Thursday, January 27, 2011
Expanded version: Paul Krugman asks: Can Europe really be saved?
LOOKING AHEAD by Wally Dobelis
We are turning a bit Eurocentric here,, chaps, It started with seeing The Queen, a 2006 movie with Helen Murren, who as Elizabeth II overcame a family prejudice at Princess Diana’s funeral; progressing to the 2010, with Colin Firth as George VI overcoming pride to learn how to stop stuttering and lead a nation; and finally with The Importance of Being Earnest, Oscar Wilde’s elegant comedy of social manners at the Roundabout (a bastion of civilization), where a masterful Brian Bedford, in a skirts role as the commanding Lady Bracknell, overcomes pretense with sheer practicality, further strengthening the image of Britain holding on forever on the strength of its rational women and responsive social system.
All this was leading up to my building up nerve to the task of parsing the question of “Can Europe Be Saved” asked by Paul Krugman in his NYT Magazine’s tightly argued long essay of January 16; I am trying to overcome his gloomy scenario with my own prejudices, realism, and mostly, facts.
The crisis grew from the truly humanitarian effort of building a united Europe, started in 1950 by France’s Robert Schuman by bringing his country and Germany into a European Coal and Steel Community, and to make any future wars between these millennial rivals unthinkable and impossible.. It grew to a customs union, European Economic Community and EU, growing from 6, then 15, to 27 members, mostly since 2004, with more applicants and candidates in waiting. In 1952, the original members were the Benelux, Belgium, Netherlands, Luxembourg, plus Italy France, West Germany. It caught on, a customs union, European Economic Community (Denmark, Ireland, UK in 1973, Greece, Portugal, Spain to 1986, Austria, Finland Sweden in 1995, with several candidates. As EU it added 12 since 2004: Cyprus, Estonia, Czech Republic, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia, in 2007 Bulgaria and Romania. Further applicants and candidates include Croatia, Serbia, Montenegro, Macedonia, Morocco and Turkey.
Euro arrived by stages; the 1992 treaty of Maastricht now has 12 original Eurozome members (Austria, Belgium, Finland France, Greece Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain), the 2004 additions to EU . scheduled to change currency in 2007 Cyprus, Estonia, Lithuania, Slovenia; in 2008 Latvia, Malta ,Slovakia; in 2009 Czech Republic, Poland; in 2010 Hungary; current status not sure, they use Euro in quoting hotels internationally, but get paid in native currency); Non EU members using Euro are Vatican City, Monaco, San Marino, also Kosovo, Andorra and Montenegro and some French overseas territories. EU members not using Euro are UK, Sweden, and Denmark.
The Euro organization, the noble effort of unity, allowed its weak links Ireland, Greece, Portugal and Spain to join and , through lax bond issuance policies, undermine the currency. Originally the Euro, deemed a stable competitor to the dollar as the world’s stabilizing currency, with low 1 to 2 percent interest rates, became threatened, with the weak countries forcing Germany and France into supporting them, threatening a worst case scenario of eventually potentially sinking the union. Greece was unable to collect taxes, Spain and Portugal overbuilt (12 percent of labor forces in construction!); Ireland speculated (as did Iceland, a non-EU country); besides, there’s lack of industry, though Portugal had VW factories.. Why does this risk scenario not threaten the weak states in US like Nevada, overbuilt with failing real estate and hospitality the main industry? Well, an American state going down economically does not have to support its older inhabitants, the nowadays bad-mouthed’ socialist big-government, federal Medicare and Social Security laws protect them, ditto FannyMae and FreddyMac, when they overbuild. When Nevadans lose jobs, they can migrate in search of employment, because they will not encounter any language, social, nationalist or cultural barriers, such as Greek immigrants would in France. Eventually, the cheap bankrupt NV real estate will eventually attract retirees with fixed out of state incomes. EU is not like the US, a federally ruled republic with strong constitutional central government and with federally defined social benefits for inhabitants of its independently defined states protected by a federal constitution.
