EUCOM Economic Analysis - Part I

[AdamG]

Germany, France and the European Commission are scrambling to contain panic and "quash rumours" about a eurozone break-up amid repeated off-piste messages from other senior EU politicians.

But even amid their desperate efforts, the finance minister of Poland, the country that currently represents the EU to the world as holder of the bloc’s rotating presidency, warned of war on the continent within 10 years if the eurozone collapses.

http://euobserver.com/18/113625

[Marc]

War in the European Union? Panic in the European Union? I do not see it. The Financial Times has a more sober explanation:

Originally Posted by AdamG

Rostowski, raised in the UK, does have a love for parliamentary thrust and parry

http://blogs.ft.com/beyond-brics/201...#axzz1Y5Ti66Wb

Could it be that the EUObeserver suffers from a eurocritical bias?

[Fuchs]

People needlessly connect the EUR's fate to the fate of the European Union as a whole. It's just a currency.

The EU ought to be capable of reverting mistakes - THAT is critical for its long-term success and survival.

The EUR in its current shape was a mistake, and critics knew it back in the mid-90's. The economies are too different. Portugal and Greece did not belong into the common currency, and it would have been wise to set up a common currency (if at all) as a non-EU project. Maybe Germany should have stayed out of it, too. Germany, Northern Italy, Paris department and some other regions are the industrial centres of Europe and can be in a common currency with the less industrialised regions only with great adverse side-effects.

Actually, Italy and Germany would need two different currency zones each since even inside these countries labour mobility proved to be unable to balance the strains.
(In a simple theory monetary union theory moving labour solves a lots of common currency problems between dissimilar regions, but in practice many unproductive people stay behind and transfers from North Italy to South Italy or West Germany to East Germany are still necessary).

[Surferbeetle]

The European Union (EU) is the beating macroeconomic heart of European Command (EUCOM); unfortunately, today, that heart has opaque and clogged fiscal, monetary, and political arteries, which impede the flow of needed capital to and from the center and periphery of the global economy. (1) Nonetheless, Russia has attempted to emulate the organization and success of the EU’s combined annual GDP of 17.5 trillion USD, with a Eurasian Economic Community (EurAsEc) concept fielding a combined annual GDP of 2.1 trillion USD. (2) Turkey (annual GDP 735 billion USD) also attempts to follow the EU model, as exemplified by its participation in regional free trade agreements with nations such as Syria and by chairing the 57 member strong Organization of the Islamic Conference, all the while continuing to work towards a fading dream of eventually joining the EU. (3) (4) (5) Global economic failures have a history of releasing unpredictable social and political pressures which increase the cost of basic necessities, reduce living standards, increase demographic inequalities, destroy livelihoods, and reduce global financial predictability. (6) (7) (8) The struggles of EUCOM countries, in their attempt to maintain a sustainable macroeconomic equilibrium, are instructive as well as of financial interest to all stakeholders within the interconnected global economy.

The concept of Market Clearing, where the prices of goods and services are in equilibrium and can be visualized at the intersection of supply and demand curves, underpins many Macroeconomic models. (9) Modeling the long run or the short run impacts the equilibrium point of the macroeconomic model used. In the long run prices are seen to be flexible while in the short run prices are seen as sticky. We also need to consider that all macroeconomic models function within a framework of fiscal and monetary policies, applied by institutions within traditional Westphalian Nation-States as well as by transnational structures. Within this framework, institutions and supra-empowered individuals continuously compete for influence. Fiscal Policy is typically formulated and supervised by a fiscal authority such as a Financial Ministry while Monetary Policy typically originates from an independent Central Bank. Fiscal Policy variables of note include taxation, government spending and borrowing. Monetary Policy variables of concern include money (quantity theory), foreign exchange rates, inflation, and interest rates. Both the International Monetary Fund (with 187 member countries) and the US National Intelligence Council publish reports, which incorporate regional projections resulting from macroeconomic modeling efforts. (10) (11) (12)

