Why Europe Keeps Failing........ merged with "EU Seizes Cypriot Bank Accounts"

[GAP]

Hey, we want to stimulate the economy, and since we don't have the $$ and you do.......

France seeks 120B EU package
By REUTERS
Article Link

France wants the European Union to agree before the end of 2012 on growth-boosting measures worth 120 billion euros, the weekly Journal du Dimanche said on Sunday, citing a proposal circulated by France ahead of an end-June summit.

The newspaper also reported that France has accepted Germany’s rejection of its call to issue mutualized debt in the euro bloc and now agreed that so-called euro bonds were a project to be looked at over a 10-year time frame.

The 120 billion euros are to come from a combination of short-term growth instruments such as project bonds, reallocated EU structural funds and fresh investment capital from the European Investment Bank.

French President Francois Hollande submitted his ideas to EU partners and the European Council a few days ago ahead of a Group of 20 summit in Mexico on Monday and Tuesday and four-way talks with the leaders of Germany, Italy and Spain in Rome on Friday.

“From June, the European Council should adopt growth measures having a rapid impact and totalling 120 billion euros,” the newspaper cited Hollande as saying in the document, entitled “European growth pact.”

Hollande said the measures should be enlarged upon before the end of 2012 with the creation of a financial transaction tax and measures to create jobs, especially for young people.


The 120 billion euros would be made up of some 55 billion euros of unused EU structural development funds, some 4.5 billion euros in project bonds for infrastructure projects and 60 billion euros in capital that could be raised by the EIB if it were given an extra 10 billion euros in financing, the newspaper said.

Hollande, France’s first Socialist leader in 17 years, is demanding that Europe complement a budget discipline pact agreed earlier this year with a growth pact, an idea so widely supported that Berlin has come around to it.

Hollande has put himself on a collision course with the German government, however, with his push for the euro zone to adopt new mechanisms to insulate member states and their banks from market turmoil, such as a joint fund to pay down debt.

Hollande discussed his ideas with Italian Prime Minister Mario Monti in Rome on Thursday and also circulated them to European Council President Herman Van Rompuy and others two weeks before the crucial June 28-29 summit.

The French president also wants the euro zone’s ESM permanent rescue fund to be given a banking licence to allow it to borrow money from the European Central Bank to bolster its firepower.
More on link

 

[a_majoor]

I'll just leave it with Synthen's reply...

 

[a_majoor]

I think this blogger has nailed the issue, and we had better look at our practices to see if we are harbouring more counterproductive rules and regulations that affect our productivity (answer: yes). The Canadian government is working to slowly increase our assets, but really needs to do a lot more to shrink our liabilities:

http://southdakotapolitics.blogs.com/south_dakota_politics/2012/06/weve-been-eating-our-seed-corn.html

We’ve Been Eating Our Seed Corn

I have frequently admitted to being simple minded. While the world's economic and financial systems are enormously complicated, it seems to me that the bottom line is not complicated at all. Governments, like private corporations and individuals, have assets and liabilities. When the first is larger than the second, the question is what to do with the surplus. When the second is larger than the first, one must do one or more than one of three things: somehow increase assets and/or diminish liabilities, or default (or declare bankruptcy), or borrow the difference.

The last is the least painful in the short run, though it means increasing liabilities over the long run. That requires that there is someone you can borrow from right now. That in turn means that someone has to be running a big enough surplus to cover your shortfall. The current world crisis seems to be the result of a simple mathematical fact: there is simply not enough surplus in the world economy to cover all of the world's debts.

The only argument on the table right now is the austerity v. stimulus argument. Those favoring the former argue that the world's debtor governments (which is pretty much all of the world's governments) must reduce their liabilities by reducing spending and, in most cases, increase their assets by increasing taxes. The partisans of stimulus argue that this is self-defeating. Reducing spending retards economic growth, which further reduces revenues. Instead, governments should borrow even more and spend even more in order to generate economic growth. Growth will result in assets that can be used to pay down the debt. The obvious question then is whom to borrow from? Germany can't bail out the world.

