"F***ing Psycho!"

Former Spanish Premier Jose Luis Rodriguez Zapatero claims in a new book that French President Sarkozy became enraged with Prime Minister Papandreou at the G20 summit in Cannes in November 2011 and called Mr. Papandreou a “f***ing psycho".

If only Mr. Papandreou had taken a negotiating seminar before that summit! Had he done so, he would have known that he holds the strongest card when the other sides loses control. What a poor performance on the part of President Sarkozy!

And an even poorer performance on the part of Prime Minister Papandreou! I wrote an article prior to that summit titled "Mr. Papanadreou - A Mrs. Thatcher or 'The Son of the Father'"? Regrettably, it turned out that Mr. Papandreou was only the son of the father.

Real Estate Taxes - A Morality Play?

This blogpost by Robert Danon discusses the impact of real estate taxes on the Greek economy. Without going into the merits of his arguments, my attention was caught by the following sentence:

"One of the basic pillars of Stournaras tax on property is this, that since a substantial part of the black money must have been invested in property we must tax property ownership to catch this laundered money".

Well, I must admit that I was not aware that Greek real estate taxes were based on a moral justification. I always thought the logic of Greek taxation since the crisis was a bit like: 'if you need more taxes, (a) first hit the ones who are taxed at the source because they can't hide; and if that is not enough, (b) tax the real estate because that can't be hidden'.

Now a moral justification for real estate taxes is introduced: 'if you have evaded taxes and bought real estate with the proceeds, it is only fair for the state to get some of that real estate back'. Makes sense on the surface. But how can such a moral principle be implemented in a just way?

When I own a house and take out a mortgage, I have a 'private property' and 'private debt'. If I can't pay my debt, it seems legitimate that my lender takes away my property.

However, when I have private property but no debt, my private property is indeed private property. Whoever takes it away from me is interfering with the principle of private property.

My sense is that, if the real estate taxes were indeed based on the above moral principle and nothing else, there would have had to be very selective implementation. An implementation which assures that one hits those who deserve to be hit but not those who don't.

One way to do this would be to verify in each individual case how the real estate was financed. If it could be proven that it was not financed with 'black money', one should not try to get some of it back via new taxes.

Just thinking how much of an administrative effort this would entail leads me to believe the government most likely followed the following logic: 'let's tax real estate because we need the money and afterwards we build a nice narrative around it!'

The Most Effective Argument against Germany's Surpluses

At long last, I have seen an article which outlines the best arguments why it is in the interest of the Germans themselves to reduce their current account surpluses. I will start off by mentioning, once again, the key formulas which I have mentioned on several previous occasions:

Current account surplus = net exports of capital
Current account deficit = net imports of capital

Germany's current account surplus is not generated by the German state. Instead, it is generated by all of the economic agents residing within German borders (mostly the exporting businesses). The resulting capital exports are not made by the German state. Instead, they are made all by of the economic agents residing within German borders (to a large degree: banks, insurance companies, etc.).

As a mathematical (and not economic) consequence of the above: excessively high German current account surpluses MUST lead to excessively high German net capital exports. Germany, allegedly, is now the highest current account surpluser in the world. As a consequence, Germany is now the largest net capital exporter in the world. The world's largest lender. Gross foreign assets of the German economy already exceed 7.000 BEUR (!), more than twice one year's GDP.

The above has recently begun to develop into something which I have referred to as 'the battle of current accounts'. Clearly, looking at this situation from the rest of the Eurozone, Germany is perceived as a threat to balanced economic growth. Even the US has now joined the line of those who claim that Germany, out of its responsibility as one of the largest economies in the world, must do something to correct those imbalances.

'Germany must reign in its exports!' has become one of the popular slogans whose popularity is exceeded only by its silliness. 'Germany must increase its imports' is an intelligent slogan but it won't carry the day in Germany. 'Why should we if we don't need them?' the Germans might ask.

