Austerity, marathons and high jumping

German and other commentators are now arguing that Greece has not shown enough progress.

On the other hand, stats from Jan-July 2012 have shown that the Greek budget has performed better than targets/expectations.

So is the claim of the commentators valid for the pre-2012 period?

Well, my view is the following:

Austerity is like (I usually don't like to treat for analysis purposes states or economies etc as persons but making an exception only for the purpose of demonstration of a point via an eloquent metaphor) starving someone, then making him/her run a marathon and accuse him/her when he/she faints at the 5th km from starvation and fatigue!

In my opinion, the goals set by the two Greek MoUs (MoU = Memorandum of Understanding) were too high/unrealistic/punitive. When this happens then even the achievement of lesser goals is hampered. To use another metaphor, from track and field. when the bar is set too high, this causes counter-productive "stress" to the athlete, thus can lead to very poor results! More realistic bailout terms/goals would have caused less "stress" thus could be reached if not at 100% at least near that.

Crucial events/factors in EU/EZ systemics and dynamics

Crucial events/factors in EU/EZ systemics and dynamics have been:
1) The enlargements. They did make deepening harder after all (UK got its way but got bit some way)
2) BuBa's inflation phobia
3) China's Dec 2001 WTO entry

(3) is the one that disrupted EU/EZ systemics and dynamics the most, esp PIIGS' (and others).

In a "more closed" EU Single Market (or in a WTO withoit China), PIIGS' wages would have to compete with eg Slovak and Bulgarian ones. But now they have to compete with Asian (mostly Chinese) ones.

People in glass economies should not ....

People in glass economies should not throw stones at Portugal, Spain, Italy and Greece.

Euromyth busting: It's rich for an economy to sit pretty in between 3 mega markets, piggyback on them and then boast how competitive & hardworking it is (when it is pretty high in the OECD list of least hours worked per worker).

How would that economy "perform" if it was in the geo position of Greece or Portugal?

The "Vikings Invasion" model for SME led exports!

1. Intro:

Who in Europe has really cared to examine "sur-le-terrain" the real problems of SMEs and micro firms in the EU's or Euroland's periphery and find real solutions to them?

Greece's rebound in growth and jobs can come from a mass/pack of new exporting micros & SMEs that will "invade" with their products and in some cases services, the Euroland, the EU Single Market and world markets as the Vikings ships invaded Europe 1000 yrs ago.

Not via large corporations or large private investors.

2. Business as a revolution:

October 9, 2011: 44 years without Che!
Che, an Argentinian of Spanish and Irish descend, had concluded that Latin America's ingrained economic inequalities were an intrinsic result of capitalism, monopolism,neocolonialism & imperialism.

Which of these variables apply in Europe today?

What would a European Che do today? IMO go to Greece or Ireland or Portugal or the Baltics, the EU's periphery, and start an exporting SME. To the Eurozone/Euroland, to the EU Single Market or even to the global one!

Because I ask you, what is more revolutionary and heroic than starting an exporting SME in the Euroland of 2011, especially its periphery?

Plus: Not tolerating monopolies, oligopolies, monopsonies and oligopsonies is not a Leninist monopoly! Real free market fans share this POV!


3. Scope

It is true that most SMEs are occupied with local and national regulatory, redtape and other issues.

That is precisely the main problem of SMEs. Their local "worldview". That is why I call the model I propose "Vikings invasion"!

The EU27 even EZ17 spaces are alas a bureaucratic swamp where mainly large companies and corporations can "work"/operate! The swamp is created mostly by local/national regulations/polynomy and resulting red tape.

Almost 18 years of BS re the EU Single Market is enough!

SMEs need a REAL Single Market now!

The Europlus Six-Pack is no solution to Europe's growth and job creation problems.

The "Vikings Invasion" SME pack-exporting model is!

4. The "Vikings Invasion" model for SME led exports (and growth and jobs creation)

Look into history texts on how (method) the Vikings invaded and dominated Europe for 3 centuries! The key success factor was the independence of each vessel. Yet these vessels formed a "loose" pack that because of its non-coordinated nature it made it difficult for others to defend against! Viking "SME" vessels, due to their size, used Europe's inland waterways to reach all parts of Europe.

This model is what Greek, Irish, Spanish, Portuguese SMEs and their economies need today!

The "Vikings invasion" model for exporting micros & SMEs can be a solution not only for Greece and Ireland & but other EU/Eurozone economies too!

One of the key mistakes of the EU's periphery has been

One of the strategic mistakes of the EU's/Eurozone's periphery was/is not pushing the 27 and the EU institutions for a friendlier EU Single Market to SMEs in the last 18.5 years!

Yes, my assumptions/hypothesis is that a better working Single Market would habe benefited all 27, but Greece, Italy, Spain, Portugal and Ireland more than the others!

