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Tales Of The Unexpected: Who Really Benefited From The Euro (Hint: NOT Germany)
With austerity supposedly destroying standards of living (that no real austerity has actually been implemented is a different matter entirely) across Europe's insolvent periphery, the only recourse said broke countries (here's looking at you Mario Monti and Mariano Rajoy) have is to desperately attempt to shame those countries who have money such as Germany, Austria, Finland and the Netherlands, aka Europe's AAA club, into shoveling more and more and more cash into the bottomless pit that are the PIIGS. After all, precisely this was the basis for the "hostage and extortion" strategy that Monti employed at the June 29 summit, and which has resulted in a surge in European stocks on hopes Germany will indeed bail everyone out. The reason for this is that, at least according to conventional wisdom, it was these countries that benefited the most from a decade of EUR-facilitated mercantilism, and exported inflation to their spendthrfit (and 'debt-thrift') southern neighbors. So it is only "fair" that these countries now give back a little (or a whole lot) back (just as it is only "fair" that Germany give a helping hand in Obama's reelection chances, which as everyone knows would be negligible if the global capital markets were to tumble just before November if reality in Europe were to come back with a vengeance). Well, as virtually always happens, conventional wisdom is wrong, and as the following chart from UBS demonstrates, when one analyzes the only relevant metric that compares changes in standards of living across various income deciles- namely changes in real disposable household income - it is precisely the PIIGS that benefited, while countries such as Germany and Austria were left in the dust.
From UBS:
If we look across the larger and longer established Euro membership we can see these two patterns being replicated according to country type. Each country shows the cumulative real disposable household income growth for each of its income deciles. The lowest income decile is to the left of each country’s selection, and the highest to the right.
Austria looks to be alarmingly weak – what this actually represents is very little change in nominal disposable income growth, coupled with inflation. Germany, Ireland, most of Italy and the French middle class all experience a decline in their standards of living. In most of these countries, the highest income groups do relatively well.
What stand out are Greece, Portugal and Spain. These economies have benefited from increased standards of living under the Euro (at least, until 2010), as nominal incomes have overcome inflation pressures. There has also been a concentration on improving the lot of the lower income groups in these societies.
Of particular note is the chart of France which is coming to every socialist and crony-capitalist country near you: the best off from the Eur "growth" phase are the bottom and top deciles. Everyone else, aka the middle class was substantially worse off. This pattern of class schism will be repeated in all other supposedly "egalitarian" countries as everyone becomes more and more "equal."
So what are the implication of this novel reinterpretation of the winners and losers from the Euro, and what happens now that Germany will have sufficient ammo to deflect ongoing attempts by broke Italy, Spain et al to attempt shaming the country with allusions to World War II and other irrelevant allusions:
This chart unfortunately plays into the hands of the more nationally minded politicians of the Euro core. The argument can be made (and increasingly is being made) that periphery economies must simply accept the declines in living standards that their non-periphery counterparts have had to accept. Lower living standards in the sense of real disposable income implies either lower wages, or yet more fiscal austerity, or indeed both measures in combination. Why should Germany see its living standard decline to pay to maintain the Greek, Spanish or Portuguese living standard, when those standards rose by so much in the recent past? As a political sentiment it has a ready populist appeal.
... Someone occupying the bottom decile of French income distribution has twice the level of income of someone in the bottom decile of Greek income distribution in 2010. The income inequality between countries in the Euro area has been narrowed by the pattern of real disposable income growth (as a rule). In what is supposed to be a common enterprise, there is something disturbing about asking the poorest members of the poorest societies to become even poorer, in order to enhance the living standards of the richest societies. As the Italian Prime Minister has had occasion to point out, there may also be a natural limit to the extent to which such demands can be placed on poorer societies (or the poorest in societies) without creating a threat to civil order.