So what will happen when a European state loses investor confidence and runs out of the protection of World Bank, IMF, European Central Bank (a new institution, with not much strength),.and can no longer sell bonds, government or private? At worst, it will do a “full Argentina,” a country that was pegged to the US dollar; it broke the US link, defaulted to its creditors, eventually paying 35 cents to the dollar, got rid of corrupt governments (remember Peronistas, the generals, death squads) and rebuilt its economy of beef and agriculture. Remember that the world’s population is growing, and some agricultural economies in are getting hurt (sub-Saharan Africa, Haiti, even Russia and China), and food surplus producers, like US, unable to compete with low labor costs in emerging industrial countries, will have to strengthen their economic comeback not only on increased competitiveness, education, new technology , as President Obama will ask in his upcoming State of Union address, but also on agriculture , mineral and energy resources. Of the huge US GDP only 15 percent comes from industry, our exports are worth about half of our imports, and we live on taking in each other’s washing. Those NYC retirees to Nevada’s great climate will have to accept a lower standard of living, less gasoline consumption and less European vacations, and base their cultural life on community, TV and Internet, and practice communicating with distant family members via Skype picture telephone. Yep, and also expect less retirement and health benefits because US has a budget deficit.
Back to Europe, there’s also what I would call the partial Argentina, negotiated restructuring of debt, with reduced repayments, and cuts in pay. One guesses that in the absence of recapture of industrial production, European future looks bleak.
But what about those European countries with really low industrial production, huge social benefits, early retirement and no flexibility? Some, former colonizers, like Belgium, Netherlands, Portugal Spain, UK and France, are not all following the XIX century David Ricardo’s principle of comparative advantage, keeping a step ahead of the new industrialist nations with new technology inventions . Their populations cannot take salary cuts, they revolt and burn police cars and government buildings! Some observers like Gregory Karabell (ex-Fred Alger Funds president) and Gordon Brown (ex-British PM, anti-Euro prophet for UK, who swayed PM Tony Blair away from it) see new technology and education as the comparative advantage solution. Karabell sees China as industry builder, much demand on US for its health and willing to pay for it; Russia, and Venezuela as industry- negligent, living on oil exports to China; Japan as industry subcontractor for China. The world is really flat; the turbines built by GE for India that President Obama announced will have parts from a dozen countries before Americans assemble them.
Some countries, like the ex-USSR captives, are opting for what Krugman calls “toughing it out,” taking cuts in pay, 15 percent in Latvia (conversion to Euro has been stopped with a drop in local currency value) and 10 in Estonia. It appears that Latvian government employees actually took up to 50 percent salary cuts, and some families are saved by the retirement benefits from their former USSR employers. This may be the way.
For an expanded version of this article, with more EU data, open http://dobelisfile.blogspot.com and tap link (left column ) to most recent Archive.
Bad news – Evergreen Solar panel firm quits US
The need for US and the Chinese tyo work hand in hand may be given attention on the government leve; in the rough competitive world, prices win.
Evergreen Solar, a Massachusetts panel maker, third largest in the US by now, was given $47M three yerars ago, and grew.But in March they will close the Devens MA factory, let go 800 employees and move to Wuhan, China, says CEO Michael El-Hillow, who has to pay double-digit loan interest in the US. In China two banks are providing loans with no principal nor interest (4.8 percent) due until 2025, obviously government-supported, while US sits still. In China monthly worker costs are $300 instead of $5;400, and panel unit that will sell at $1 a watt, instead of $3.39 , recently reduced to $1.90. Evergreen has a new thechnology, and will compete in the US with No. 2 1n1 makers, ailing native Solyndra (despite a US $535M loan guarantee), and First Solar who mostly manufactures abroad .
President Obama’s promised competitive fight cannot win jobs in the energy product, the cost numbers prove it. Competition in US traditionally has involved firing the labor force and offshorting or upping the tech component or both. The President’s new Economic Recovery Advisory Board’s chair CEO Jeffrey Immelt’s GE makes most of its money manufacturing abroad, its turbines sale to India can raise some US jobs. , nevertheless, China is the world’s champion wind turbine maker, since just 2010. Please somebody concentrate on getting jobs for Americans!