If one wants to get the attention of Germans, one has to warn them that 'their pensions might be at stake!' That will get their attention immediately. And, as the article so convincingly shows, that argument is absolutely correct! Thus, it is in the utmost interest of the Germans themselves to reign in their current account surpluses so that their net capital exports are reigned in so that the foreign assets of their economy are kept at a reasonable level.

Rough estimates are that the various bubbles since 2007 have already cost the German economy a 3-digit BEUR figure of its foreign assets (sub-prime, Lehman, Iceland, Ireland, Greece, etc.). Why have the Germans not been shocked by that? Because, so far, the bulk of these losses has been recorded at layers above the tax payers (banks, insurance companies, etc.). But the fact of the matter remains: if losses hit the foreign assets of an economy, that economy has lost assets; that economy has become poorer.

So what would be the most effective way to convince Germans that they should reign in their current account surpluses? Let me phase it casually: just scare the living daylights out of Germans that their pensions are at stake; that their sustained living standard is at stake for the simple reason that they export so much capital which is the consequence of the much praised virtue of being world champion with current account surpluses.

Would that be a lie? On the contrary, it would be the absolute truth! Money flows, directly or indirectly, from those who have it (surplusers) to those who need it (deficiters). The Germans may think that their foreign assets are all invested wisely and safely (if they haven't read the papers in the last 5 years). What Germans have to wake up to is the fact that their savings are, in the final analysis, in all those deficit countries whose risk they fear so much.

In a couple of months we will see German newspaper headlines exclaiming 'Record Current Account Surplus for 2013!' I wonder if a German publisher will have the nerve to publish the following headline instead: 'Shocking News! German Savings Put At Risk Abroad Reached Record Levels!'

It's the current account, stupid!

P.S.
Given that Germany will have a current account surplus for quite some time, my advice would be that Germany export its capital more via investment than loans. Particularly investments in the South so that a country like Greece can build up productive capacities to make some of the products which Germans would buy. As of today, regardless of how much Germany would stimulate domestic demand, it would help Greece very little because Greece has only very little supplies to deliver.

Liberty Going Out Of Fashion in Germany!

"Of freedom and of life he only is deserving
Who every day must conquer them anew".

Johann Wolfgang von Goethe coined this verse a couple of hundred years ago in Faust. Move over, Johnny and meet the Germans of today. They are quite different!

Liberty is a value going out of fashion in today's German society, a study by the John Stuart Mill Society in Heidelberg has found. Egality, justice and security are the themes on which successful political campaings must be based. There is a desire for 'more state'.

The dream of Germans is the 'caring' and 'protecting' state and not the liberal one. That caring and protecting state is more just, wealthier, more human and more liveable.

Greeks ought to start asking the Germans the following question: If 'caring' and 'protecting' is so important to you, why do you want others to be so 'competitive'?

Alexis Tsipras - Convert 7 Key Aims Into Just One!

This article reports the answers which Alexis Tsipras gave when asked by the newspaper Avgi what his key aims would be during his first 100 days of governing (the bold emphasis is mine): 

* Cancelling the EU-IMF memorandum and replacing it with a national reconstruction plan.

* The plan will include bringing back collective bargaining laws and restoring the minimum wage to the pre-crisis level of 751 euros, from which it was reduced by 22 percent in 2012.

* The creation of an assets register to help with taxation, and the drafting of a new tax system.

* The renegotiation of Greece’s loan agreement.

* Increasing social welfare.

* Reopening public broadcaster ERT and legislating for the awarding of digital licenses.

* The overhaul of Greece's banking system, providing greater state control of lenders and the creation of small, regional development and cooperative banks.

