Bleeding Europe — MY COMMENT

by John Brian Shannon

In one of Paul Krugman’s latest blogs (which are always great reads) entitled “Bleeding Europe” our favorite Professor takes the side of all the Eurozone nations — except for the one that has to pay the bills — Germany!

Which is fine, because those countries have been beaten up by everyone including, well, everyone. They need as many powerful voices on their side as possible, so that they can continue to run huge deficits forever — and have Germany foot the bill.

And, why not? It’s all Germany’s fault for WWI and WWII, isn’t it? Ergo, they are punishing Germany and it feels good!

The fact is, that all of the people who started both wars are long dead, as are most of the brave soldiers who were told to fight brother Europeans because the politicians of the day on both sides couldn’t get their diplomatic acts together.

But it’s a great relationship while it lasts, isn’t it? Spend like drunken sailors and have Germany’s grand-kids pay for it and if they so much as dare to hint this is a bad deal, then browbeat them with WWII-era propaganda until they stop.

It is not a sustainable relationship — even for the Germany-haters. Why? Because the combined debts and deficits of southern Eurozone nations are so large, soon even Germany won’t be able to cover the losses at the casino and they will all sink into the economic abyss together. (Then it will be; “Hey, South Korea, wanna buy the Eurozone, cheap? Their assets are mortgaged to 200% of their value, but maybe you could kick-start it.”)

It is not a sustainable relationship for 21st-century German taxpayers either, all of whom have nothing to do with WWI or WWII by the way, and are tired of paying for the neighbour’s “no wine is good enough for us” trips to the casino!

But in the end, all of this will come to a crashing halt when German voters have had enough of footing the bill for spendthrift nations who badmouth Germany at every opportunity.

And then watch what happens. Not only will the good ole days of eat, drink and be merry on Germany’s tab be well and truly OVER, the credit-ratings agencies themselves will dictate what kind of budgets countries like Greece are allowed to run. A sudden transition to balanced-budgets would be quite the shocker! If you happen to be visiting southern Europe when that happens — be sure to duck.

I think German Chancellor Angela Merkel is the smartest woman on the planet. For now, she is paying their way, biding her time, no doubt biting her tongue and just waiting for the almost inevitable day that the credit-rating agencies finally take control of overspending Eurozone member-state economies.

If and when that happens she will suddenly be recast as the sweet and gentle fairy-godmother of Europe who convinced her countrymen and women to pay the bills for her free-spending southern neighbours for as long as humanly possible. Sie haben meine Bewunderung, große Dame!

JOHN BRIAN SHANNON

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Export nationalism — MY COMMENT

by John Brian Shannon

Read Hans Kundnani’s article here.

The solution for more success cannot be aiming for less success!

But this is one of the counter-intuitive prescriptions being offered up to Eurozone members in order to stabilize an imbalance presently occurring between uber-successful Germany on the one hand — and the (economically, at least) failing Eurozone member nations on the other hand.

The astounding post-WWII success story named Germany is one that other nations in Europe should be emulating.

Instead of Germany trying to slow down to the speed of the other Euro nations — those nations should be gearing-up with German assistance, to become full partners in Germany’s success. Which will then become their success!

Let me say it another way. When one finds a good working model, one does not abandon that model – he seeks ways to improve on the performance of that model.

There is nothing wrong with the German model. I quote your words, Hans, to prove my point: “Germany will have a trade surplus of $220 billion in 2012 – bigger than any other country in the world, including China. (The institute predicts Germany will also have a trade surplus with China for the first time since 1988.) If there is a new “economic miracle”, it is one produced by exports.”

What needs to happen in Europe is harmonization with Germany — not the other way around, for such would be a slow spiral of economic death for the continent.

How would that work in practice? In this post, I describe but one way out of many possible ways to accomplish that goal.

All manufacturers know about ‘just-in-time-delivery‘ of parts to a manufacturing location. It is the time-tested method (and really, the only method in use nowadays) for cost-effective and profitable manufacturing, whether it be ‘white goods’, cars and trucks or electronics — among other manufactured goods.

The Euro nations need to produce billions of parts for German manufacturers and reliably deliver them in a timely fashion to German companies. This way, nations become part of their own solution and part of Germany’s success — which leads to an even greater Eurozone success story.

The ‘have not’ nations of Europe must become part of the solution, becoming ‘have’ nations in the process. And they can if they follow an outstanding (and longstanding) German success model.

