Maybrit Illner and her clowns

In the former weblog we considered the election results in Italy, accompanied by sensational Greek singers. There is no lack of beauty and talent in Europe, for in Germany we find Maybrit Illner and her excellent ZDF talkshow. There is no lack of attention for Italy either, for Maybrit puts it center stage too. Let us watch her show of Thusday March 7: Chaos, Clowns und Euro-Krise. Zieht uns Italien in den Abgrund (Will Italy pull us into the abyss ?)

In terms of European integration, we immediately learn some lessons. The first is that the German word for clown is ‘clown’ too. The French can also speak about harlequin and Pierrot though that is a specific kind of clown. A Dutch word is paljas but this appears to derive from the French paillasse – a bag of straw – which again derives from the Italian pagliaccio, indeed a clown or straw man, from the Latin palea = straw. We also must beware of humour on German television after the Angelen took the sense of understatement and left for England (what is in a name ?).

A second lesson is that it isn’t so diplomatic to say that the Italian politicians are ‘clowns’. Admittedly Beppe Grillo has a professional background in cabaret, and Silvio Berlusconi started out as an entertainer on a cruise ship, but the film A Clockwork Orange should have clarified that one shouldn’t mistake the funny masks for the reality behind them. One of Maybrit’s guests is Jean Asselborn, the minister of Foreign Affairs of Luxemburg, who deferentially calls her ‘madame’, to which she blushes and objects, for unclarified reasons that become ever more intruiguing the more you think about it. Nevertheless, the point is that one should not call people what they don’t want to be called, except when you are in the position of a judge who has the authority and duty to convict someone to some kind of label.

A third lesson is that Europe would benefit from undertitles. My German is fair and I can understand what Maybrit and her guests were talking about, partly because I understand the subject. But if the peoples of Europe are to understand each other better, it would help when (specific) national programs can be followed with English undertitles. Question Time at the BBC is a great program that pays to watch on occasion, but even here it would help when some cockney dialect or whatever would be undertitled, since unfortunately few of the British comprehend that Oxford English is so nice to listen to. There is the legendary story that a Japanese company didn’t invest in England since they couldn’t understand the English that people were speaking. The bureaucrats in Brussels have ample experience in translation, and it would be wonderful if they got out of their translation boxes and started to apply it where it matters for the average citizen: our television sets.

While the former weblog concentrated on the role of mathematicians, Maybrit concentrates on the euro. Her table is laced with guests heavily set against the euro. If Angela Merkel has been watching, which is not unlikely, we might expect a surprise announcement next week that Germany returns to the DM.

Below, we will discuss some of the main arguments of Maybrit’s guests. Before doing so, let us first consider this table about the relevance of Greece for the euro. Normally the impact of Greece is compared to the Eurozone as a whole but this table considers the impact with respect to Germany by itself. It appears that Germany could absorb the problematic part of Greece’s debt without much of a problem. The conclusion is that there isn’t much of an economic problem, and the whole issue is one of politics, of psychology, of theatre, or, even, of a circus indeed.

GDP and Debt in billion euro’s – 2011 (Eurostat)

If BRD takes part of EL debt

 

BRD

Ellas

B+E

BRD+100

EL-100

BRD+150

EL-150

GDP

2572

215

2787

2572

215

2572

215

Debt

2088

356

2444

2188

256

2238

206

%Debt/GDP

81.2

165.3

87.7

85.1

118.8

87.0

95.6

(Earlier I teamed up countries in Europe in a different way: Germany with Italy, and Holland with Greece. This present combination is a useful illustration of the argument. The 2013 data will be different but it is useful to link up to the earlier exposition that used the 2011 data too. )

The table clarifies what many already have been saying. Europe is a victim of its ghosts from the past. The Krach of 1929 and hyperinflation in Germany. Protestant doom and gloom versus catholic live and let live. The fear for free-riders. The industrious ant and the carefree cricket. Nothing to fear but fear itself.

The European sovereign debt crisis started at the end of 2009. We are now 3 years further, with many bankruptcies and much unemployment. Europe would have saved itself much misery if it had bitten the bullet head on. President Herman van Rompuy recently launched various proposals to transfer sovereignty to the bureaucracy in Brussels. Flaws in the design of the euro are mended only slowly. Compare it to this: A ship sets out sailing into a fog, but no matter since its captain is blind anyway. It hits the rocks and is shipwrecked. Many passengers fall out and drown. Dead bodies and even live people are used to close the holes in the ship’s body. In the captain’s cabin the ship medic tries to restore the captain’s eyesight. The fight for survival (of the captain) already lasts three years, but he encourages his crew: In some years we shall prevail.

How to bite the bullet ? See this Economic plan for Europe and see this paper on how the euro-system might be redesigned. Both are collected in the book Common Sense: Boycott Holland. Cut up the banks into retail and business. The retail banks can all be franchises of the Central Bank, and we would not need a European system of deposit insurance since the Central Bank has always money. Invest, invest, and invest. Do not rely on business banks to generate the required investments but set up a back-up system for investments when there is a recession (like now). And this advice comes from a careful economist.

These are the fundamentals. Let us now consider the discussion under Maybrit’s elegant guidance.

Oskar Lafontaine makes a surprising re-entry on the German national floor. The Napoleon of the Saar has established a reputation of some opportunism, but at this table he rightly points out that Europe has been saving the banks rather than the people (though people need banks). He calls Angela Merkel the courtisane of the rich, which proves again that when it comes to love the world likes to use French words. Lafontaine also mentions, later in the discussion, that Germany partakes in wage dumping. This is indeed part of the analysis. The current policy is to seduce companies to invest for exports but countries should deliberately set up investments in the home economy.