The European Union is not a fiscal union and it is an incomplete economic (common market and customs union) and monetary union; this distinction is at the center of its current macroeconomic troubles. In order to achieve a fiscal union, member states will have to cede a greater portion of national control over fiscal policy to the EU. This will require national voting on the proposed structural changes to the EU’s directly elected parliamentary institution, the European Parliament. Given the history of the Lisbon Treaty, the approvals process for structural changes are far from assured. (13) Since the EU does not have a centralized Financial Ministry (not withstanding the heroic efforts of Mr. Olli Rehn, the European Commissioner for Economic and Monetary Affairs) the union instead has 27 different financial ministries, who’s Fiscal Policies are not necessarily synchronized. This reality is seen in the unsustainable budget deficits of Greece and Portugal, which resulted from national fiscal policies, which were not synchronized with the requirements of Maastricht Treaty nor with other members of the union. Although comprised of 27 members, only 17 (the Eurozone) have ostensibly met the economic and monetary union requirements of the 1992 Maastricht Treaty. In return for the ability to participate in the world’s second largest reserve currency, these 17 members (Austria, Belgium Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain) of the EU follow Monetary Policy set by the independent European Central Bank. (14) The macroeconomic situations in Spain and Ireland however, which had low levels of government debt prior to the crisis, are indicative of the thesis that sovereign debt among Eurozone members is not risk free, and is in fact differentiable. As a result of this realization bank runs, on Eurozone banks, which hold suspect sovereign debt are increasingly seen as possible. (15) European political leaders are under incredible pressure to continue the integration process of the EU, with a short-term focus upon crafting an acceptable fiscal union, due to the interconnectedness of the global financial system. (16) Due to Germany’s position as the strongest economic member of the Eurozone, the buy-in of the German populace is seen as critical and, threshold criteria for any deeper integration of EU members are expected to be stringent. (17)

Russian dreams of financial strength and leadership as a unifying regional economic power, continually founder upon the hard realities of endemic corruption, xenophobia, weak institutions, arbitrary fiscal and monetary policy, and a cult of personality, all of which rest uneasily upon a narrow, commodities based economy. (18) (19) (20) This condition is no less a tragedy for the Russian people, than it is for the global community. (21) The Central Bank of the Russian Federation is constitutionally mandated to be an independent institution, setting national monetary policy and driven by technical concerns. The intent of this paper document is belied by the still unsolved 2006 murder of Andrei Kozlov, the first deputy central banker who fought for the rehabilitation of Russia’s more than 1,200 banks. (22) Banking corruption in Russia appears to continue unabated since his death. (23) The Russian Finance Ministry sets Fiscal Policy, and many foreign investors have hoped for positive changes in its policies since Russia’s 1998 default and its subsequent 2008 economic meltdown. (24) “This time is different, he adds, “are the four most expensive words in the English language.”” (25) The World Trade Organizations Working Party on the Accession of the Russian Federation was established in June of 1993 and efforts to meet WTO criteria continue. (26) (27) The EU-Russian relationship is a key one for Russia, and serves to influence Russian policy and actions. (28)

Turkey’s modern day economic rise, impacts members of the Middle East more than it does most members of EUCOM, nonetheless Turkey continues to follow many of the wishes of Ataturk in that it selectively continues to pursue compatible benefits of westernization. (29) (30) (31) (32) Turkey’s sovereign rating for foreign currency (provided by the S&P) remains at BB, two notches below investment grade, and 2014 forecasts for government debt/GDP ratios are trending at around 35%. (33) (34) Once Turkish sovereign debt reaches investment grade quality, it will be open to institutional investors. By Turkish Law, The Central Bank of the Republic of Turkey has an independent role in setting monetary policy. Turkey’s banking industry presently consists of approximately 45 banks, which have an average capital adequacy ratio of approximately 19% (higher than Basel III requirements – 4.5 % of common equity and 6% of tier I capital). (35) Since it’s economic meltdown in 2001, and subsequent three-year recovery, the Turkish Financial Ministry appears to have continued to follow the playbook drawn up by the Turkish Economist Kemal Dervis, to its benefit. (36) Turkish aspirations to join the EU are tempered with the knowledge of political realities present within the EU; yet Turkey realizes internal economic gains by continuing in the process. (37)