I would suggest that the way Tsipras formulates his first key aim (in bold) may have as a consequence that his government won't last for 100 days. I would recommend to rephrase that key aim as follows: 

"Negotiate with our EU-partners to consensually transform the current EU-IMF memorandum into a long-term economic reconstruction and development plan for the Greek economy. The plan’s objective will be to transform, within one generation, Greece into a self-sustaining, value-generating economy on the basis of a sound, market-based private sector supported by an efficient and modern public administration, adequate in size and competency. A major pillar of the plan will be a focus on direct foreign investments in Greece’s productive sector, thus bringing not only financial resources but also know-how in all areas to Greece; thus enabling Greece to increase its productive capacity, to increase employment and to import less; thus enabling Greece to make products which other countries will want to buy. The primary responsibility for developing such a plan will be with Greece but we seek active participation of and know-how contribution by our EU-partners. We are confident that, once that comprehensive plan is on the table, our EU-partners - seeing that the plan has our unequivocal support - will willingly assist with financing it because such financing will be a good investment”. 

I would further suggest that if Tsipras were to focus on the above key aim, all his other key aims would fall into place naturally (because they would be part of a long-term economic reconstruction and development plan for the Greek economy).

Prof. Robert Skidelsky on the Four Economic Fallacies

Prof. Robert Skidelsky, the famous Keynes biographer, has declared himself on what he defines as the Four Great Economic Fallacies of our Time. Seldom have I read a clearer statement on the principal economic questions of our time. Whether or not one agrees with Prof. Skidelsky is a different matter but he certainly has defined his views in admirable clarity!

Prof.  Robert Skidelsky: 

1. The Swabian Housewife. “One should simply have asked the Swabian housewife,” said German Chancellor Angela Merkel after the collapse of Lehman Brothers in 2008. “She would have told us that you cannot live beyond your means.”

This sensible-sounding logic currently underpins austerity. The problem is that it ignores the effect of the housewife’s thrift on total demand. If all households curbed their expenditures, total consumption would fall, and so, too, would demand for labor. If the housewife’s husband loses his job, the household will be worse off than before.

The general case of this fallacy is the “fallacy of composition”: what makes sense for each household or company individually does not necessarily add up to the good of the whole. The particular case that John Maynard Keynes identified was the “paradox of thrift”: if everyone tries to save more in bad times, aggregate demand will fall, lowering total savings, because of the decrease in consumption and economic growth.

If the government tries to cut its deficit, households and firms will have to tighten their purse strings, resulting in less total spending. As a result, however much the government cuts its spending, its deficit will barely shrink. And if all countries pursue austerity simultaneously, lower demand for each country’s goods will lead to lower domestic and foreign consumption, leaving all worse off.

2. The government cannot spend money it does not have. This fallacy – often repeated by British Prime Minister David Cameron – treats governments as if they faced the same budget constraints as households or companies. But governments are not like households or companies. They can always get the money they need by issuing bonds.

But won’t an increasingly indebted government have to pay ever-higher interest rates, so that debt-service costs eventually consume its entire revenue? The answer is no: the central bank can print enough extra money to hold down the cost of government debt. This is what so-called quantitative easing does. With near-zero interest rates, most Western governments cannot afford not to borrow.

This argument does not hold for a government without its own central bank, in which case it faces exactly the same budget constraint as the oft-cited Swabian housewife. That is why some eurozone member states got into so much trouble until the European Central Bank rescued them.

3. The national debt is deferred taxation. According to this oft-repeated fallacy, governments can raise money by issuing bonds, but, because bonds are loans, they will eventually have to be repaid, which can be done only by raising taxes. And, because taxpayers expect this, they will save now to pay their future tax bills. The more the government borrows to pay for its spending today, the more the public saves to pay future taxes, canceling out any stimulatory effect of the extra borrowing.

The problem with this argument is that governments are rarely faced with having to “pay off” their debts. They might choose to do so, but mostly they just roll them over by issuing new bonds. The longer the bonds’ maturities, the less frequently governments have to come to the market for new loans.

More important, when there are idle resources (for example, when unemployment is much higher than normal), the spending that results from the government’s borrowing brings these resources into use. The increased government revenue that this generates (plus the decreased spending on the unemployed) pays for the extra borrowing without having to raise taxes.

