Welcome to the new version of European Tribune. It's just a new layout, so everything should work as before - please report bugs here.

The Confidence Fairy Strikes Again

by Frank Schnittger Mon May 9th, 2016 at 06:09:48 AM EST

David Folkerts-Landau, Chief Economist at the Deutsche Bank, has a screed in the Financial Times which is wrong on just about every level that can be imagined. Arguing that the ECB's policy of negative interest rates is undermining public and business confidence, Folkerts-Landau asks:

What should be done? The priority is breaking the negative spiral of lower confidence engendered by ever-looser money. The ECB needs to begin reversing its policy of negative interest rates. Moving back into the black would raise confidence across the eurozone.

Apparently lower interest rates cause people to save more and invest less. Recovery will only come when governments implement "reforms" which involve reducing investment and spending  (and employment) still further. The ECB is causing further stagnation and deflation in the Eurozone by reducing interest rates and buying Sovereign and Corporate debt, not responding to it with the main tools at its disposal.  The problem is that there are rising debt levels - not the excess savings identified by Draghi as a cause of the crisis.

Has it not occurred to Folkerts-Landau that excessive savings and debt might in fact be two sides of the same coin?

According to Folkerts-Landau:

Worse still, the ECB is failing in its other mandated duty -- to promote stability. Popular opposition to low and negative interest rates, when combined with continuing high unemployment, is fomenting anger with the European project

Ah yes, people are rioting in the streets because of low interest rates which are mysteriously supposed to be causing high unemployment. Not the other way around.  If you really want to make the European Project popular again, governments and banks should be imposing much higher levels of austerity, mortgage payments, bankruptcies and unemployment on all.

But perhaps Folkerts-Landau's real problem is given away in the sentence which reads:

Safe keepers of our wealth, such as insurance companies, pension funds and savings banks barely earn a positive spread.

Could it be that he is special pleading for his employer to be allowed to make greater profits from a higher interest rate regime to offset the speculative losses they have incurred in recent times on trading in derivatives? The Financial Times does itself few favours by publishing this drivel.

Could it be that he is special pleading for his employer to be allowed to make greater profits from a higher interest rate regime?

Corrected for you. His employer lost over 6 billion euro last year.

by gk (gk (gk quattro due due sette @gmail.com)) on Sun May 8th, 2016 at 02:03:37 PM EST
Ah yes, and this is, of course, all the fault of the ECB, not the fault of David Folkerts-Landau and the management team at Deutsche Bank... Indeed, we should look in awe at David Folkerts-Landau's economic expertise in view of that performance.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun May 8th, 2016 at 02:18:50 PM EST
[ Parent ]
I have made a minor edit to the text to take account of your point.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 9th, 2016 at 10:57:22 AM EST
[ Parent ]
have their way. Italy is already nearing democratic rejection of the Euro architecture, while a five-year spell of the pro-austerity right in France might provoke a Frexit in due time. We are already at the point where the EU is less than the sum of its parts, and the German elite want even more of this type of Europe.

The Germans will never get it, with respect to the European project, in much the same manner as you cannot get a man to stop believing jibberish when his pocketbook is so entwined with that gibberish.  

by John Redmond (Ladybeaterz@NolesAD.com) on Mon May 9th, 2016 at 08:25:15 AM EST
And yet I doubt the German pocket book will be enhanced  by a dismantling of the European Project...  We should not confuse the German pocketbook with the Deutsche Bank bottom line.

In fact I doubt the UK or any other pocketbook will be enhanced by the dismantling of the EU pocket.  The sum of its parts could yet become considerably less than the EU, even as it is now.

Nationalists in Europe can see all the costs of the EU whilst taking the benefits for granted.  They won't appreciate those benefits until they are long gone.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 9th, 2016 at 10:04:56 AM EST
[ Parent ]
contribution is for member states, I suspect that you are right, in terms of direct impact of the dismantling.