When one attempts to pass judgment, it is wise to remember that human lives are brief and that all human endeavors are flawed. (38) (39) (40) The combined population of the 51 EUCOM countries and territories exceed 500 million souls who generate in excess of 20 trillion USD in GDP annually (the population of the US is approximately 300 million souls generating an annual GDP of 14 trillion USD for scale). The spectrum of economic conditions within EUCOM display societal statements regarding the appropriate roles and responsibilities of the modern day state and, increasingly, that of transnational organizations and individuals. (41) The penetration of society, the regulation of social relationships, the extraction of capital, and the appropriation of the same are enduring capabilities used by each of these actors to varying success. (42) Furthermore these capabilities are set against a regional background of political fragmentation, heavy migration flows, select demographic declines, and an increased and widespread transparency regarding decision-making processes and resource allocation (aka the democratization of information). Ostensibly, an implied goal of just leadership is to set the conditions for a sustainable economy (which is supported by a minimal, transparent, predictable, and balanced regulatory framework) in which societies and individuals can navigate to generate growth and wealth, each according to his or her ability. (43) It is this author’s opinion that if the EU’s centralized macroeconomic heart fails, EUCOM countries, and more broadly the interconnected global financial system will struggle to avoid a global economic depression. But then, even though political successes may not always be explicitly linked to economic successes or failures, neither is political capacity always sufficient to meet the economic requirements of the times. (44)

[Surferbeetle]

(1) How to save the Euro, September 17-23rd, 2011, The Economist

(2) Buckley, Neil, Putin sets sights on Eurasian economic union, August 16th, 2011, Financial Times

(3) Pocket World in Figures, 2011 Edition, The Economist

(4) Gardner, David, Turkey’s newly faltering foreign adventures, August 15th, 2011, Financial Times

(5) Special Reports: Turkey 2011, Financial Times Special Report, June 28th, 2011, Financial Times

(6) Commanding Heights, The Battle for the World Economy, US Public Broadcasting Service, http://www.pbs.org/wgbh/commandingheights/lo/index.html

(7) Guiding Prinicples for Stabilization and Reconstruction, 2009, United States Institute of Peace, United States Institute of Peace Press, Washington DC

(8) Ghani and Lockhart, Fixing Failed States, 2008, Oxford University Press, New York, NY

(9) Mankiw, N. Gerogory, Macroeconomics Sixth Edition, 2007, Worth Publishers, New York, New York

(10) Regional Economic Outlook: Europe, May 2011, International Monetary Fund, http://www.imf.org/external/pubs/ft/...g/ereo0511.htm

(11) Communique of the Twenty-fourth Meeting of the IMFC: Collective Action for Global Recovery, September 24th, 2011, International Monetary Fund, http://www.imf.org/external/np/sec/pr/2011/pr11348.htm

(12) Global Trends 2025, National Intelligence Council, http://www.dni.gov/nic/NIC_2025_project.html

(13) Ireland and the Lisbon Treaty, Second Time Lucky?, October 2009, The Economist, http://www.economist.com/node/14573513

(14) Treaty of Maastricht on European Union, EUROPA, http://europa.eu/legislation_summari...stricht_en.htm

(15) Lex, Eurozone Banks, 23 September, 2011, Financial Times

(16) Giles, Chris, Eurozone: A nightmare scenario, 16 September, 2011, Financial Times

(17) Weder der Weg zu Eurobonds noch zur Transferunion, 21 September, 2011, Frankfurter Allgemeine Zeitung, http://www.faz.net/artikel/C30638/eu...-30690622.html

(18) Gaddy, Clifford G., Putin’s Plan, Spring 2008, The Washington Quarterly, http://www.twq.com/08spring/docs/08spring_gaddy.pdf

(19) Special Reports: Russia 2011, Financial Times Special Report, April 27th, 2011, Financial Times

(20) Gaddy, Clifford G., Will the Russian Economy Rid Itself of Dependence upon Oil?, June 16, 2011, Brookings Institution, http://www.brookings.edu/opinions/20...omy_gaddy.aspx

(21) The mood of Russia, Time to shove off, September 10, 2011, The Economist

(22) Buckley, Neil, Shooting of Russian Banker condemned as an ‘act of terror’, September 16, 2006, Financial Times

(23) Belton and Buckley, Russia’s Banks: Collateral Damage, September 22nd, 2011, Financial Times

(24) Weaver, Courtney, Russian equities: shock value, August 9th, Financial Times

(25) Weaver, Courtney, Russian market retreat highlights lingering risks, August 16th, 2011, Financial Times

(26) Accessions: Russian Federation, World Trade Organization, http://www.wto.org/english/thewto_e/...1_russie_e.htm

(27) Trade Policy and WTO Accession for Russia, The World Bank, http://go.worldbank.org/VJMFT8MXW0

(28) Lynch, Dov, Russia’s Strategic Partnership with Europe, Spring 2004, The Washington Quarterly, http://www.twq.com/04spring/docs/04spring_lynch.pdf