In a larger context, the next 24 months may well be Europe’s coming-of-age moment, the place where it shakes off U.S. post-WWII control and direction to become a fully-fledged sovereign entity with a semblance of shared success and wealth – or it will begin a long, slow regression into what it once was, a collection of fractious, medieval states.

John Brian Shannon

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ABOUT JOHN BRIAN SHANNON

I write about green energy, sustainable development and economics. My blogs appear in the Arabian Gazette, EcoPoint, EnergyBoom, Huffington Post, United Nations Development Programme, WACSI — and other quality publications.

“It is important to assist all levels of government and the business community to find sustainable ways forward for industry and consumers.”

Green Energy blog: http://johnbrianshannon.com
Economics blog: https://jbsnews.wordpress.com
Twitter: @JBSCanada

Crash of the Bumblebee — MY COMMENT

by John Brian Shannon

READ PROFESSOR PAUL KRUGMAN’S ARTICLE “CRASH OF THE BUMBLEBEE” HERE…

Supposedly, the bumblebee is not able to fly according to all the known laws of physics. But fly it does and it does so adroitly.

So too, according to all the known laws of working political models (those are called countries) Europe is not supposed to work. But it does so and is as adroit as any bumblebee will ever… be. Ahem.

Since the ashes of WWII, Europe has risen like the Phoenix of lore, from self-destruction to become a fully-fledged working model. Europe has many disparate parts, you would expect it to be unwieldy and it should definitely not fly. But it has surpassed everyone’s expectations – including the expectations of many European citizens and I daresay, some of Europe’s greatest leaders past and present.

A tip of the hat must always go to the foresighted American politicians of 1945-1950, who gave their blessing to the Marshall Plan to rebuild Europe and feed it’s people, until the Europeans could again feed themselves. Even after that the U.S.A. pursued a successful European project with vigour. There were many disagreements and even outright arguments between the Americans and the Europeans from 1945 right down ’till the present day. No doubt, there will always be differences of opinion, but so much more has gone right, than wrong over the past 67 years.

Differences aside, the U.S needs a successful Europe and Europe needs a successful America. Neither can afford a disaster on the other side of the pond.

The American Civil War can be considered America’s coming-of-age moment, while the gradually coalescing Europe, still fresh from reunification with it’s Eastern European counterparts, post-Cold War, must now forge some kind of coming-of-age moment for itself – or history will indeed pass Europe by.

One such test is the present ‘Eurozone Moment’ — where the wealthy northern European’s (where most of the euro-dollars live) must find a way to co-exist with their poorer southern cousins, who are in hock up to their nostrils.

If Europe can find a solution now, it may well be written down by future historians as Europe’s coming-of-age moment, the glorious moment when Europe realized that she is, in totality, greater than the sum of her individual parts thereof. Let’s hope Europe is self-aware at that level.

What time honoured political strategy could assist us here? I’m glad you asked. For one of the best-tested and time honoured practices for success is, the strategy of win-win.

But how to apply this to the present Eurozone Moment?

By simply finding many different things which will work to mutual advantage, where both sides can gain some amount of benefit. It doesn’t have to be an exact science. Forward progress is forward progress. On some matters, the north may gain more and on other things the south may gain more. What matters here is the need to not lose the Moment! And, to find multiple ways to succeed together.

The simplest idea in the world here is to create some kind of Euro-stock in order to ‘buy-down’ the interest rate of the southern European nations, especially the ones which are deeply in debt, or which have high unemployment and/or stagnant growth.

How could this profit the northern Euro stock-holders? The market works the same, anywhere you go. Price things over 5, 10, 15, 20 and 25 years. Investors will make money on the spread between the estimated price vs. the actual selling price.

If Spain, just for example, is having trouble affording the payments on the debt it owes, it doesn’t really matter that Spain isn’t carrying a lot of debt compared to some countries, what matters is, they can’t make the payments. How better to help Spain pay it’s debts, than to lower the interest rate on the money they owe? If 10% interest rates are killing them, then maybe those same multi-billions of debt financed at 2% interest, won’t.

If northern European’s can make money on buying down the interest rate for Spain, then Spain will be better able to fix it’s economy.

I would call that a win for northern European investors (whether sovereign, institutional or private) and a win for Spain.

That’s how to make a country (or a bloc of countries) pull together — instead of pulling itself apart. That is how to make Europe fly. The trick is to be there when needed, not after the crash.

John Brian Shannon writes about green energy, sustainable development and economics from British Columbia, Canada. His articles appear in the Arabian Gazette, EcoPoint Asia, EnergyBoom, the Huffington Post, the United Nations Development Programme – and other quality publications.