We are turning a bit Eurocentric here,, chaps, It started with seeing The Queen, a 2006 movie with Helen Murren, who as Elizabeth II overcame a family prejudice at Princess Diana’s funeral; progressing to the 2010, with Colin Firth as George VI overcoming pride to learn how to stop stuttering and lead a nation; and finally with The Importance of Being Earnest, Oscar Wilde’s elegant comedy of social manners at the Roundabout (a bastion of civilization), where a masterful Brian Bedford, in a skirts role as the commanding Lady Bracknell, overcomes pretense with sheer practicality, further strengthening the image of Britain holding on forever on the strength of its rational women and responsive social system.
All this was leading up to my building up nerve to the task of parsing the question of “Can Europe Be Saved” asked by Paul Krugman in his NYT Magazine’s tightly argued long essay of January 16; I am trying to overcome his gloomy scenario with my own prejudices, realism, and mostly, facts.
The crisis grew from the truly humanitarian effort of building a united Europe, started in 1950 by France’s Robert Schuman by bringing his country and Germany into a European Coal and Steel Community, and to make any future wars between these millennial rivals unthinkable and impossible.. It grew to a customs union, European Economic Community and EU, growing from 6, then 15, to 27 members, mostly since 2004, with more applicants and candidates in waiting. In 1952, the original members were the Benelux, Belgium, Netherlands, Luxembourg, plus Italy France, West Germany. It caught on, a customs union, European Economic Community (Denmark, Ireland, UK in 1973, Greece, Portugal, Spain to 1986, Austria, Finland Sweden in 1995, with several candidates. As EU it added 12 since 2004: Cyprus, Estonia, Czech Republic, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia, in 2007 Bulgaria and Romania. Further applicants and candidates include Croatia, Serbia, Montenegro, Macedonia, Morocco and Turkey.
Euro arrived by stages; the 1992 treaty of Maastricht now has 12 original Eurozome members (Austria, Belgium, Finland France, Greece Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain), the 2004 additions to EU . scheduled to change currency in 2007 Cyprus, Estonia, Lithuania, Slovenia; in 2008 Latvia, Malta ,Slovakia; in 2009 Czech Republic, Poland; in 2010 Hungary; current status not sure, they use Euro in quoting hotels internationally, but get paid in native currency); Non EU members using Euro are Vatican City, Monaco, San Marino, also Kosovo, Andorra and Montenegro and some French overseas territories. EU members not using Euro are UK, Sweden, and Denmark.
The Euro organization, the noble effort of unity, allowed its weak links Ireland, Greece, Portugal and Spain to join and , through lax bond issuance policies, undermine the currency. Originally the Euro, deemed a stable competitor to the dollar as the world’s stabilizing currency, with low 1 to 2 percent interest rates, became threatened, with the weak countries forcing Germany and France into supporting them, threatening a worst case scenario of eventually potentially sinking the union. Greece was unable to collect taxes, Spain and Portugal overbuilt (12 percent of labor forces in construction!); Ireland speculated (as did Iceland, a non-EU country); besides, there’s lack of industry, though Portugal had VW factories.. Why does this risk scenario not threaten the weak states in US like Nevada, overbuilt with failing real estate and hospitality the main industry? Well, an American state going down economically does not have to support its older inhabitants, the nowadays bad-mouthed’ socialist big-government, federal Medicare and Social Security laws protect them, ditto FannyMae and FreddyMac, when they overbuild. When Nevadans lose jobs, they can migrate in search of employment, because they will not encounter any language, social, nationalist or cultural barriers, such as Greek immigrants would in France. Eventually, the cheap bankrupt NV real estate will eventually attract retirees with fixed out of state incomes. EU is not like the US, a federally ruled republic with strong constitutional central government and with federally defined social benefits for inhabitants of its independently defined states protected by a federal constitution.