(29) Lord Kinross, The Ottoman Centuries: The Rise and Fall of the Turkish Empire, 1977, Harper Collins Publishers, New York, New York

(30) Kinzer, Stephen, Crescent & Star: Turkey Between Two Worlds, 2008, Farrar, Straus, Giroux, New York, New York

(31) Special Reports: Investing in Turkey 2010, December 7th, 2010, Financial Times

(32) Special Reports: Turkey 2011, Financial Times Special Report, June 28th, 2011, Financial Times


(33) S&P signals upgrade, warns of weakness, September 21st, 2011, Hurriyet Daily News, http://www.hurriyetdailynews.com/n.p...ses-2011-09-21

(34) Deliveli, Emre, The Turkish Ratings Comedy, September 25th, 2011, Hurriyet Daily News, http://www.hurriyetdailynews.com/n.p...edy-2011-09-25

(35) Boland, Vincent, Banking: Resilient sector faces different set of stresses, June 27th, 2011, Financial Times

(36) Doing it by the book: The Economy has had a big boost from much sounder management, October 21st, 2010, The Economist, http://www.economist.com/node/17276384

(37) Turkey’s EU membership talks deadlocked, FM Davutoglu says, April 20th, 2011, Hurriyet Daily News, http://www.hurriyetdailynews.com/n.p...ays-2011-04-20

(38) Osterhammel and Petersson, Globalization: A Short History, 2003, Verlag, Munchen, Princeton University Press, Princeton, New Jersey

(39) Duncan-Jones, Richard, The Economy of the Roman Empire: Quantitative Studies, 1971, Cambridge at the University Press

(40) Binnendijk and Kugler, Seeing the Elephant: The US Role in Global Security, 2006, Potomac Books Inc, Dulles, Virginia

(41) Mearsheimer, John J., The Tragedy of Great Power Politics, 2001, W.W. Nortin Inc, New York, New York

(42) Weldon and Nusser, Bundestag Election 2009, Solidifying the Five Party System, Vol. 28, No 3, Fall 2010, German Politics and Society

(43) Migdal, Joel S., Strong Societies and Weak States, 1988, Princeton University Press, Princeton, New Jersey

(44) Smith, Adams, The Wealth of Nations, iPod App – BeamItDown iFLOW Reader

(45) Machiavelli, Niccolo, The Prince, iPod App – BeamItDown iFLOW Reader

[Fuchs]

Originally Posted by Surferbeetle

The European Union (EU) is the beating macroeconomic heart of European Command (EUCOM)

(...)

The European Union is not a fiscal union and it is an incomplete economic (common market and customs union) and monetary union; this distinction is at the center of its current macroeconomic troubles.

a) EU is not a part of EUCOM. EUCOM is merely concerned with an area in which the EU member states are.


b) I disagree on the fiscal policy thing.
Italy has the exact same macroeconomic problems between its north and its south as the Euro currency region has between its member states. Legal harmonisation and unification do not change the actual economic properties.

There are theories of optimal currency area, and one of them postulates that you need a high input factor mobility (capital, labour) inside a currency area in order to get a self-balancing effect.
An increase in Greek emigration hints that there is some labour mobility, but the past decade shows that it wasn't sufficient.
Furthermore, there is some theoretical work missing (or unknown to me) to reflect the fact that regions have fixed costs (pensions, government upkeep) and just draining them of input factors is an imperfect substitute for transfers in the case of imbalances.

There are proponents of further EU integration who continually sow the idea that problems are founded in imperfect integration into the world, but that are mere talking points. The actual macroeconomic analysis looks at different variables and finds different key problems.

(...)27 different financial ministries(...)

Actually, more. Some EU members have a federalist structure. Germany has 17 financial ministries alone.

Although comprised of 27 members, only 17 (the Eurozone) have ostensibly met the economic and monetary union requirements of the 1992 Maastricht Treaty. In return for the ability to participate in the world’s second largest reserve currency (...)

I disagree. At most 15 met the requirements. Greece lied its way into the club (and even after admitting it, continued to lie in the following years!) and Portugal was admitted despite failing to meet the requirements. It was deemed small enough to not hurt the other members significantly.

In order to achieve a fiscal union, member states will have to cede a greater portion of national control over fiscal policy to the EU.

