Category Archives: European union

To weep or laugh?

The intellectual excuse that lead to economic policies that have been followed in the U.S. and the EU in recent years is a book from economists Carmen Reinhardt and Ken Rogoff. In this book the authors argue that once a country has more government debt than 90% of GDP economic growth is sharply reduced.

This has been an important part of the reason for deep cuts in social services, cuts in wages and cuts in social security in Greece, Spain, Ireland, Portugal and more countries. Simultaneously, the same countries, and ultimately, European taxpayers have acquired large amounts of private debt, without getting anything in return through the so-called saving of the banks. This is perhaps the biggest robbery of tax payers ever.

One has to weep

What really is a laughable matter is that Reinhardt and Rogoff had made a tiny mistake in the spreadsheet. This small error meant that the result of the research was completely wrong. There are, in other words no longer any intellectually defence for the cuts and the robbery the inhabitants in the EU are exposed to.

To steal a bit from Bloomberg:

The paper, “Growth in a Time of Debt,” concluded that countries with public debt in excess of 90 percent of gross domestic product suffered measurably slower economic growth. It has been cited by U.S. House Budget Committee Chairman Paul Ryan and European Union Economic and Monetary Affairs Commissioner Olli Rehn in defense of efforts to drive down budget deficits.

All in all tears more than laughs are appropriate. For the banks and the bank owners have received their unfair share. And therefore Paul Krugman is right here:

If true, this is embarrassing and worse for R-R. But the really guilty parties here are all the people who seized on a disputed research result, knowing nothing about the research, because it said what they wanted to hear.

Lesson: never trust anyone who say that we need to take money from ordinary people and give them to people who already have the most.

Who loses in Europe?

Alexis Tsipras is the leader of Syriza Foto: Joanna/Wikipedia Commons

It may very well possible that Greece and not Germany who is holding with the best cards when it soon is to be decided what happens to the euro.

Marshall Auerbach writes in a guest post on the blog to Yanis Varoufakis that:

Alexis Tsipras is a good man. At least he’s a very good poker player. He hasn’t yet capitulated to this massive orchestrated pressure and made it clear up front in the Wall Street Journal Germany that there are options for the Greek people which the Germans won’t like: He is, in short, the first Greek politician to use the his country’s leverage over creditors.

Furthermore, it follows that:

The German response so far? “Oops. This guy is blackmailing us. What shall we do?” Because Germany as a creditor nation faces huge losses if the entire banking system starts to come under pressure, to say nothing of the end of their vaunted “wirtschaftwunder” as the entire eurozone implodes. Greece, by contrast, has already experienced 5 years of unremitting economic austerity. The country has been virtually reduced to the state of a barter economy. What has it got to lose at this juncture by refusing to roll over to the Troika?

I believe that the austerity line now being taken in Europe to rescue the euro is a recipe for economic decline. An economic downturn that primarily will affect people who do not sit at the top of the social pyramid.

Nobel Prize winner in economics, Paul Krugman, writes on his blog:

So Japan, which is spending heavily for post-tsunami reconstruction, is growing quite fast, while Italy, which is imposing austerity measures, is shrinking almost equally fast.

I think Europe and the somewhat the United States is about to make the same mistake as when all countries were to return to the gold standard after the First World War. The policy led to mass unemployment and poverty. About this parity policy the  Norwegian Encyclopedia says:

University economists and others warned against the parity policy, because deflation would cause bankruptcies and major restructuring difficulties for businesses, while the Central bank director-Rygg claimed that the parity line was both morally right and necessary to maintain international confidence in the Norwegian krone. (my translation)

Is there anyone other than me who recognizes the moral politics rather than economic reality as the foundation of what is happening in Europe now?

Why are Norwegians eurosceptics

The last opinion polls shows that 75% of Norwegians are against Norwegian membership in the European Union. Even traditional yes-strongholds like the supporters of the conservative pary and those living in Oslo now overwhelmingly say they are against Norwegian membership in th EU. Why this eurosceptism?

Well, the spike in the no-vote is easy to explain. It is surely connected to the eurocrisis and the Norwegian economy doing well – on the back of petrodollars.

However that does not explain the enduring sceptism in the Norwegian populace. Dimiter Toshkov discusses this on the blog Eurosearch. He writes:

 According to Marianne Skinner, neither economic interest nor identity politics can account for the strong Euroscepticism of the Norwegian people. Instead, the author argues that it is a concern for (1) post-materialist values, (2) a particular political culture, and (3) emphasis on rural society that determine the lack of desire of ordinary Norwegians to join the EU*.