So what will happen when a European state loses investor confidence and runs out of the protection of World Bank, IMF, European Central Bank (a new institution, with not much strength),.and can no longer sell bonds, government or private? At worst, it will do a “full Argentina,” a country that was pegged to the US dollar; it broke the US link, defaulted to its creditors, eventually paying 35 cents to the dollar, got rid of corrupt governments (remember Peronistas, the generals, death squads) and rebuilt its economy of beef and agriculture. Remember that the world’s population is growing, and some agricultural economies in are getting hurt (sub-Saharan Africa, Haiti, even Russia and China), and food surplus producers, like US, unable to compete with low labor costs in emerging industrial countries, will have to strengthen their economic comeback not only on increased competitiveness, education, new technology , as President Obama will ask in his upcoming State of Union address, but also on agriculture , mineral and energy resources. Of the huge US GDP only 15 percent comes from industry, our exports are worth about half of our imports, and we live on taking in each other’s washing. Those NYC retirees to Nevada’s great climate will have to accept a lower standard of living, less gasoline consumption and less European vacations, and base their cultural life on community, TV and Internet, and practice communicating with distant family members via Skype picture telephone. Yep, and also expect less retirement and health benefits because US has a budget deficit.
Back to Europe, there’s also what I would call the partial Argentina, negotiated restructuring of debt, with reduced repayments, and cuts in pay. One guesses that in the absence of recapture of industrial production, European future looks bleak.
But what about those European countries with really low industrial production, huge social benefits, early retirement and no flexibility? Some, former colonizers, like Belgium, Netherlands, Portugal Spain, UK and France, are not all following the XIX century David Ricardo’s principle of comparative advantage, keeping a step ahead of the new industrialist nations with new technology inventions . Their populations cannot take salary cuts, they revolt and burn police cars and government buildings! Some observers like Gregory Karabell (ex-Fred Alger Funds president) and Gordon Brown (ex-British PM, anti-Euro prophet for UK, who swayed PM Tony Blair away from it) see new technology and education as the comparative advantage solution. Karabell sees China as industry builder, much demand on US for its health and willing to pay for it; Russia, and Venezuela as industry- negligent, living on oil exports to China; Japan as industry subcontractor for China. The world is really flat; the turbines built by GE for India that President Obama announced will have parts from a dozen countries before Americans assemble them.
Some countries, like the ex-USSR captives, are opting for what Krugman calls “toughing it out,” taking cuts in pay, 15 percent in Latvia (conversion to Euro has been stopped with a drop in local currency value) and 10 in Estonia. It appears that Latvian government employees actually took up to 50 percent salary cuts, and some families are saved by the retirement benefits from their former USSR employers. This may be the way.
For an expanded version of this article, with more EU data, open http://dobelisfile.blogspot.com and tap link (left column ) to most recent Archive.
Bad news – Evergreen Solar panel firm quits US
The need for US and the Chinese tyo work hand in hand may be given attention on the government leve; in the rough competitive world, prices win.
Evergreen Solar, a Massachusetts panel maker, third largest in the US by now, was given $47M three yerars ago, and grew.But in March they will close the Devens MA factory, let go 800 employees and move to Wuhan, China, says CEO Michael El-Hillow, who has to pay double-digit loan interest in the US. In China two banks are providing loans with no principal nor interest (4.8 percent) due until 2025, obviously government-supported, while US sits still. In China monthly worker costs are $300 instead of $5;400, and panel unit that will sell at $1 a watt, instead of $3.39 , recently reduced to $1.90. Evergreen has a new thechnology, and will compete in the US with No. 2 1n1 makers, ailing native Solyndra (despite a US $535M loan guarantee), and First Solar who mostly manufactures abroad .
President Obama’s promised competitive fight cannot win jobs in the energy product, the cost numbers prove it. Competition in US traditionally has involved firing the labor force and offshorting or upping the tech component or both. The President’s new Economic Recovery Advisory Board’s chair CEO Jeffrey Immelt’s GE makes most of its money manufacturing abroad, its turbines sale to India can raise some US jobs. , nevertheless, China is the world’s champion wind turbine maker, since just 2010. Please somebody concentrate on getting jobs for Americans!
Labels: EU, Euro, Gordon Brown, Jeffrey Immelt, Karabell, krugman
# posted by Wally Dobelis @ 3:02 AM 
