The eurozone’s external surplus is not a business model, it’s a fiscal imperative

It has become a common trope to refer to the economic structure of a country – or a currency area like the eurozone – as its “business model”. Never mind that a business firm is an atrocious metaphor for a national economy,  let alone a currency area.

Now, in the specific case of the eurozone, running a persistent external surplus is not a business model. It is a necessary consequence of the fiscal rules.

By not giving the eurozone another choice than running an external surplus, the fiscal compact makes it very hard for the eurozone to withstand the impact of Donald Trump’s trade war, or of a potential no-deal Brexit. One way to make up for this might be a helicopter drop of the order of €10bn per month. Will Mario Draghi’s successor have the audacity to try it?

How to buy government bonds when there aren’t any

This was the question the ECB had to answer about Estonia when it instituted its Public Sector Purchase Programme with the added stipulation that bonds would be bought proportionally to each member state’s share in the ECB’s capital key.

Panic and misdirection on the ECB capital key

The accusation by Professor Friedrich Heinemann of the ZEW institute that the ECB’s public sector purchase programme is deviating from the eurosystem’s capital key to the benefit of Southern European states must have hurt, because a week after Mario Draghi’s press conference the ECB communications office saw fit to bring up the issue again in a longish twitter thread:

The show must go on

To judge by the coverage in the foreign press, dismissed Catalan regional president Carles Puigdemont liquidated the Catalan separatist movement with his appearance in Brussels this Tuesday. Puigdemont has been called a coward for running away and leaving his people behind to fight for him. The extent to which Puigdemont is misunderstood is illustrated by the proliferation of articles calling his Brussels press conference a circus. Surely the Catalan public must agree, and this should spell the end of the Catalan Spring?

Not so fast. A quick survey of the Catalan separatist press reveals that Puigdemont’s actions are dignified, that the Brussels appearance is an Europeization of the conflict, and that trust in the inscrutable purpose of the leaders is nearly absolute. And when the actions of the leaders are questioned, the ultimate goal of independence continues to require popular mobilisation.

And this was before a Spanish judge jailed nine members of Puigdemont’s cabinet. So, no, this is not even the beginning of the end of the Catalan Spring. It is the end of the beginning.

The show trial of Carles Puigdemont: a tragicomedy in four acts

Last Wednesday it looked like the previous evening’s suspended declaration of Catalan independence had backfired, by giving the Spanish government the chance to put the ball back in the Catalan government’s court by asking for clarification. Here I argue that the Spanish government, by setting in motion the process to commandeer the Catalan regional government in accordance with Article 155 of the Spanish constitution, may be walking into a PR trap.

The way this process is regulated in the Spanish senate’s rules of procedure will allow Catalan regional premier Carles Puigdemont to present his own appearance before a senate committee as his defence in a political show trial before a kangaroo court dominated by members of the governing party. For maximum mutual damage, Puigdemont can even call snap regional elections after the Senate committee finds against him, but before a plenary session of the Senate authorises any corrective actions proposed the Spanish government.

The whole process will take the better part of two weeks, during which both Catalan and Spanish nationalists – politicians, media and grass-roots – will vociferously escalate tensions.

The best finance minister ever

What a great guy.  Wolfgang Schäuble is still in office, but we are already missing him. Germany’s greatest finance minister ever. One of the few genuine pro-Europeans in the Merkel government. A friend of the French. And of the Greeks.

The sheer hypocrisy of the farewell notes we have read in recent times about Wolfgang Schäuble is sickening. Among those are leading economists, maybe because they need to ingratiate themselves with the new powers, now that the SPD is departing the German government.

Independence as performance art

Lately, Catalan separatists have started making parallels between their situation and the independence of Slovenia. Foreshadowing yesterday’s suspended declaration of independence in the Catalan parliament, it had been suggested that Catalonia might do just this because Slovenia had earned international recognition after agreeing to a moratorium on the effects of its own declaration of independence in the Summer of 1991. It is perhaps particularly appropriate that in the 1980s Slovenia spawned Neue Slowenische Kunst, an avant-garde (though they called themselves retro-garde) collective engaging in political performance art around the concept of the state. Here I argue that last night’s Catalan declaration of independence took place on a symbolic plane, and that the clash with the formal legal expectations of observers is very much like that elicited by performance art, down to causing offence and anger at taboo-breaking. One could call the events of last night Catalonia’s Žižek moment, after Slovenian philosopher-cum-performance-artist Slavoj Žižek, who is loosely associated with the NSK art collective.

The German elections are not boring. They are troubling.

By Wolfgang Münchau

For all those of you who think the German elections are boring, consider the following anecdote. Alexander Gauland, one of the two AfD leaders in this week’s election has effectively issued a death threat to a German minister, Aydan Özoguz. He said he wanted to “dispose of her” in Anatolia. Ms Özoguz is a German citizen whose parents immigrated from Turkey. She is the German government’s chief official responsible for integration.

QE’s graceful exit

The ECB is expected to discuss this Thursday the future of its asset purchase programmes beyond the end of 2017. But exiting QE is no easy matter. The Fed’s policy normalisation plan has been three years in the making, with an update only last June, but the plan hasn’t been executed yet. The reason is the concern about the market impact of stopping or unwinding asset purchases. Just like bond yields have collapsed to negative values as a result of QE, they could rise uncontrollably when QE ends. And, in the case of the eurozone, the borrowing costs of peripheral member states might shoot up like they did at the height of the government debt crisis five years ago. I argue that a graceful exit from QE would be possible if central banks chose to act as market-makers, but they won’t for ideological reasons, and that the ECB actually can’t, for legal reasons.