Time to rethink global trade (and save the Euro & the US economy as well as Earth)?

Whereas more and more ("national") economies are becoming Services economies (ie with Services yielding 65-70% or even more of GDP) most of international trade is still in manufactured goods. So whereas "intellectual products" such as film, TV content, music, even porno (by the way, its main global "manufacturing" cluster is in California too, much like the Silicon Valley and Hollywood) and Services such as finance, telecoms, insurance, and of course tourism, provide valuable export revenue to some economies, the world superpowers of exports are driven by manufactured goods!

Be it "complex products", for consumer or business use, as is the purported German key to exporting success, or innovative tech products (America's niche) or low price - low quality manufactured goods (as is the case for China, at least for now, will it follow Japan's example and upgrade, gradually, into quality products?), manufactured goods are the bread and butter of trade. Portugal, Spain, Greece, Italy and others are being advised to adopt the German approach to manufacturing quality/complex goods as a way of solving their competitiveness and balance of payments issues!

Side Note: But, as I have asked in previous posts (see eg here), what would happen to the world market prices for complex goods if the PIIGS and other Eurozone members decide to follow Germany's example (thus increasing supply of such goods in the Eurozone, the EU and globally)?
So, manufactured goods of all origins, sizes, qualities, prices, etc are travelling around our planet everyday in the process of what we call global or world trade, the No. 1 world sport of our era, more crucial than football (aka soccer), basketball, even rugby or cricket! The one that makes or breaks economies as we are seeing in recent months (hence a "Rollerball" of sorts, if you recall the movie, especially the original, starring James Caan).

But does all this trade (and transport) "jazz" make sense? In addition to burdening the planet's environment?

Some would say that it is transport that has become too cheap in recent decades, thus allowing for "irrational" transport and trade to occur, in the name of Ricardo (David (see Wikipedia) not Ricky). But cheap transport is not necessarily the problem, is it, unless of course one believes that markets and the prices they set provide the best allocation of resources, but I am not a believer in that worldview. Are you?

So should there be a central planning body, global, that determines which manufactured products should have a "right" to be transported across the "7 seas" (via air, sea, etc or comb0 thereof) ie a right to burden the planet's eco-system (eco not econ; well that one too, actually)? Does one have to believe in global warming to agree that shipping of many types of goods across thousands of miles/kms or nautical miles is simply irrational use of resources?

No, I am not proposing the establishment of such a central trade/transport licensing body. Of course not. Unless China takes over the whole world, of course. In which case it won't matter what I or you think, anyway!

A few years ago, a few well known leaders, 2 from South America and 2 from Europe, if memory serves me right, had the brilliant idea to strap a "globalisation levy" on (believe it or not) passenger air transport!!! The European Commission's Services were even forced to look into it. Why on earth charge the movement of people instead of goods? To promote tele-conferencing? Or virtual sales aka e-commerce? To bring the travelling salesmen a break (see the movie Up In the Air with George Clooney as an excellent case study)? Not likely!

But the problem still exists and calls for a solution.

End of Part 1

(Not to be completed over 6 seasons)

Read next part

An alter way of making PIIGS & others more competitive

Want to reduce the prices of PIIGS and other economies exports & tourism to make them more competitive?

Why not help them avoid the cut of the middlemen in the European and world markets?

Germany's competitiveness: Beyond myths and inside the systemics

On June 8, the German national statistics agency announced that in April (2011) German exports fell by 5.5% to 84.3bn euros compared with March 2011 (see eg BBCnews report).

The March 2011 German exports had been Euros 98.3bn which were:
1) +16% from March 2010
2) the highest monthly total since 1950 when record keeping began!

The April drop surprised analysts, according to the BBC. But it did not quite surprise me.

In my May 9 post, "German exports record high in March vs Euro/USD rate", I had wondered:

"But what was Euro/USD in March compared eg to last week (the week before "the weekend"? See a chart eg here and draw your own conclusions!"

The "here" was (and is) a EUR/USD Elliott Wave Analysis chart (May 9)(here is the latest one, June 6). They show that the price of the Euro vis-a-vis the USD not only had reached a "local" low in March 2011 but had been within the 1.35 - 1.30 USD per Euro range (roughly) from late 2010 until March 2011. One does not expect a country's exports to be correlated with the same month's currency value because after all, orders, especially international, do take some time, depending on the type of good or service (eg in tourism many bookings are made many months ahead).

But the fact that the Euro by March 2011 had been in a range lower than its local 1.5+ high that had been reached around Jan 2010 (then sliding from that 1.5+ high from roughly Jan 2010 to June 2010, when in reached a less than 1.2 "low", and the started to go up again), did pose some questions as to the factors/drivers behind the super duper German export record of March 2011.