It is not at all obvious, however, that borrowing heavily and spending heavily can really generate economic growth. Here is a note from Walter Russell Mead's superb blog Via Meadia:

For years, Japan has been the poster child for Keynesianism—and not in a good way. Its "lost decade" of economic stagnation is well known (at this point, it's closer to two decades than one), and this is only the beginning of its problems. Japan has been running a large budget deficit for more than twenty years now, and its debt to GDP ratio is close to 200 percent. But despite these gloriously Krugmanesque accomplishments, the economy isn't really growing, and it hasn't been for a very long time.

If heavy borrowing and spending really generates economic growth, wouldn't it be working for Japan by now?

The other question is whether the borrow now, pay later strategy has ever worked before. Here's Neil Reynolds at the Globe and Mail:

The British government has run a budget surplus in only six of the 37 years since 1975. The American government has run a budget surplus in only five of the 52 years since 1960. The Canadian government has run a budget surplus in only 10 of the 46 years since 1966. As Hudson Institute scholar Christopher DeMuth asserts in a prescient paper, Debt and Democracy, Keynesian doctrine – surpluses in the good years, deficits in the bad – has morphed in the advanced democracies into perpetual stimulus. As a result, the exponential accumulation of debt means that the next generation, people still unborn, could theoretically be required to pay all of their lifetime incomes in taxes merely to make the interest payments on an enormous debt.

I heard Paul Krugman, the high priest of the stimulus cult, saying on NPR that he'd be all for paying down debt when the economy is moving again. I would like to see an example of Krugman calling for real deficit reductions during past recoveries. I don't believe a word of this. It is obvious from the above that this is not what really happens. The governments of the UK and Canada and the US didn't borrow in bad times and pay back in the good ones. They borrowed and spent even more when times were flush.

The real problem we face is one of profligate spending. Democracy means that we the people get what we want and sooner or later that means we get what we deserve. To see how difficult the problem is, consider this story by Paul Geitner writing in the New York Times:

BRUSSELS — For most Europeans, almost nothing is more prized than their four to six weeks of guaranteed annual vacation leave. But it was not clear just how sacrosanct that time off was until Thursday, when Europe's highest court ruled that workers who happened to get sick on vacation were legally entitled to take another vacation.

Did you get that? Employers in Europe are not only legally required to pay for four to six weeks of vacation, but for another four to six weeks if you get sick while on the beach in Italy. This has consequences.

With much of Europe mired in recession, governments struggling to reduce budget deficits and officials trying to combat high unemployment, the ruling is a reminder of just how hard it is to shake up long-established and legally protected labor practices that make it hard to put more people to work and revive sinking economies.

Allow me once again to be simple minded. There are two things you can do with wealth once you generate it. One is to invest it in generating future wealth. The other is to consume it. The latter is the whole point of having an economy. The former is necessary in order to sustain an economy. When you can't put some folks to work because other folks are taking a second vacation, that means you are eating your seed corn. That is really the root of our problem.

 

[bridges]

When you can't put some folks to work because other folks are taking a second vacation, that means you are eating your seed corn.

Getting sick on vacation strikes me as just bad luck - ditto with regional blackouts that give everybody a free week off except those who'd already booked time off that week (clearly, I'm not still bitter about it...).

But while I'm not necessarily on board with the idea of compensatory vacation for illness, the linkage in the quote above isn't clear.  How does giving a salaried employee another few days off prevent an employer from hiring someone new?  The salary & paid benefits don't change - so is the theory that the employee will be less productive because of the extra days off?  Or is the idea to reduce paid benefits like vacation and sick leave altogether, & use the putative savings to hire addl workers? 

 

[Brad Sallows]

>How does giving a salaried employee another few days off prevent an employer from hiring someone new?

Another few days off = X days of production lost.
Hiring new employee to recover X = additional cost, for same total productivity.

Basically, the problem is that the employer (initially) absorbs the cost.  Naturally, it will be passed along somehow (higher prices, reduced dividends, etc).

 

[bridges]

>How does giving a salaried employee another few days off prevent an employer from hiring someone new?

Another few days off = X days of production lost.
Hiring new employee to recover X = additional cost, for same total productivity.

Taking on a whole new PY, to make up 3 days (or 7, or 1) of missed productivity?  Really? 

If you're looking at 1 for 1, it doesn't work:  a new employee would not only work those 3 days - they would be contributing another PY - so the total productivity would not be the same, it would be more.