The German federal constitutional court has pretty much written in stone by now that further integration would violate the constitution and be repealed by this court's rulings. There is not going to be a major step towards EU fiscal integration without replacing the German constitution.
Afaik amending or changing it won't suffice, for the articles in question are among the 20 first, definite ones that cannot be changed in their meaning.

[davidbfpo]

An alternative view

The idea of a European Union (EU), which is far more than the Euro and a fiscal union, is a concept that is IMO not shared by many of the EU electorate, even less now with the debt crisis. Those who shared the concept, mainly national-level politicians and bureaucracies, failed to articulate what it actually meant, partly out of fear. Now the electorate are expected to "bail out" southern members, partly on the claimed basis it makes sense.

The EU ignored its own rules over the Euro, for political reasons and partly as Germany was distracted by the huge support costs of reunification.

Look at the Schengen Zone's weakening after the Libyan and Tunisian refugee exodus. Let alone the Common Foreign & Security Policy (CFSP) left in disarray after the Libyan intervention.

The EU appears to have attempted a politics-free economic union and then looked surprised when the markets and people have expressed concern over the state we now fin ourselves in.

[Surferbeetle]

Originally Posted by Fuchs

a) EU is not a part of EUCOM. EUCOM is merely concerned with an area in which the EU member states are.

Thank you for this observation, you are right; I incorrectly give this impression in several places within this document. I will rework it.

Originally Posted by Fuchs

b) I disagree on the fiscal policy thing.
Italy has the exact same macroeconomic problems between its north and its south as the Euro currency region has between its member states. Legal harmonisation and unification do not change the actual economic properties.

There are theories of optimal currency area, and one of them postulates that you need a high input factor mobility (capital, labour) inside a currency area in order to get a self-balancing effect.
An increase in Greek emigration hints that there is some labour mobility, but the past decade shows that it wasn't sufficient.
Furthermore, there is some theoretical work missing (or unknown to me) to reflect the fact that regions have fixed costs (pensions, government upkeep) and just draining them of input factors is an imperfect substitute for transfers in the case of imbalances.

Studies by the northern league in Italy, and on some of the poorer US states immediately spring to mind…I’ll have to do some further reading and get back to you.

Originally Posted by Fuchs

There are proponents of further EU integration who continually sow the idea that problems are founded in imperfect integration into the world, but that are mere talking points. The actual macroeconomic analysis looks at different variables and finds different key problems.

I incompletely visualize the many, many possible permutations of EU integration as a binary tree, and as an American I think about the possibilities of a ‘United States of Europe’ or of Germany going it alone and becoming a sort of counterfactual German version of the Republic of Texas (1836 to 1846 - but with a *lot* more ordnung and way better infrastructure? Perhaps it was simply too many Lucky Luke comics when I was younger )

I also think about traveling around Europe in pre-Schengen days, noting the differences in customs, dialects, languages, dress, and architecture. Back in the day German’s never wore tennis shoes outside of sporthalle , that was just for tacky Ami’s. Today when I visit I consider the cost of the barriers and delays to the free flow of capital (human and otherwise) of the pre-Schengen zone days and wonder about the effects of cultural homogenization.

Short answer is that I am unable to cut the Gordon knot on this one…

Originally Posted by Fuchs

Actually, more. Some EU members have a federalist structure. Germany has 17 financial ministries alone.

Solid point, thanks. I’ll edit…

Originally Posted by Fuchs

I disagree. At most 15 met the requirements. Greece lied its way into the club (and even after admitting it, continued to lie in the following years!) and Portugal was admitted despite failing to meet the requirements. It was deemed small enough to not hurt the other members significantly.

I went with the word ostensibly to be polite. From a purely technical standpoint it appears to me from this armchair that the accessions criteria were not met in some instances. Political successes are not strictly linked to technical successes however, which of course results in future costs or benefits depending upon how the dice fall....complicating this gamble is the observation that world's ratio of statesmen/women to politicians is not what it should be

Originally Posted by Fuchs

The German federal constitutional court has pretty much written in stone by now that further integration would violate the constitution and be repealed by this court's rulings. There is not going to be a major step towards EU fiscal integration without replacing the German constitution.
Afaik amending or changing it won't suffice, for the articles in question are among the 20 first, definite ones that cannot be changed in their meaning.

Will have to review the Grundgesetz again, it’s been a while.

