richer.”

    Sigh. No, SFMS, it doesn’t work like that. Greece is ALREADY poorer, and Germany is ALREADY richer. If they returned to their own currencies, those currencies would adjust to the existing economic realities – that is all. Having an overvalued currency doesn’t make Greece richer, any more than having an undervalued one makes Germany poorer.

    “By definition, when the Germans lent, they forewent consumption. They lived at a lower standard of living than their production suggested they should. To the benefit of the Greeks, Irish, Spanish and so on.”

    No, to their OWN benefit. Germans lent out their savings in the expectation of a return both from the lending itself and from the sales of their products that that lending financed. And over the lifespan of the Euro, Germany has indeed benefited considerably from that lending. Which is why it now has both a trade surplus and a fiscal surplus – both of which, by the way, are forms of savings. But lending for a return always carries risk. Germany’s behaviour is tantamount to demanding returns while repudiating the risk. What gives them the right to insist that their lending should be risk-free?

    The Irish property construction bubble….oh dear, where do I start? With your tacit assumption that the majority of Irish people were involved in construction, and that all construction companies were owned, managed and run by Irish people? With your assumption that all land was owned in little parcels by Irish smallholders? Or your notion that the amount paid to the sellers of land bore any relation at all to the amount borrowed by construction companies? Even if all of these were true, to claim that a commercial property bubble demonstrates fiscal ineptitude by government is stretching the definition of “fiscal” way too far. Inept monetary management, yes – interest rates were far too low. But, oops, they weren’t under the control of the Irish government, were they? And your idea that the Irish government was supposed to spot the bubble and do something about it. There were housing bubbles in the UK, US, Spain and Portugal at the same time and NO-ONE spotted them. And even if the Irish government had spotted it, what do you suggest they should have done about it, given that the normal method of deflating a bubble – raising interest rates – wasn’t available to them?

    And finally. The construction of the Euro is fundamentally flawed. The tragedy is the stubborn refusal of the Eurozone leadership to address the real issues. Germany’s recipe for “fixing” the problems will only make them worse. Oh yes, I know you say in the long-term fiscal austerity will benefit these countries that have spent too much or made stupid mistakes such as bailing out banks. But if what you have written here is a fair sample of your economic knowledge, I don’t see why anyone should believe what you say – especially as the consensus among people who DO understand economics (and I don’t mean me) is that fiscal austerity is the wrong medicine for the Eurozone.

  17. Frances Coppola – “I think your replies to me and to Jean contain some of the worst economics I’ve ever read. They are so wrong I don’t know where to start, but I will have a go. When will you stop allowing your ideology to trump basic economics?”

    Cool. I succeed where others do not because I work harder. It has nothing to do with ideology.

    “Firstly, a fact for you. Over 60% of Germany’s exports are to the Eurozone. Given that, its trade surplus with China looks a tad irrelevant.”

    Interesting. But irrelevant.

    “And China itself is going into recession, will have a major housing bubble burst and banking collapse some time fairly soon and is therefore very likely to cut its imports.”

    Keep changing the subject Francis. It may work out well for you in the end.

    “It’s not looking good for the German economy, is it?”

    No one has said otherwise. See above.

    “Rubbish. Wealth is accumulated savings, not consumption. If, over time, I choose to save most of my income instead of spending it, I become wealthier. That is what Germans – and Germany as a whole – have done. Therefore they ARE wealthier than those Eurozone countries that have borrowed to spend and have not saved.”

    You nearly have it but not quite. If you have a massive bank account but you are stuck on a desert island, are you rich? Our standard of living is defined by what we can consume if we want to. Thus if China drives down the price of shoes and clothes, we are all richer even if we do not save or earn a penny more. Except you seem to be denying this. Are you?

    If you save money now, you are deferring consumption. Meaning you will have a lower standard of living now – your friends will all be off snorting coke and drinking champagne while you stay at home eating pot noodles. But in the end you will then spend that money – at that time you will consume more and hence have a higher standard of living.

    If you take half your income and rip it up, you will be poorer. If you take half your income and give it to some Greeks and they spend it, you will be poorer – and they will have a higher standard of living. Simple. This is what the Germans have done.