4. The national debt is a burden on future generations. This fallacy is repeated so often that it has entered the collective unconscious. The argument is that if the current generation spends more than it earns, the next generation will be forced to earn more than it spends to pay for it.

But this ignores the fact that holders of the very same debt will be among the supposedly burdened future generations. Suppose my children have to pay off the debt to you that I incurred. They will be worse off. But you will be better off. This may be bad for the distribution of wealth and income, because it will enrich the creditor at the expense of the debtor, but there will be no net burden on future generations.

The principle is exactly the same when the holders of the national debt are foreigners (as with Greece), though the political opposition to repayment will be much greater.

Is This Where Greek Society Presently Is At?

"Economic privation proceeds by easy stages, and so long as men suffer it patiently the outside world cares little. Physical efficiency and resistance to disease slowly diminish, but life proceeds some how, until the limit of human endurance is reached at last and counsels of despair and madness stir the sufferers from the lethargy which preceeds the crisis. Then man shakes himself, and the bonds of custom are loosed. The power of ideas is sovereign, and he listens to whatever instruction of hope, illusion, or revenge is carried to him on the air. (...) 

But who can say how much is endurable, or in what direction men (Greeks?) will seek at last to escape from their misfortunes?"

John Maynard Keynes, The Economic Consequences of Peace

Greeks MUST Endeavor!

This article from the Ekathimerini should be read over and over again! It reports on the Endeavor Greece Report on "Entrepreneurship and Investment Opportunities in today's Greece".

In 2012, the number of new business starts was about 50% lower than in the pre-crisis year 2008. That does not surprise. What does surprise is that the following ratio has remained more or less unchanged: 9 out of 10 new businesses are in the non-productive sector - cafés, restaurants, bars, apparel and shoe stores, etc.

Perhaps this focus on the non-productive sector is a function of Greek mentalities. Perhaps it is a function of traditions. Perhaps it is a function of desiring quick profits the easy way. Whatever it is, that focus is terribly wrong! Greece can only make it out of the current depression if it succeeds in increasing the domestic economic value creation and such value creation takes place in the productive and not in the non-productive sector!

If Greece (as a country, as a national economy, as a society) is to make it out of this crisis, it has to tap the human and natural resources of the country. On the side of human capital, what is required is an unleashing of enterprising spirits and a support for entrepreneurs. And, most importantly, a removal of barriers against entrepreneurship.

The opportunities exist; just read the Endeavor Greece Report. What is required is to take advantage of them; to exploit existing potential to the fullest. Those who believe that it is the government's job to do this are invited to keep waiting for that to happen.  All the government can do is to set a framework conducive for such things to happen. Above all, the government should motivate the Greek people that these things SHOULD happen!

When I read, even now in the 4th year of the crisis, about all the impediments which are put in the way of enterprising spirits in Greece, I wonder what these 4 years of crisis have been used for. And when I hear of all the reservations against private enterprise and entrepreneurs which many Greeks voice, I wish Churchill were still around and would tell the Greeks what he used to say:

"Some people regard private enterprise as a predatory tiger to be shot. Others look on it as a cow they can milk. Not enough people see it as a healthy horse, pulling a sturdy wagon".

Greeks have good memories!

For whatever it is worth, this paper analyzes car sales in Greece since the crisis with particular emphasis on the question of how car sales developed during periods when Greek-German emotions reached high levels. This is the interesting conclusion:

"During months of open conflict between German and Greek politicians, German car sales fell markedly more than those of cars from other countries. This was especially true in areas affected by German reprisals during World War II: areas where German troops committed massacres and destroyed entire villages curtailed their purchases of German cars to a greater extent during conflict months than other parts of Greece".

Krugman versus Krugman?

Prof. Krugman has now introduced me to “secular stagnation” which is “a persistent state in which a depressed economy is the norm with episodes of full employment few and far between”.

Well, heavy stuff, to be sure. Prof. Krugman suggests (but he gives credit for it to Larry Summers) that the US economy has been in a mild depression since about 1985; an economy of inadequate demand which only gets anywhere close to full employment when it is being buoyed by bubbles.