Speaking of laws I note that timeline wise:

September 27th ,the Greek Parliament is scheduled to vote on property taxes
September 28th, the Finnish Parliament is scheduled to vote on the European Financial Stability Facility (EFSF)
September 29th, the German Parliament might ratify the EFSF

[Fuchs]

Originally Posted by Surferbeetle

Will have to review the Grundgesetz again, it’s been a while.

http://www.spiegel.de/international/...4506-2,00.html

The first 20 constitutional articles cannot be changed or contradicted in their meaning.
https://www.btg-bestellservice.de/pdf/80201000.pdf

Article 20
[Constitutional principles – Right of resistance]
(1) The Federal Republic of Germany is a democratic and social
federal state.
(2) All state authority is derived from the people. It shall be exercised
by the people through elections and other votes and
through specific legislative, executive and judicial bodies.
(3) The legislature shall be bound by the constitutional order,
the executive and the judiciary by law and justice.
(4) All Germans shall have the right to resist any person seeking
to abolish this constitutional order, if no other remedy
is available.

[Surferbeetle]

Originally Posted by davidbfpo

An alternative view

The idea of a European Union (EU), which is far more than the Euro and a fiscal union, is a concept that is IMO not shared by many of the EU electorate, even less now with the debt crisis. Those who shared the concept, mainly national-level politicians and bureaucracies, failed to articulate what it actually meant, partly out of fear. Now the electorate are expected to "bail out" southern members, partly on the claimed basis it makes sense.

The EU ignored its own rules over the Euro, for political reasons and partly as Germany was distracted by the huge support costs of reunification.

Look at the Schengen Zone's weakening after the Libyan and Tunisian refugee exodus. Let alone the Common Foreign & Security Policy (CFSP) left in disarray after the Libyan intervention.

The EU appears to have attempted a politics-free economic union and then looked surprised when the markets and people have expressed concern over the state we now fin ourselves in.

Hey David,

I appreciate the comments. Working with my police friends in Iraq was a very interesting exposure to experiencing the on the ground reality of population demographics and ways of approaching things.

It would indeed seem to logically follow that if a fiscal union were to occur, some sort of political union would eventually appear upon the horizon.

My copy of The Economist, The World in 2011 quotes Herman Van Rompuy in the article: Europe in the new global game, as follows:

Historians will interpret the period we are living in as the transition from the economic phase of globalisation to its political phase. Economic globalisation came into full swing after the events of 1989, which ended communism and united Europe, and the West was proud of the universal attraction of its lifestyle. The number of democracies rose. Global trade and technology lifted hundreds of millions out of poverty, all over the world. Negative effects, such as growing inequalities, were brushed aside. This phase is now over.

Know that you enjoy the BBC and I do attempt to keep up with it's reporting on this topic and others.

A good book regarding the activities of The Treuhandanstalt or any other references that you would care to share would be most appreciated.

[Steve the Planner]

Beetle:

Thanks for the great post, which has obviously inspired much discussion and debate.

I guess I am getting too old when, after reviewing many of these articles and ideas, I am taken back to the De-Industrialization issues of the mid-1990s, wherein we referenced backward to Drucker, etc... and the Marshall Plans, and the older industrial systems and structures. Not much new in the macro-world except re-arrangements of assets, and re-assessments of what makes which assets important at the moment.

Rare Earth? Re-opening the Inland Silk Road? Russia having resources on which Europe is critically dependent? Oil empires fighting for nuclear technology so that they can free up export capacity by generating domestic power from something other than oil?

Manufacturing chopsticks in Georgia (USA) for the chinese market due to availability of wood, minimal mechanization, cheap labor and cheap transport (empty reverse haul containers). Go figure?

Comparative advantage is in real-time flux, and the dynamic and interactive market complexities remain beyond the limits of command planning at the macro level.

The downfall of all this stuff is not the failures of complex market systems to track, control and project past activity into the future, but their inability to grasp what the actual future will be defined by.

Thanks for making me rethink about this stuff.

[Lewis341]

It is estimated that Poland's total applications for Euro 2012 added up to more than 5 percent of its gross domestic products. Many Polish corporations are now investing just enough to keep enterprises going, but they are holding off on making big-ticket investments in substructure, development or employment.