He then argues that this does not entirely convey why Norwegians are eurosceptics. He writes:

Now contrast this Norwegian brand of Euroscepticism with the one prevalent in the UK (and in England, in particular). The public and elite (political parties) level Euroscepticism in the UK is fueled by feelings that the EU regulates too much and not too little, that it is not supporting the market and economic growth enough, and that its economic philosophy is not too liberal but too dirigiste.Norway and England are Eurosceptic for the exact opposite reasons!

I’m not sure that I agree.

Norwegians certainly have many different reasons to oppose EU-membership, but EU-regulations is one of them. We have a feeling that the burearocrats in Brüssels never will understand our specific needs. The prohibition against sealproducts strengthens this belief.

However this just supports the underlying and most important reason for Norwegians. Summarized in the slogan “It is a long way to Oslo, but farther to Büssels”.

The difference between British and Norwegian eurosceptics is that the Brits are against all regulations, Norwegians are against regulations we don’t make ourselves.

This of course makes it ironic that Norway imports most European regulations and laws through the EEA-agreement, totally without a say in their making.

Let Greece go bust

No one wished for the current crisis in Europe, but that it happens is still an expression of conscious politics. The EU’s four freedoms and the introduction of the euro is the basis for the crisis we see today. The EU-system changes power conditions in the labor market, high unemployment reduces the unions power – that is why we have both the crisis and the constant attacks on the rights of working people.

When Greece adopted the euro, two very important things happened. First of all, interest rates fell dramatically, money was cheap. Investors the world over decided that all euro countries suddenly was equally safe payers and that it therefore was logical to demand the same rate from Greece as from Germany. It meant that Greece could borrow money and for whatever they wanted. They imported German interest rates without importing the German budget discipline.

The second thing that happened was that Greece no longer had the ability to devalue to make their debts bearable. A country like the U.S. can never go bankrupt. We hear a lot about the large U.S. government debt, but unless the United States wants to,it cannot go bankrupt. Their borrowing is in U.S. dollars. If the debt becomes too large, it is easy for the U.S. to start the printing press and make more than enough dollars to pay all they have loaned. This opportunity does not exist for Greece, nor any of the other euro countries.

When the “normal” form of devaluations no longer exists the alternative is what is called internal devaluation. Now, what is an internal devaluation?

It is to reduce wages of ordinary working people in a country. This makes production cheaper, exports improves and the debt may be possible to pay. Many countries have tried this cure, Argentina, CFA area, the Baltic countries. For most it went very badly. Argentina finally had to break the peg with the dollar and devalue, the Baltic countries ended up with a sharp decline in GDP and very much lower wages for most people.

An internal devaluation leads (almost) always fall in GDP, which means that the debt is more difficult to bear. Furthermore, many people point out that the internal devaluation in Greece, means that the debt will rise from today’s impossible level to almost 200% of GDP.

The failure is almost inevitable.

But in today’s discussion is the major focus on banks, government debt, bonds, and investors. It is much less focus on those who must bear the burden of an internal devaluation.

In Greece, wages has declined by around 30 percent, both in private and public sectors. 100 000 public employees have been dismissed, pensions have gone down considerably and taxes are rising sharply. To use a random example,  a clerk in a municipality in Greece has seen their pay fall from 2000 dollar a month to 1300 dollars a month. At the same time VAT has increase from 13 to 23 percent, all have received additional incometaxes of between one and four per cent and a significant property tax has been instituted.

It should be mentioned, of course, the Greeks might not have always been the most observant at paying their taxes, either with joy or grief, especially rich Greeks have failed to pay. But it is ordinary people who get the burden.

In short, if a country devalues ​​the banks and the investors must carry most of the loss, while with an internal devaluation (at least initially working people most of the burden. Now the EU must allow Greece to go “bankrupt”, the debt must be hammered down.

Afterwards let us handle a possible bankcrisis. It is better to let the banks be nationalized than to let ordinary people bear the burden of the crisis.


PS. I know this is simplified, a banking crisis will have serious consequences for ordinary people, but I think the consequences will be much less.