However, it is the longer term impact of getting out from under a stifling Maastricht régime that will likely prove beneficial to member states. Of course, it would be preferable to maintain those aspects of the EU which are net positives all the while jettisoning the negatives resulting from being under the Euro régime. (Noting in passing that those net positives - free movement, collective foreign and trade policy, harmonised regulations to name a few - are becoming less and less positive which each failed EU initiative whether it be negotiating a trade deal with the US, maintaining secure borders, failed allocation of refugees from Syria and Irak, slowly eroding common food safety standards, et c.)

No one can say for sure what the impact of leaving the Euro would be, either for the better or for the worse; we can, however, take a decent guess at the cost of staying, at least as far as post-Lehman economic growth is concerned.

In the period 2008-2014, per capita GDP expressed in PPP (data source IMF) has gone up 15,7% in Germany, 12,6% in the United States, and only 3,6% in the Eurozone x Germany. In the EU outside of the Eurozone during the same period (including the UK) per capita GDP in PPP has progressed 13,9%

So, being tied to a German-dominated Euro has reduced economic output in other European countries by easily 10 points. It doesn't take a rocket scientist to imagine what the Eurozone unemployment rate might look like with 10 points additional economic activity. It doesn't take a rocket scientist to imagine how EU member states ex-Germany might have responded to the refugee crisis with 10 points additional economic activity. No doubt Pope Francis had this in mind when he called out leaders of the EU present during his acceptance of the Charlemagne prize last week.

The UK case for leaving the EU was always going to be harder to make, in terms of net economic impact, given that the UK is not shackled to the Maastricht criteria as is most of the rest of western Europe. The only potential savings it gets is its budget contribution, and even that is debatable given how much it will need to pay to retain similar access to its EU export markets.

But for countries in the Eurozone, the case is likely much stronger.

by John Redmond (Ladybeaterz@NolesAD.com) on Mon May 9th, 2016 at 10:55:38 AM EST
[ Parent ]
Insofar as your remarks apply to the EZ as opposed to the EU, it is difficult to disagree.  The Euro, or at least the German dominated governance of it, has been little short of a disaster for peripheral members of the EZ.

First, interest rates were far to low for their economies, being driven by the German need for low interest rates post German re-unification.  This resulted, in part, in the boom and bust story of the Celtic Tiger and profligate policies in other peripheral EZ states.

Then, post Lehman, interest rates were far too high, exacerbating the economic downturn that was always going to come in any case. Allied to post re-unification German fiscal rectitude and the fiscal constraints of Maastricht et al, this turned what could have been a manageable recession into a full blown crisis.

The ECB , under Trichet, was slow to take up its essential Central bank roles of lender of last resort and guardian of the payments system.  Draghi has been a big improvement, but there is only so much he can do.

Unless the EC, EP, and ECB develop the balls to act as a counterweight to the German economic behemoth, the EZ may well be doomed, but that does not mean that the EU has to go down the tubes as well.

The main crises confronting the EU at the moment are the Greek insolvency and the refugee crisis: the latter caused in large part by Blair's UK military adventurism in the Middle East rather than by the EU per se.

A little but of imaginative debt forgiveness - or long term negative interest rates - will help to solve the Greek crisis. The refugee crisis is already over-blown in terms of its impact on an otherwise de-populating European continent.

The problems we have now pale into insignificance besides the problems European leaders and EU founders faced after the Second World War. They are magnified only by the myopia of our current leaders...

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 9th, 2016 at 12:14:28 PM EST
[ Parent ]
"They won't appreciate those benefits until they are long gone."

I am admittedly ignorant on this subject but this line brought a memory to mind. Back in 1979 I was finishing grad school at UC Davis and my wife was fucking some ball-bearing salesman she met at work in Sac. That Sept. I was having trouble finding a job so wifey decides to dump me (the person who makes sure the car is serviced, the bills are paid, that savings occur, cooks the food ... all the brain stuff) in exchange for the "boyfriend" who is "promising" to buy 20 acres of land in West Sac, build a house on the land, plus a barn ... who knows what else. All lies of course. So, fast forward 6 months, the divorce is filed, I'm working at Quaker Oats in Barrington Ill., I'm on the Watts line to a friend back in Davis and she says "Julie said she feels like she's being punished."  😢 The ball-bearing salesman dumped Julie about a month after our divorce was filed and a brainless person has trouble surviving once the baby-sitter (me) for 6 years is gone.