[Surferbeetle]

Una teora de la clase poltica espaola
, CSAR MOLINAS 10 SEP 2012 - 01:34 CET, El Pais, http://politica.elpais.com/politica/...85_745267.html

En este artculo propongo una teora de la clase poltica espaola para argumentar la necesidad imperiosa y urgente de cambiar nuestro sistema electoral para adoptar un sistema mayoritario. La teora se refiere al comportamiento de un colectivo y, por tanto, no admite interpretaciones en trminos de comportamientos individuales. Por qu una teora? Por dos razones. En primer lugar porque una teora, si es buena, permite conectar sucesos aparentemente inconexos y explicar sucesos aparentemente inexplicables. Es decir, dar sentido a cosas que antes no lo tenan. Y, en segundo lugar, porque de una buena teora pueden extraerse predicciones tiles sobre lo que ocurrir en el futuro. Empezando por lo primero, una buena teora de la clase poltica espaola debera explicar, por lo menos, los siguientes puntos:

1. Cmo es posible que, tras cinco aos de iniciada la crisis, ningn partido poltico tenga un diagnstico coherente de lo que le est pasando a Espaa?
   
2. Cmo es posible que ningn partido poltico tenga una estrategia o un plan a largo plazo creble para sacar a Espaa de la crisis? Cmo es posible que la clase poltica espaola parezca genticamente incapaz de planificar?
   
3. Cmo es posible que la clase poltica espaola sea incapaz de ser ejemplar? Cmo es posible que nadie-salvo el Rey y por motivos propios- haya pedido disculpas?
   
4. Cmo es posible que la estrategia de futuro ms obvia para Espaa -la mejora de la educacin, el fomento de la innovacin, el desarrollo y el emprendimiento y el apoyo a la investigacin- sea no ya ignorada, sino masacrada con recortes por los partidos polticos mayoritarios?

__________________

A European policy outlook: the crisis and beyond, LSE, http://www2.lse.ac.uk/newsAndMedia/v...r.aspx?id=1564

Speaker(s): Pierre Moscovici
Chair: Peter Sutherland

Recorded on 17 September 2012 in Old Theatre, Old Building.

Pierre Moscovici will address both the policy outlook in France and the ongoing crisis management developments at the European level. Pierre Moscovici was appointed Minister of the Economy and Finance on 16 May 2012, following the election of President Franois Hollande. He has been involved in European and international affairs as well as in national politics, in particular on fiscal issues. He was first a member of the European Parliament from 1994 to 1997, and became one of its vice-presidents from 2004 to 2007. In the meantime, he was elected to France's National Assembly in 1997 (and was later re-elected in 2007 and 2012), in the constituency of Doubs in eastern France, and was appointed Minister for European Affairs in the government of Lionel Jospin from 1997 to 2002, where he was specifically involved in finalizing the Amsterdam Treaty in 1997 and negotiating the Nice Treaty in 2000. He was also involved in negotiating the European Constitutional Treaty of 2004 and was a vigorous advocate of its adoption in France. Before holding elected office, he worked for the French Socialist Party, which he joined back in 1984 as an expert on fiscal issues. Pierre Moscovici joined the Audit Court (Cour des Comptes) after graduating from the Ecole Nationale dAdministration (ENA) in 1984.

__________________


Porsche, Daimler Indicate Europes Car Crisis Spreading
By Alex Webb, Dorothee Tschampa and Tommaso Ebhardt - Sep 21, 2012 5:44 AM MT, Bloomberg News, http://www.bloomberg.com/news/2012-0...spreading.html

Daimler AG (DAI) and Porsche AG provided evidence that the worst European car market in 17 years has started to spread to the luxury brands, mirroring a broader recession that has spilled from southern Europe to Germany.

European car sales dropped 8.5 percent in August, the steepest decline since February, the Brussels-based ACEA industry association said on Sept. 18. The group forecasts that European deliveries will hit a 17-year low in 2012. German car registrations fell 4.7 percent in August, pushing the eight- month sales figure to a 0.6 percent decline.

The regions volume carmakers, hit hardest by the European markets downward spiral, are taking even tougher measures. Peugeot agreed yesterday to sell a majority stake in its trucking unit to raise cash. Fiats volume brands are eliminating 20 percent of management jobs in Europe, according to a person familiar with the matter.

[davidbfpo]

An article from the FT, prior to the launch of a report next week by Counterpoint, a London-based European think tank and sub-titled:

Reluctant radicals’ make up the majority of Europe’s rightwing populist voters. But there are ways to win them back

Link:http://www.ft.com/cms/s/2/667b08a6-0...#axzz27C8yOh3f

It opens with:

There is a story about Europe that says we are living in a rerun of the 1930s. According to this narrative, the populist right is rising again as crisis-hit Europeans look for scapegoats. Indeed, rightwing populist parties have polled more than or near one-fifth of the vote during the crisis in countries as tranquil as Finland and Switzerland. Already the populists are poisoning political debate, by pushing mainstream parties to take far-right paranoid, xenophobic views seriously. Now they aim to graduate to government.