The Car Industry wins – again

BMW og dei andre tyske bilprodusentane vann fram med kravet om svakare utsleppskrav. Foto anita.trans
BMW and the other German car manufacturers won the battle for lower emission standards. Photo anita.trans

The EUobserver reports that the car industry in Europe yet again have won the battle agains stricter emission rules. The European Union had originally decided that the average car produced in the EU could not emit more tan 130 grams of CO2 per kilometre by 2012. The date is now pushed to 2015, and fines for non-compliance has been reduced.

The EUobserver writes:

In the European Commission’s original car emission reduction proposals, which have been all but gutted, the companies were to have introduced the reductions on all cars sold in the EU by 2012. Instead, there will be a phase-in to allow car companies to adjust.


The commission had originally pushed for €95 across the board from 2012, but under the deal, firms will now be fined five euros per car for the first gramme that exceeds the limit, €15 euros for the second gramme and €25 for the third. For four grammes and above, car companies will be fined €95 for each gramme. After 2018, however, the €95 fine will be imposed on the very first gramme that breaches the cut-off.

This change will probably make emissions from new cars in Europe rise slightly in the coming years. From an average of 158 grams per kilometre to 164 grams per kilometre.

The car industry, backed by the major car producing countries has managed to kill a car fuel-efficiency law in Europe for the second time in a decade,” said Jos Dings of Transport and Environment, a Brussels-based environmental group.

It is mainly the German car producers that have lobbied for less strict standards. Generally they produce heavier and more polluting cars than the French and Italian producers. The German government has been involved on the industries side for a long time.  EUbusiness wrote last December:

Chancellor Angela Merkel and the powerful German auto industry slammed a European Commission proposal Wednesday to slap heavy fines on car-makers that fail to meet emissions targets.

So, we know where the power sits. No surprise I guess.

The EU and the Arctic

The EU takes interest? Photo:NASA
The EU takes interest? Photo:NASA

The EU has for a long time taken slight interest in what has been happening on its northern Arctic periphery. That is set to change. The Commission has just released a communication to the parliament and the council on “The European Union and the Arctic Region”. This could be good news, it could be bad.

A communication like this is often the first step leading to a thorough policy from the Union. The first step is actually quite interesting and , I believe, sets the Union on a right path. Except that is, that this document as so many documents today is schizophrenic. On one hand it makes all the right noises about climate change and the environment. They write beautiful words, such as these:

The vast sea and land spaces of the Arctic region are vital and vulnerable components of the Earth’s environment and climate system. Arctic air temperatures have been increasing twice as much as the global average. Coverage of sea ice, snow cover and permafrost have been decreasing rapidly, triggering strong feed-back mechanisms that accelerate global warming. Accelerated loss from the Greenland ice sheet would raise sea levels rapidly and considerably. In spite of harsh conditions, melting of ice and new technologies will gradually increase access to Arctic living and non-living resources as well as to new navigation routes. Although the Arctic remains one of the most pristine areas on Earth, it will be increasingly at risk from the combined effects of climate change and increased human activity.

It seems that they understand the problem, I thought, for about half a minute. That was the time it took me to reach this paragraph:

Support for the exploitation of Arctic hydrocarbon resources should be provided in full respect of strict environmental standards taking into account the particular vulnerability of the Arctic.

So climate change is extremely important, but we still need to drill for more oil and gas. Somehow that double standard, seen often these days, keeps amazing me. Still I guess it is a step forward the climate change actually is put first in the document. And, truth be told, no other governments are less schizophrenic. I guess there are two good reasons for actually exploiting arctic hydrocarbons. It could possibly make the EU less dependent on Russian natural gas, and natural gas could replace coal fired electricity. I don’t believe either scenario.

However the document contains more than climate change and hydrocarbons. It sets a very interesting path for multilateral cooperation in the Arctic, within the framework of UNCLOS. Even more interesting it ponders the possibilities of setting up new legal frameworks in the Arctic. I think that it would be very good if the parts of the Arctic not under national sovereignty could be handled in the same way as the Antarctic is handled. With a treaty that protects the environment an demilitarizes the polar basin. I have been thinking about this more as a dream, but with the EU warming to the idea it could be a distinct possibility.

They write:

The full implementation of already existing obligations, rather than proposing new legal instruments should be advocated. This however should not preclude work on further developing some of the frameworks, adapting them to new conditions or Arctic specificities.

I tmight still be a dream, but it is a nice one.