From 1960 to 1985, Prof. Krugman says, US household debt relative to income was relatively stable but it rose rapidly and inexorably from 1985 to 2007. Yet even with households going ever deeper into debt, the economy’s performance over the period as a whole was mediocre at best.

Now I am confused. On one hand, Prof. Krugman seems to suggest that not even rapid and inexorable spending by consumption-addicted and no-fear-of-debt-having American consumers could generate sustained economic strength since there was a problem with the underlying economy. On the other hand, I read almost every day a piece by Prof. Krugman where he recommends rapid and inexorable spending, albeit this time on the part of the state because consumers have run out of their own money while the state can always spend other people’s money. Hmmm.

What does that have to do with Greece?

Well, I have always been puzzled by the following. Everyone seems to be in agreement that the Greek state had gone overboard with spending in the last 10-15 years, particularly after 2006. But the reverse question would be a what-if question. What if the Greek state had not done all that spending? What if the Greek state had not increased public employment so much, particularly after 2006?

It seems to me that the Greek state had no choice but to go overboard with spending. Otherwise, the destructive side effects of the Euro (declining domestic economic value creation; GDP decline; rising unemployment) would have become apparent much sooner. If I recall correctly, in 2009 not even a 15% budget deficit (if that is not a stimulus then I don’t know what is!) could prevent the GDP from declining!

What explanations does Prof. Krugman offer about this mild depression in the US economy since about 1985? One is slowing population growth. But the really interesting factor which Prof. Krugman notes is the second one – persistent trade deficits!

A trade deficit always implies, at least to a certain degree, an export of jobs. Obviously, a country like Greece cannot avoid importing cars when it does not produce cars. However, if the US is importing cars which it previously produced domestically, then the corresponding jobs have been exported. First the jobs are lost (in many cases forever). Then employment becomes unstable. Then unemployment will persistently increase UNLESS there are consumers who rapidly and inexorably overspend (borrowed) money and UNLESS there is a state which takes over that overspending once the consumers themselves run out of steam. But what kind of an economy is that when you need bubbles to keep it afloat?

I still remember Ross Perot’s warning – when he first ran for President in 1992 – that the US would have to be very careful with its trade position. At that point, the issue was NAFTA which Perot opposed because he felt it would further deteriorate the US’s trade balance. He warned of a ‘giant sucking sound’ which would be heard as American jobs left the country to other countries where they would produce exports to the US. His analogy was: “Our children will be selling hamburgers to each other and pay for them with money borrowed abroad”. Does anyone recognize similarities with Greece?

Back in the early 1970s, I discussed the American import situation with a colleague who was in the same training class at an American bank. His position was: “If the Japanese want to work 18 hours a day in exchange for us signing promissory notes, that’s fine with me!” Well, not having to work in exchange for signing promissory notes would be fine with everyone if those promissory notes could be signed forever and if they would never be presented for payment. And, ABOVE ALL, if the export of promissory notes were not accompanied by an export of jobs.

Returning to Prof. Krugman, I could perhaps accept his point (low interest rates; high public spending) with regard to the US economy because that economy is so huge, has such productive capacities and so much innovative and enterprising energy that even artificially increased demand might lead to positive consequences.

With regard to Greece I don’t see it that clearly. I still maintain that the first priority for Greece, as a country and as a national economy, has to be to increase productive capacities, build up new ones, unleash innovative and enterprising energies, etc. If only aggregate demand is increased, ceteris paribus, it will simply be a return to the past – increased imports, increased trade and current account deficits, increased demand for foreign funding and, at the end of the day, renewed external payment problems.

Regardless of what Prof. Krugman says.

Dear Greek Friends!

I picked up the letter below in the comment section of the Ekathimerini. The author was anonymous. I thought it was quite a piece of motivational literature, which is why I post it here.