Notably, after the March 2011 local low of approx. 1.3 USD per Euro, the Euro climbed somewhat steadily up to the 1.5 territory in the next 2+ months. Did that affect the April exports performance? That I do not know. Does someone? Feel free to comment!

In other words, German exports, which are said to be mostly manufactured "complex" goods, said to be mostly produced by sophisticated small and medium German manufacturing firms to quality levels that justify a higher price (be it due to "national" costs or the expensive Euro (successor of the expensive/hard DM or profit margin) in the world's markets was/is allegedly the "key" to Germany's export success (formerly No 1 in the world and now second only to China of the 1.3 billion people compared with 80+ million Germany).

Maybe it's my MIT education that taught me to ask questions such as "why" and "how" even for things that are pretty much taken as "facts of life" or "given" by many others, maybe it's my systemics analysis - operations research - decision science education as well as an MBA, but in any case, I was and still am eager to get to the bottom of the systemics of the German competitiveness model, beyond the myths and inside the mystique that surrounds them.

A myth that says that hard working Germans, working smart and with quality equipment and a knack for organisation and engineering, produce goods and achieve export power that the likes of Spain, Portugal, Ireland, Italy, Greece (aka PIIGS) and most of the other EUropean and other economies cannot (and should?) achieve!

Not being a believer in national stereotypes, but being a believer in systemics, I am willing to accept, after more research that there may be systemic conditions that render Germany a more competitive economy than eg the PIIGS (and if possible isolate and examine those conditions or, if you prefer, parameters or factors). But I need much more info and data than the ones offered by the analyses of German competitiveness that I have read so far. Feel free to recommend ones (via e-mail) if you are aware of.

One thing that IMO does not bode too well with the myth is the datum that 60% of German exports are to its EU Single Market partners. That means that the rest of the world, outside the EU, only buys 40% of Germany's exports. So 60% of these largely complex and 'expensive but worth it; manufactured goods are bought by a market of roughly 0.420 billion inhabitants, while the rest 40% by the rest 6.4 billion non-EU market of this planet!

And when at least 120 million of those 420 million (ie the PIIGS) are in some kind of austerity, hitting a record month in exports (March 2011) seems quite unsustainable unless there are data that other markets (eg the developing BRIcs etc) are picking up the slack one expects from the "austeritised" PIIGS (and to some extent the rest of the Eurozone and the EU).

More on this in the near future as I will be trying to dig deeper and deeper into the system/model of German competitiveness.

For now, one last note:

I read a lot of commentators, some German, some other EUropean, some from other parts of the world, urging the PIIGS to become (in terms of economic modeling) more like Germany. My question is the following simple (and maybe dumb) one:

If all of the Eurozone moved from production (and export) of simple to complex goods a la Germany, then that would increase up to 300% the volume of such goods produced in the Eurozone (80 x 4 = 320) and 500% in the EU (90 x 6 = 480). Ie for each German complex good produced by Germany now, there would be 3 more of the same produced in the rest of the Eurozone and 2 more in the rest of the EU. Making the total volume of German type complex goods produced in the EU 6 times the existing one.

In such a case, what would be, via the "law" of supply and demand, the effect on the equilibrium price for German+rest EU "complex' goods? To use a Marketing term, if the rest of the economies of the Eurozone or the EU would produce German type of goods, then there would be cannibalisation in the (EU and world) markets. Leading of course to much lower prices for these goods. Food for thought, huh?

Systemics: If the PIIGS formed a political union it would be No 1 EU & Eurozone member

Food for thought:

If the PIIGS formed a political union it would b biggest member of Eurozone (& the EU):

In the Eurozone it would be the biggest (No1) member in population 40% and in GDP (35% in 2009).

For more raw data on it

Reminder: Germany has roughly 25% of #Eurozone population & 25+% of nominal #GDP (2009).

To paraphrase Bill Clinton, "The (Eurozone) periphery stu...."

Today the ECB decided to keep the Eurozone rates at 1.25%, following the increase from 1% to 1.25% last month (see eg BBC's news report)

Thank god for Eurozone exports (to the rest of the Eurozone, the EU and world markets as well as their competitiveness vis-a-vis cheap third country imports) and tourism (Spanish, Italian, Greek, Portuguese, Irish, etc)!

I am beginning to think that ECB philosophy is either too German or not German enough (or both at the same time)! In any case, it is "off".

I felt that I am not alone in the Universe when I watched excerpts from N. Roubini's speech at the Estoril Conferences in Portugal yesterday: Inter alia, he did point that expensive Euro was a "nail in the coffin" of PIIGS economies! (and still is IMO). He opined (and I so agree) that with the Euro being worth 1.5 or even 1.4 Euros the PIIGS economies have a hard time being competitive vis-a-vis non Eurozone cheap products! And he did "accuse" German economic policy of not increasing its domestic demand to help the PIIGS' (intra-Eurozone) exports!