Take home lesson: Brainless people never appreciate what they have till it's gone and then they cry in their soup, assuming they can afford soup.  Ain't life ducky.

And yes, I still think California will be better off once the US Empire goes belly up under Emperor Trump. It'll be rough in the beginning but we'll survive and then thrive. Until the losers in Texas decide to declare war on California and then all bets are off.

ALL grovel before the GREATNESS of EMPEROR TRUMP! 😝

by THE Twank (yatta blah blah @ blah.com) on Mon May 9th, 2016 at 01:46:35 PM EST
[ Parent ]
So are you saying there's more chance of the USA breaking up than the EU?  So how will Trump facilitate or force Californian (or Texan) secession?

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 9th, 2016 at 02:48:24 PM EST
[ Parent ]
Not knowledgeable on the EU situation but I can imagine a Trump Dynasty with the following:

  1. Sale of Fed assets, specifically land for oil, coal, minerals etc. to supposedly pay down the US debt.

  2. Outright no-holds-barred economic competition between the states. States will control their minimum wage, or lack thereof, so there will be a race to the wage bottom.

  3. States will also control their safety net and force people to take any work, at any wage just to survive.

  4. Lots of foreign wars to fight, lots of places to pillage. Trump will need people in the military. Force students who are delinquent on their school loan payments into the military in lieu of the draft.

  5. Trump supporters who believed the "Make America Great Again", bring good jobs back to the US, bullshit will realize they've been had and a lot of those folks own guns and will feel betrayed. People will realize that the Fed. Govt. works AGAINST the citizens and the best approach is to get rid of it and allow the states to be the ultimate governments.

  6. You folks know better than me what the Trump economic programs will do to the US.

Bottom line: State vs. state economic warfare, everybody is pissed off at the Fed. Govt. Time to do something.

ALL grovel before the GREATNESS of EMPEROR TRUMP! 😝
by THE Twank (yatta blah blah @ blah.com) on Mon May 9th, 2016 at 10:11:24 PM EST
[ Parent ]
If people take to the streets any time soon, it will not be because of interest rates but because people like Folkerts-Landau are not in prison.
by rifek on Mon May 9th, 2016 at 10:17:02 PM EST
ECB Can Still Pull Rabbits Out of the Hat, Council Member Says
The European Central Bank can still conjure up policy surprises if needed to combat economic shocks and restore euro-area inflation, Governing Council member Vitas Vasiliauskas said.

"Markets say the ECB is done, their box is empty," Vasiliauskas, who heads Lithuania's central bank, said in an interview on Tuesday in Vilnius. "But we are magic people. Each time we take something and give to the markets -- a rabbit out of the hat."

We are so confident now, to give up seven more virgins!
by das monde on Thu May 12th, 2016 at 01:26:55 AM EST

Go to: [ European Tribune Homepage : Top of page : Top of comments ]

Top Diaries

The Killing of Jo Cox

by Frank Schnittger - Jun 17

Nostalgia Isn't What It Used to Be

by gmoke - Jun 15

Long tunnels

by DoDo - Jun 12

What 9/11 liberals ignore

by DoDo - Jun 5

Developments in Austria

by generic - Jun 8
1 comment

The arsonist party

by fjallstrom - Jun 8
1 comment

Recent Diaries

The Killing of Jo Cox

by Frank Schnittger - Jun 17

Long tunnels

by DoDo - Jun 12

Developments in Austria

by generic - Jun 8
1 comment

The arsonist party

by fjallstrom - Jun 8
1 comment

The tragedy of Hillary

by DoDo - Jun 6

What 9/11 liberals ignore

by DoDo - Jun 5

France on Strike

by John Redmond - May 30


by DoDo - May 29

A Tale of Two States

by Frank Schnittger - May 26

Edmund Burke for Socialists

by ARGeezer - May 25

More Diaries...