"Dear Greek friends,

I am from Belgium and I realize that I cannot grasp the enormity of the crisis that hits you every day. But I know a little world history and Greece is the country I love the most. No other people influenced mankind's evolution of civilization more than Greeks.

Before the Ottoman invasions, the Byzantine Empire was the greatest, richest, smartest and most refined culture the world had ever seen. Rome was nothing in 200 compared to Byzantium in 1200. Then 400+ years of brutal oppression were not even enough to destroy your heritage, your customs, your approach to life. Any other culture would have disappeared after 400 years of attempts to erase it.

During these 400 years the Western world lived its renaissance, a rebirth and further wonderful development of what you gave to the western world 2500 years ago. Unfortunately, Greece could not be part nor play any role in what led to the French Revolution and finally an important degree of individual freedom to a gigantic part of the world. All these years, you had to struggle to maintain your culture under the Ottomans.

I know I take a lot of shortcuts, but I only want to draw the big picture here. Then, after struggling to restore and rise up again, the Germans came and tried to destroy your pride, again, without success. In the decades after 1945 until now, the Western world became enormously rich, started collecting European money and threw it by the billions to the Greek government in order to keep the country of Greece at its side (it is the mother of Western culture after all).

The politicians took the money, put a part of it into their own pockets and threw it further to the Greek people to buy their votes. In such a kind of doped economy, entrepreneurship, innovation, development from bottom to top had no chance. Why take any risk to undertake any business when working for the state was far more secure and lucrative? All with billions thrown by European politicians to the Greek politicians. This cannot become other than addictive, so the Greek politicians started to lie a little bit to the European money-throwers to keep them throwing.

In the meantime the financial system in the Western world had become corrupt itself and collapsed, a collapse triggered by the American housing bubble... The tubes of money dried out, enormous pits of debt left behind. And now what...?

Accusing one another for being the guilty one makes no sense, we were all in some part guilty for not controlling and checking what our politicians and bankers were doing. In Greece and in the rest of the Western world. The solution is not in accusing, the solution is in stimulating those who do the best effort to clean the mess up. Kicking out Europe and the Troika is ridiculous and what is more important: you are far too intelligent as a people to take such stupid action.

Kick out corruption by beginning with yourself, in your own community. Start innovating your tourism sector. It boomed in 2013, even in these lousy conditions! You ever asked yourself why? Because you are the owners of the greatest country in the world, with the greatest culture heritage, the greatest and warmest friendliest ambiance, something we all need more and more in this freezing world. You have an enormous potential in modern eco-industry, an enormous plentitude of wind and sun, enormous lots of unspoiled space where you can develop anything you want from agriculture, tourism to any kind of modern industry.

We can read some very small signs of economic recovery, so get working on it! No other western free-thinking country is geographically as well placed as Greece. Start to work together with your ancient enemy, Turkey, as an ally. We did that with the Germans too, every European country did this and look at the result in Belgium, Netherlands, France, UK, Denmark, Sweden, Austria etc...

The Turks built a tunnel between Europe and Asia? You realize what that means? You realize which European country is best placed to jump on it to exploit the possibilities? Yes indeed, your country, the wonderful Greece. Go for it, work together, use your brains, you have lots of it..."

The Greek Hell

A man dies and goes to hell. There he finds that there is a different hell for each country.

He goes to the German hell and asks, “What do they do here?” He is told: “First they put you in an electric chair for an hour. Then they lay you on a bed of nails for an hour. Then the German devil comes in and whips you for the rest of the day.” The man does not like the sound of that at all, so he moves on.

He checks out the American hell, as well as the Russian hell, and many more. He discovers they are more or less the same as the German hell.

Then he comes to the Greek hell and finds there is a long line of people from all nationalities waiting to get in. Amazed, he asks, “What do they do here?” He is told, “First they put you in an electric chair for an hour. Then they lay you on a bed of nails for an hour. Then the Greek devil comes in and whips you for the rest of the day.”

“But that is exactly the same as the other hells. Why are there so many people waiting to get in?”