Unless they're equating, say, every 100 employees' extra vacation days to every 1 potential new employee - ? But then there's the concept that people might actually be MORE productive after a few days' rest.  I'm certainly not the first to suggest that idea...it's even enshrined in DND leave regs.

While, again, I'm not necessarily on board with the idea of compensatory vacation time for that missed due to illness (or regional blackouts) ;D, I think the idea of looking at rest as a liability to production needs to be treated with wariness at best.       

 

[a_majoor]

Actually since there is no indication that production or output would increase with the new hire, productivity would decrease since there are now more employees/unit output.

Since employers don't want to have extra employees, there is a disincentive to hire (and European employers are already very reluctent to make new hires due to the huge regulatory burden and the near impossibility of eliminating excess or unproductive employees).

 

[Nemo888]

If we all have the same counter productive but personally enriching rules we can have a decent lifestyle. No 70 hour work weeks, mat/pat leave, ample vacation to enjoy family and friends, sick days, no child labour and all the other things that were common practices before the evil spectre of socialism infected Europe. Changing the fundamentals of the social contract because politicians took on too much debt and punishing the following generations does not sound fair to me. Slash pensions on those who created the problem.

Or we could rush to the bottom to compete with defacto slave labour in Asia until we have no middle class left.  Eventually people in that hyper captialist system judge all their relationships by profitability. Welcome to Toronto. Better off moving to a small town up North where people are poor but at least they are not all jerks yet.  Where the entire town shuts down for hunting season and no one ever goes hungry at Christmas. A place where people don't judge people primarily by money.

I hope Europe stays European. Eating great food, friends, family and siestas are better than the rat race I am in.  Why would you hope that they have it as crappy as us?  Maybe we should become more like them.

 

[Jed]

If we all have the same counter productive but personally enriching rules we can have a decent lifestyle. No 70 hour work weeks, mat/pat leave, ample vacation to enjoy family and friends, sick days, no child labour and all the other things that were common practices before the evil spectre of socialism infected Europe. Changing the fundamentals of the social contract because politicians took on too much debt and punishing the following generations does not sound fair to me. Slash pensions on those who created the problem.

Yep, and we will all be drinking free bubble up and eating rainbow stew. Get Real. Take off the rose coloured glasses.

 

[George Wallace]

Like Alberta, many Europeans do not take jobs that are "beneath them".  Lower wage earning jobs are not filled by 'nationals', but by migrants. 

 

[bridges]

Like Alberta, many Europeans do not take jobs that are "beneath them".  Lower wage earning jobs are not filled by 'nationals', but by migrants.

It's the same in SW Ontario.  Many greenhouses rely on migrant labour. 

 

[Nemo888]

So since people in some sh1t hole have no choice but to do anything for a few dollars we should too.  I like visiting those countries. Who wouldn't enjoy being treated like a millionaire and feeling superior about our fairness, opportunity and lack of corruption.

How would emulating Mexican labour practices be progress and how is it better than the European model?

 

[a_majoor]

Nemo, do you realize what you are saying?

The Europeans decided they could "legislate" the good life into being without bothering to establish how they were going to pay for it. Instead, they borrowed the money in the form of ever increasing deficits and debt.

Now I am pretty sure you know someone who tried to do this on a personal basis and is facing financial hardship or even bankruptcy because they overextended on their credit cards/line of credit/borrowed against their house etc. They lived high on the hog for a while, but eventually the bills came due.

The EU and most Western nations (including Japan) did this on a mass basis, and now the bills are due as the creditors (people who bought sovereign debt in the form of government bonds and treasuries) are worrying that they have bought worthless pieces of paper. Greek debtholders will loose 60% of their investment, for example. It is all well and good to say "tough" and laugh at French bankers who dove in, but pensioners who's pension was based on bond yields will be equally punished for following the promises of the political class (and many bundled investments like pensions are not even under the control of the pensioner; you can choose what goes into an RRSP or a 401 plan, but the pension management team chooses the investment mix for your pension).

The worst part is the people who squandered the wealth will take down the people who were prudent, saved their money and did all the right things; they will face financial ruin along with everyone else because the society as a whole decided they could live beyond their means. If everyone in Canada were to be presented the bill for the $32,000 they owe right now, (one trillion in federal debt and unfunded liabilities) how many would be able to pay? If they can't pay that means $500 billion of unfunded liabilities; mostly Federal employee pensions and benefits will be wiped out, along with the banks and investors holding the $500 billion in Federal debt.