    “Sigh. No, SFMS, it doesn’t work like that. Greece is ALREADY poorer, and Germany is ALREADY richer. If they returned to their own currencies, those currencies would adjust to the existing economic realities – that is all.”

    Sorry but no. If the Drachma rises, the Greeks will consume fewer Chinese shoes, less Peruvian cocaine and so on. They will be poorer. If the DM rises, the Germans will consume more. Thus they will be richer. The underlying reality is not reality yet. You seem to think that the German’s wealth exists in some Platonic Ideal State separate from reality. It doesn’t. It is what they can buy with their money.

    “Having an overvalued currency doesn’t make Greece richer, any more than having an undervalued one makes Germany poorer.”

    They can buy a hell of a lot more than they otherwise could. Thus they have a higher standard of living and their savings are worth more. That kind of makes them richer doesn’t it? Suppose they all moved their savings, such as they are, to Germany and the Euro collapsed. Would their euros, turned into DM, be worth more or less?

    “No, to their OWN benefit. Germans lent out their savings in the expectation of a return both from the lending itself and from the sales of their products that that lending financed.”

    And to the enormous benefit of the Spanish et al who took early retirement. The Germans did expect some small return – smaller than the borrower expected – but they are not going to get it. They will lose that money.

    “And over the lifespan of the Euro, Germany has indeed benefited considerably from that lending.”

    While being a massive contributor to the EU and so lost money. While not getting most of their money back and so losing money. Some German companies got some small benefit. The German people did not. They should have been relaxing on the beach but instead the Greeks were – with their money.

    “The Irish property construction bubble….oh dear, where do I start? With your tacit assumption that the majority of Irish people were involved in construction, and that all construction companies were owned, managed and run by Irish people?”

    Why not, as it exists only in your mind and is irrelevant anyway? You insist on asserting I have made claims I have not. Pathetic.

    “With your assumption that all land was owned in little parcels by Irish smallholders?”

    As above.

    “Or your notion that the amount paid to the sellers of land bore any relation at all to the amount borrowed by construction companies?”

    Sorry but what else were they borrowing for? Not that it is relevant. Did they borrow? Yes. Did they use some large percentage of that money to buy houses from Irish people? Yes. Do you have any relevant comment to make? Not that I can see.

    “Even if all of these were true, to claim that a commercial property bubble demonstrates fiscal ineptitude by government is stretching the definition of “fiscal” way too far. Inept monetary management, yes – interest rates were far too low. But, oops, they weren’t under the control of the Irish government, were they?”

    Interest rates were not the only way the Irish government could have controlled this bubble. They saw it, they were told about it, they did nothing. Sure the interest rates were a bad thing. The Euro is stupid. But they had other controls that they chose not to use.

    “And your idea that the Irish government was supposed to spot the bubble and do something about it. There were housing bubbles in the UK, US, Spain and Portugal at the same time and NO-ONE spotted them.”

    That is not true. No one chose to do anything about them. But lots of people spotted them. I can trivially find articles on Spain and Ireland going back years, perhaps decades.

    “And even if the Irish government had spotted it, what do you suggest they should have done about it, given that the normal method of deflating a bubble – raising interest rates – wasn’t available to them?”

    Taxed the crap out of them perhaps? They have enormous powers to do what they like. The Chinese are busying trying to do the same without meddling with interest rates.

    “And finally. The construction of the Euro is fundamentally flawed.”

    No one is arguing otherwise.

    “Germany’s recipe for “fixing” the problems will only make them worse. Oh yes, I know you say in the long-term fiscal austerity will benefit these countries that have spent too much or made stupid mistakes such as bailing out banks.”

    A claim that no one has ever tried to refute.

    “But if what you have written here is a fair sample of your economic knowledge, I don’t see why anyone should believe what you say”

    I have posted the comparison between Jamaica and Barbados before. We have done this experiment. We know the result.

    “especially as the consensus among people who DO understand economics (and I don’t mean me) is that fiscal austerity is the wrong medicine for the Eurozone.”

    In the short term. And given the scale of this crisis it probably is not a reasonable policy. But if it was a lesser disaster, you think anyone would be opposing austerity?

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