The problem is that this debate cuts both ways, using exactly the same argument. Why should one group of countries force another group of countries to accept lower living standards? This question could be asked by Germans of the Greeks (why should we see our taxes rise / disposable income fall to maintain your level of disposable income?). This question could be asked by the Greeks of the Germans (why should we see greater income inequality when we are already amongst the poorest in the Euro area, and suffer from a Germanocentric rather than a Helleno-centric monetary policy?). Both questions have a degree of validity. It does not make finding a solution any easier.
It gets worse:
The development of real disposable income growth across the Euro area adds an additional complication to the increasingly Byzantine Euro problem. Just like the Olympics, much of the attention is focused on the dynamic of speed. Looking at the growth of real incomes over the first few years of the Euro’s existence, it is hard to argue against the idea that the peripheral countries should be taking more pain now. Core countries have had to accept a decline in real living standards, and it seems unrealistic to expect them to finance an increase in living standards for others [ZH: Germany, are you reading this? Good].
When considering the static of income levels, however, the Euro has successfully engineered a slow move towards greater equality between nations, evidenced by the increase in real disposable income for the very lowest income groups in the Euro area. To reverse that achievement would seem to be perverse.
Politics and human nature means that the dynamic of growth rather than the static of income levels is likely to dominate policy makers’ discussions. It will not make for comfortable politics in the councils of Europe. Baron de Coubertin’s well known dictum from the first modern Olympics was “The most important thing… is not winning but taking part; the essential thing in life is not conquering, but fighting well”. The ideal is ideal, but it has a hollow ring if applied to the Euro. For most of the Euro countries if not all of them, taking part in the dysfunctional monetary union of the Euro at all was a bad decision in economic terms. Having signed up to the Euro’s irrevocable monetary union, the fact that living standards have fallen for some participating economies is likely to breed resentment and bitterness against those economies that have experienced an improvement in living standards.
All of the above simply means that the precarious European balance in which Germany quietly became the shamed underdog, responsible for funding its drunk, broke, and wayward neighbors because somehow it was its fault it benefited from their irresponsible spending ways, has just been shattered: now the opponents of the "convergence" theme have cold hard facts on their side, and we expect the above chart to make the front pages of most German papers in short order.
It also means that the political opposition to any acquiescence by Merkel to current and future Monti demands will now spike to intolerable levels, with dire consequences in national polls.
Finally, it also means that the entire precariously built-up European "Nash equilibrium" over the past 6 months was just dismantled. Courtesy of the facts.
We already knew September was going to be when the fun resumes (with August a scratch - just as expected). Now, we can hardly wait.
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If you don't lend how can you control?
This Euro thing is not about whether the people of a country are better off, it is about whether the powers that be can now consolidate power.
Germany will be the winner, in control of a broken Europe, and in a New World Disorder.
Politics is, alas, not a matter of reality or truth, but of power and ideology. And ideology will prever such facts from being spoken of here in Germany. Any truth needs a revelant political power to reveal it. Truth itself has no power, and if anything, history proves that. So as much as I personall appreciate such facts, I think we are still a long way away from such facts being public knowledge here in Germany.
It's seems as though Finland has its house in order. The rest of the EU should try to figure out what they are doing right. I'm thinking they are going to be the first penguin off the iceflow, if you catch my drift.
Finland might have benefited more without the euro. Nordic countries outside the eurozone, such as Sweden, have done even better during that period.
What euro has contributed to in Finland is a real estate bubble, and general public losing their common sense when it comes to money, especially debt. The political elite is even more lost: according to the Finnish prime minister Jyrki katainen, Finland borrowing money and handing it out to Greece is "a good deal".
As the saying goes, "Those whom the gods wish to destroy they first make mad".
yen trades net over 300 pips AS PORTFOLIO is shared
http://capital3x.com/think-tank/performance-week-of-17-aug-2012-590-pips/
Nice, detailed analysis.