But perhaps we worry too much. A fascinating new report by Counterpoint, the London-based research and advisory group, provides an unhysterical analysis of rightwing populism in Europe today. Merging recent data on voting in France, Finland and the Netherlands with previous surveys from around Europe, Counterpoint identifies who is voting for these parties and why. The report helps us see what strategies the populist right will use to grow – and what strategies we can use to counter them.

[Fuchs]

The U.S. brands of right wing extremism are something that's likely more troublesome in the long term than whatever sugar high the European right wing(s) might get from the economic troubles.
Luckily, Americans have troubles crossing the English Channel language-wise.

Another long term problem with right wing ideology stuff might stem from Russia, Belarus and the Ukraine. Nationalism and jingoism appear to be part of what fills the void left by communism in those countries. This could turn ugly sooner or later (even more so in East Asia, where the Chinese, Koreans and Japanese have some outright ridiculous nationalistic ideas).

The only area in Europe where the economic crisis could give a decisive push to nationalism is in my opinion Catalonia.

[Firn]

Catalonia warns EU that million-strong march cannot be ignored

We had this discussion before and for the first time I have seen numbers for this wealth transfer:

Mas has threatened to call elections if that is done in Catalonia, believing it would provoke a wave of nationalist sentiment. Catalans pay between € 12bn and € 16bn more in taxes each year to Madrid than they receive back, with the excess going to poorer regions such as Andalusia and Extremadura.

For 7.2 millions this means roughly 2000 € per capita.

"I identify with the popular outcry," he said, adding that only his responsibilities as regional prime minister had prevented him from joining the demonstrators. "Catalonia needs a state," he added. "For years we thought it could be the Spanish state."

But just as northern Europe was getting fed up with the south, and vice versa, so Catalonia and the rest of Spain were now fed up with one another, Mas said.

He implied that one way for Rajoy to dampen the surge in separatist feeling would be to agree to a change in funding, allowing Spain's wealthiest region to hold on to more of the tax it generates.

Catalonia wants to be able to collect its own taxes and send a share to Madrid, rather than the other way around. That would make it different from most of Spain's other 16 regional government, but similar to the northern Basque country.

Mas will see Rajoy next week to discuss what he called an issue of "fiscal sovereignty". Popular outrage at Catalan money going elsewhere amid health and education cuts was fuelling the thirst for independence, he suggested.

Italy has very distinct regions with greatly differing languages and dialects but nothing like this heavy-weight.

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The Shiller P/E or P/E 10 is rather low for most European countries with some exceptions like Germany, where stock prices have been resisted and current PE is relative low due to strong earnings. The Dividend yield is high and for rougly 3 years now superior to the bond yields, for the first time in almost 50 years. The ROE is in general good despite some relative poor earnings. In this case the Eurozone crisis has been good for investors has it has enabled us to buy a seemingly good prices for quite some periods. While I'm firmly long with a roughly 65% in equity, nominally with good capital gains I have sold quite a bit in the recent weeks. Sadly yesterday I was not able to do so, but who knows where and when...

Considering that I'm a net saver and should remain so for a couple of years those low valuations are positive. Even more so is volative nature of the stock market which allows one to buy cheap and sell some high if one wants to. Certainly Mr. Market has been very helpful lately, giving in my opion sometimes a good margin of safety. I just hope that by generally sticking to my sweet spots and rules I did not comit too many blunders. Recounting the ones made in the last 6 months is already quite a bit painful

Instead of thinking of the current crisis why not enjoy some of the best qualities of good old Europe? Schubert, Trio op. 100 - Andante con moto .

P.S: I can not resist to write that accroding to a study presented in the Corriere della Sera the Italian savers got slightly less the half of the overall yield of their investments. More then 50% went to "helpers" as Buffet calls them, in very costly fees. This is nothing but shocking and a good reminder why I have pushed hard to get the personal as low as possible. Low-cost index funds (ETFs etc) are part of this package. Sadly selling expensive products can be a good deal of the bank who enables the helpers to get enough money to help the bank to help the saver paying them in generally far too much for the performance they offer.

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