Professor Bernd Lucke of Hamburg University is creating a new political party Alternative für Deutschland to move Germany out of the euro. He agrees with Lafontaine on the banks. Lucke explains that wages in Greece and Italy have to be lowered by 30% to make them competitive. He doesn’t see this happening without a return to exchange rates. This isn’t quite true. When you abolish exchange rates then you can create an explicit mechanism that produces the same effect. Tax exports from surplus countries (exchange rate appreciation) and subsidize exports from deficit countries (depreciation). Also, countries should rather invest in their home economies rather than for exports. Reorganisation of the banks and abolition of the tax void for the labour markets will cause a world boom. The situation can be handled without a return to the DM.

Dirk Müller is also known as “Mr. DAX” (the German stock exchange) and teams up with professor Lucke. The euro was not required to get peace. The years with the DM had peace. The euro was introduced with the fallacy that it would contribute to peace but it is now that we see fighting in the streets of Europe. A section of Athens reminds of a third world country. The crisis is still not under control. Berlusconi is not a clown but a danger. The main worry however is France. No words of love now. Return to the DM.

Italian journalist Flaminia Bussotti (ANSA) tries to be an objective journalist and to defend the honour of her country. Unemployment of 11% and for the youth 38%. Monti’s cutbacks have been severe, and Maybrit shows us the images of the Italian minister Elsa Fornero who burst out in tears when announcing the ‘sacrifices’. Bussotti has the good point that Italy doesn’t quite ‘profit’ from an interest rate higher than 6%.

Luxemburg’s foreign minister Jean Asselborn rightly explains that we should not just care about the sentiments of the financial markets but also about people and the public trust. He misses his chance to burst out in tears however, it would have made him instantly famous. He also explains that he doesn’t know the technical details, which seems to be part of the problem, i.e. EU political leaders trying to win trust without knowing what they are talking about. He advances the argument that Germany should be grateful to the Southern Europeans that they have been borrowing money to buy BMWs, though he seems to forget that paying off loans is a good idea too. He holds that the euro is a project of ‘give and take’, but he doesn’t go into details indeed: who gives and who takes. Also, the euro is a project for peace. It is unlikely that Maybrit will invite him again, not only because he calls her ‘madame’ but also since he doesn’t explain that Europe is bleeding also to save the banks in Luxemburg. Apparently Luxemburg also uses a different clown costume than the rest of Europe.

The final guest is Rainer Brüderle, the leader of the parliamentarian fraction of the FDP , the minority government party. He takes the hard line. If Italy wants to, it can step out of the euro.

Maybrit is shocked: And the banks, aren’t they too big to fail ? Dirk Müller holds that they may go bankrupt and then be nationalised. Government debt should no longer be without risk. Let those people suffer who have been dumb enough to invest their money in government paper. Back to the DM.

Brüderle mentions Holland on minute 24 as an example of a good country that has been following a low wage policy. Thus he doesn’t see that this is wage dumping and contributes to the problem. When Brüderle starts to explain that Greece has been following a wrong policy for years, and now has to suffer the consequences, he finds strong opposition from Lucke. It had been promised that the euro would have no bailout, but the ESM provides this, and so slow that Greece and Italy will need many years to do something about the 30% lack of competitiveness. Brüderle suggests that Lucke talks as a professor and that what he says has no relevance for the real world. Problem solved, no questions asked in the German parliament about wage dumping.

In the discussion there are some tentative references to world war two and the H-word. At the end of the program the instability of the Weimar republic is recalled. The current policy of Europe would be like that of Heinrich Brüning which led to the rise of the nazi’s and the H-word himself. This kind of policy puts the French-German friendship at risk. Yet, Brüderle reminds all, Germany cannot do it all by itself. Let Italy leave, he also said. How does his mind combine these two conflicting thoughts ?

Somewhat halfway in the program, minute 36, Maybrit presents the results of an opinion poll. EU-antagonism has risen starkly in Germany.

32 % personal disadvantages because of the EU
65 % a worsening by the euro
65 % expects an improvement from a return to the DM
49 % expects improvement without the EU

Maybrit manages to close the program with a big smile. The audience gives a big round of applause. The guests shake hands or look a bit bewildered. And we see each other again next week.

It is all very informative and entertaining. My problem however is that the question hasn’t been answered whether Italy will pull us into the abyss or not. If we keep on talking or talk-showing like this, dear charming Maybrit, we will not make much progress.

Perhaps a talkshow about the boycott of Holland is too much to ask. Can I propose a talkshow around the play Lysistrata by Aristophanes of 411 BC ? In which the women of Greece refuse to sleep with their husbands until the war is stopped ? In this case: let the women of Germany stop sleeping with their husbands (or sleep at all) till the country accepts that a major bailout of Greece is required to make a new start. Carmen Reinhart from Harvard University can tell you why a bailout is needed.

Addendum: April 18 2013: These researchers (PERI) identified errors in the Reinhart & Rogoff calculations. The latter state that they used median values instead of averages. Overall, my conclusion was that a bailout was needed, and not that austerity for the indebted countries was needed. This conclusion was also an experience with other highly indebted countries in the past. Overall, it is also a matter of logic. With deficit spending and debt rising, the proceeds generate growth. Eventually there can be a ‘Minsky moment’.

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