Question #1 though: who bought all the marvelous, and I am sure very useful, stuff the brilliant German economy produced during this period? (hint: neither the Chinese, nor the German)
Question #2: who will buy all the stuff the German economy will prodcue once European disposable income embraces healthy levels of decline thanks to eurozone - wide austerity? (hint: not the Chinese)
The Chinese and Germans signed a 50 billion Euro trade agreement earlier this year or late last year. I suppose this means the Chinese will be buying German bonds with all those Euros which will flood into China and Germany will buy Chinese bonds with the RMB flooding into Germany. I guess China is finding new friends with which to play. I have a feeling the USA is going to get short sold by the PRC.
Deleted post because it appeared in the wrong place, which wasn't my fault.
..being Duth, I can say most workers here suffered; we have had austerity since the eighties. The fact that some companies earned a lot is fucking up the data - we, the people, did not profit at all.
We're just the ones who are left with the bill.
Container shipping is dropping. Evans-Pritchard says the Greeks are buying ships from German companies in distress!
http://www.telegraph.co.uk/finance/newsbysector/transport/9473476/World-...
I enjoy charts. (Calm down, ladies.) This chart is very telling. It starkly shows the benefits and burdens imposed on the Eurozone members by adopting the common currency.
The group of countries that saw the highest growth in income were those with weak currencies and developing economies, Portugal, Spain, Greece and Finland. That's right, Finland. Before the high tech revolution, Finland was a sleepy backwater...
Read more:
http://dareconomics.wordpress.com/2012/08/18/how-the-euro-a…mber-countries/
someone has any link to a similar picture for different US States maybe ? ty
Nobody that I have seen has put out accurate numbers on the subject much less broken it down by income, but I can direct you to the information you need to determine what is what in terms of overall money sent and received.
2010 Consolidated Federal Fund Report showing how much each state received, also broken down by various categories:
http://www.census.gov/prod/2011pubs/cffr-10.pdf
2010 IRS numbers showing how much the federal government took form each state:
http://www.irs.gov/taxstats/article/0,,id=206488,00.html
There are only 5 states that sent more than they received in gross expenditures in 2010.
1)New Jersey 37,952,547,000 2)Minnesota 23,634,129,000 3) Delaware 7,251,877,000 4)Illinois 1,071,760,000 5)Ohio 34,026,000 (just barely a donor state)
The top 5 gross recipients:
1) Virginia 78,128,254,000 (there goes the surplus from the 5 donor states) 2) Florida 75,339,258,000 3) California 60,455,894,000 4) Maryland 48,588,785,000 5) Pennsylvania 44,075,246,000
Realize that these are total numbers for everything- salaries, retirement, procurement, grants, etc. and don't necessarily reflect the wishes of the population there. I have little doubt that most native born Floridians would love to reduce that number by sending back most or all of the Northern asshole retirees that have flooded their state but Federal law won't allow it.
What does the chart tell you though about what the money you have more can buy you? Costs of living have surely inreased, and probably a lot more in the south than in the north when their weak currencies were replaced by a strong one.
so Zerohedge, Monti hasn't got wrong that much, as Italy is one of those who suffered with Euro. Uuh?
The italian case is beyond all slightly different form other PIIGS, as their national debt is today 70% kept by italian, very unlike Spain Portugal and Ireland or Greece, and because Italy could really go off the Euro on its own without a default...
What Monti said is that Italy today received no help from Europe, but has paid its share for Greek bailout, Irish bailout, Portugal and Spain refinancing, money that were necessary to allow FRENCH and GERMAN banks to get back the money THEY lent to piigs, not italian banks.
What Monti is saying, boys, is that Italy won't go on forever saving FRENCH and GERMAN banks, as Italy can go outside Euro without suffering that much. Yes, if this may be a blackmail, that's what politics are! Many and many more people in Italy are asking to spin off the Euro and comeback to Lira, and soon or later a party that supports this idea will win the elections. Monti warning is real, and Italy isn't Greece or Spain, its debt is more and more getting back an inside debt like Japan.
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