If you wish to believe that you will be isolated from this financial tsunami, you can. It may even be true if you have carefully stockpiled a bunker in the woods or are skilled in Neolithic hunter-gatherer techniques. Otherwise, we all need to figure out how to navigate the coming shakeout. As a society, we will need to find a way to pay down the debt or accept it will neve be paid and how to deal with the consequences.

 

[George Wallace]

So since people in some sh1t hole have no choice but to do anything for a few dollars we should too.  I like visiting those countries. Who wouldn't enjoy being treated like a millionaire and feeling superior about our fairness, opportunity and lack of corruption.

How would emulating Mexican labour practices be progress and how is it better than the European model?

HUH?

What are you talking about?

People here find it below their station to take jobs as waiters for $20 and hour.  What does that have to do with Mexican labour practices?  What does that have to do with "people in some sh1t hole have no choice but to do anything for a few dollars"?

 

[Nemo888]

It has a lot to do with migrant temporary farm workers from those countries that come here and take jobs away from Canadians by working for peanuts.

You can get 250 applications for a DISHWAHING job that pays minimum wage in Ontario now. A friend of mine manages a restaurant and he had to argue with a Masters degree who was demanding that he could be a great dishwasher. He refused him because he thought it was beneath him and he would quit in a few months when he found something better. In what country do people refuse 20$ an hour waitering jobs?  20$ an hour times two people is median family income for a Canadian. Smack dab in the middle of the middle class.

 

[George Wallace]

It has a lot to do with migrant temporary farm workers from those countries that come here and take jobs away from Canadians by working for peanuts.

You can get 250 applications for a DISHWAHING job that pays minimum wage in Ontario now. In what country do people refuse 20$ an hour waitering jobs? I want to move there.

Migrant workers are only taking jobs away from Canadians because Canadians find it below their station to take those jobs.  If Canadians filled those jobs, there would be no migrant workers.

Case in point:

You can get 250 applications for a DISHWAHING job that pays minimum wage in Ontario now.

You want $20 an hour as a waiter?  Move to Alberta.

 

[Nemo888]

No. They don't take them because the farm owner will not pay a fair wage. The farmer can't afford it because the middle man pays him in pennies while charging retailers dollars for produce.  The middle man needs to take less windfall profits and pay the farmer a fairer price so he can pay a decent wage. Instead government stepped in and allowed third world temp workers to come and do the work for almost nothing. Government meddling with market forces for the benefit of a few cronies. At least with the milk and wheat boards farmers got a fair price and didn't need third world labour to make ends meet.

 

[George Wallace]

No. They don't take them because the farm owner will not pay a fair wage. The farmer can't afford it because the middle man pays him in pennies while charging retailers dollars for produce.  The middle man needs to take less windfall profits and pay the farmer a fairer price so he can pay a decent wage. Instead government stepped in and allowed third world temp workers to come and do the work for almost nothing. Government meddling with market forces. At least with the milk and wheat boards farmers got a fair price and didn't need third world labour to make ends meet.

Please provide facts, and references to all documentation to back up your above statements. 

 

[Nemo888]

Wow, that is a big job.

I don't know where to find commercial wholesale for fruit and produce auctions. The number of farmer run co op produce auctions starting up all over Ontario should tell you something. The farmers there are pretty upset at how they were treated. Go support one if you can.

Beef is pretty easy to figure out. 1483 pound fed steer is selling for roughly 108$ at auction.  You get  well over 600+ pounds of retail beef cuts from that. Maybe 110 big steaks at 8$ pound(more, I know), 1320$ and the other cuts at 5$ a pound for 2175$.

So 3495$ already. The are many cuts I did not include and the rest of the carcass is used with almost nothing thrown out. Conservatively 5000$ retail for the cow that the farmer raised and received only 108$. Not much above feed costs in a bad year.

Farmers don't get fair prices. Monopsony works like that.

 

[bridges]

Please provide facts, and references to all documentation to back up your above statements.

If this were expected of everybody on the forum, there would be a LOT of posts that would have to be reexamined.