John believes it is important to assist all levels of government and the business community to find sustainable ways forward for industry and consumers.

Check out his personal blog at: http://johnbrianshannon.com
Check out his economics blog at:
https://jbsnews.wordpress.com
Follow John on Twitter: https://www.twitter.com/#!/JBSCanada

The Canadian Austerity Success Story

The Canadian Austerity Success Story | 12/07/12
by John Brian Shannon John Brian Shannon

The Canadian success story on deficit elimination, debt reduction and significantly, strengthening the economy by adding jobs and improved economic performance during troubled economic times has been well-documented.

The Canadian icon known as MacLeans Magazine featured an outstanding piece by LEAH McLAREN in the October 10, 2011 edition entitled I told you so – which covered Prime Minister of the UK, David Cameron‘s speech to a joint session of the Canadian Parliament (both the Senate and the House of Commons) where PM David Cameron made a number of positive comments regarding Canada’s economic success.

Cameron commented:

“Canada got every major decision right” in the past few years of global market turmoil. He lauded the strength of both the Canadian banking system and our economic leaders, who, he said, “got to grips with its deficit” and were “running surpluses and paying down debt before the recession, fixing the roof while the sun was shining.”

Cameron’s admiration for Canada’s relatively peachy fiscal position stands in stark contrast to his dim view of his Eurozone neighbours. On the topic of Europe and the U.S. getting their own houses in order, Cameron said; “This is not a traditional, cyclical recession – it’s a debt crisis…”

He went on to say;

“When the fundamental problem of the level of debt and the fear of those levels, then the usual economic prescriptions cannot be applied.” – MacLean’s Magazine.

Read the entire article here…

MacLean’s is not the only publisher to write on this topic. Canada’s Globe & Mail have also published articles discussing the Canadian economic success story of the 1990’s and early 2000’s.

A seminal article by LOUISE EGAN and RANDALL PALMER ran in the Nov 21, 2011 edition of the G&M entitled The lesson from Canada on cutting deficits — a short excerpt of which appears below. Please take the time to read and save the entire article.

“Finance officials bit their nails and nervously watched the clock. There were 30 minutes left in a bond auction aimed at funding the deficit and there was not a single bid.

Sounds like today’s Italy or Greece?

No, this was Canada in 1994.

Bids eventually came in, but that close call, along with downgrades and The Wall Street Journal calling Canada “an honorary member of the Third World,” helped the nation’s people and politicians understand how scary its budget problem was.

“There would have been a day when we would have been the Greece of today,” recalled then prime minister Jean Chrétien, a Liberal who ended up chopping cherished social programs in one of the most dramatic fiscal turnarounds ever.

“I knew we were in a bind and we had to do something,” Mr. Chrétien, 77, told Reuters in a rare interview.

Canada’s shift from pariah to fiscal darling provides lessons for Washington as lawmakers find few easy answers to the huge U.S. deficit and debt burden, and for European countries staggering under their own massive budget problems.

“Everyone wants to know how we did it,” said political economist Brian Lee Crowley, head of the Ottawa-based think tank, Macdonald-Laurier Institute, who has examined the lessons of the 1990’s.

But to win its budget wars, Canada first had to realize how dire its situation was and then dramatically shrink the size of government rather than just limit the pace of spending growth.

It would eventually oversee the biggest reduction in Canadian government spending since demobilization after the Second World War. The big cuts, and relatively small tax increases, brought a budget surplus within four years.

Canadian debt shrank to 29 per cent of gross domestic product in 2008-09 from a peak of 68 per cent in 1995-96, and the budget was in the black for 11 consecutive years until the 2008-09 recession.

For Canada, the vicious debt circle turned into a virtuous cycle that rescued a currency that had been dubbed the “northern peso.” Canada went from having the second worst fiscal position in the Group of Seven industrialized countries, behind only Italy, to easily the best.

It is far from a coincidence that the recent recession was shorter and shallower in Canada than in the United States. Indeed, by January, Canada had recovered all the jobs lost in the downturn, while the U.S. has hardly been able to dent its high unemployment.

“We used to thank God that Italy was there because we were the second worst in the G7,” said Scott Clark, associate deputy finance minister in the 1990’s.

Canada’s experience turned on its head the prevailing wisdom that spending promises were the easiest way to win elections. Politicians of all kinds and at all levels of government learned that austerity could win.”  read more…

For those unfamiliar with examples of successful austerity, Canada holds great promise. There are others to discuss in the coming days – which will illustrate austerity can actually lessen the unfavourable effects of decades of excessive spending by governments and improve the economic position of a nation.