He is told, “Because the maintenance crew is always on strike, there’s no electricity so the electric chair doesn’t work, Albanians have stolen all the nails from the bed, and the Greek devil is a former government employee, so he comes in, signs the register and then goes to have his kefedaki and eat kourabiedes all day…” 

(No offense! Just a joke which I picked up in the internet!)

Volume x Margin = Profit

A restaurant owner wants to earn 1.000 and he has a volume of 10.000. So he sets his prices in such a way that he gets a 10% margin.

One day, he decides that he should be earning 2.000 instead of 1.000. Easy enough. He recalculates his prices so that he makes a 20% margin. Much to his surprise, his volume goes away and instead of doubling his profit, he makes a large loss. Some small businessmen learn from such experiences while others don't. When I see some tavernas in Greece, I wonder whether they learned the lesson because many of them still have high prices and they don't do a lot of business.

I became acquainted with the owner of a Thessaloniki taverna who understands this formula perfectly. He tried a creatively new approach. He didn't want to earn 1.000 or 2.000; no, he wanted to earn 3.000. So he cut his margin to 5% hoping that the volume would go up correspondingly. And the volume exploded.

His prices are unbelievably low. The most expensive meal is lamb at EUR 4,95 per order. Most of his other meals are arond 3 Euros (or even less). Half a bottle of Amstel goes for EUR 1,90.

His secret is standardized high-volume production (Chateaubriand for two is not in the cards...).  Meters of grills are full with pork, chicken and lamb. The choice of meals is somewhat limited but all of them are fesh because of the high turnover. Good quality.

He has a large place (no less that 200 seats) and he never sells less than 500 meals per day, 7 days per week. He also does home deliveries. He employs a total staff of 46 ("I feed 46 families", he says) and 80 suppliers do business with him an make a profit thereon.

A small taverna next door has prices at least twice the level and its owner seems to work with a high profit margin because his taverna is empty...

It is fascinating to watch the place in operation. Apparently, the taverna (a rather nice one at that!) has become the preferred place to eat for many employees in the area (hospitals, schools, shops, etc.). One can hardly find a place to sit down and one sees volumes of food turning and turning. The owner says that he and his wife come in every morning shortly after 5 am.

I should actually talk past tense because, as I found out today, the taverna was closed down yesterday. A lot of angry customers were outside complaining. The owner told us that the city had closed him down at least temporarily. Apparently some construction violation was discovered. The owner said it was a difference of 30 cm of a wall and it had been like that for many years. He also insinuated that angry competitors may be behind the problem. The latter would not surprise because the owner is undoubtedly taking a lot of business away from other tavernas in the area.

So, for the time being, 46 employees and 80 suppliers are probably worrying what the future will bring. I am a bit torn myself. On one hand, it seems almost like a crime, certainly an economic crime, to close down a place which brings so many benefits to customers, employees, suppliers and even the owner. On the other hand, a state of law has laws and it is important that those laws are enacted and complied with.

Nevertheless, the taverna certainly is a show case of a brilliant business idea in the working. Hopefully it will return to business soon!

"It's the Current Account, Stupid!"

These times are heyday for someone who has been arguing, intitially with no reaction, for over 3 years that 'it's the current account, stupid!'. Nowadays, no day passes without another contribution by learned people about this subject. The latest thought pieces on the subject which I have seen are from Olli Rehn and from Simon Nixon.

A very interesting thought piece was published by Prof. Marcel Fratzscher who is President of the German Institute for Economic Research (DIW Berlin) and Professor of Macroeconomics and Finance at the Humboldt University in Berlin. Of all the things I have read so far, this one really hits home with regard to the question of how strong the German economy really is.

Just picture that you own a domestic bank and you begin to realize that a huge portion of your assets, many times your equity, is invested in countries far away from home base. Wouldn't you start worrying? Wouldn't you start thinking that, perhaps, you don't want to have so much risk so far away?

Germany's gross foreign assets are approaching the level of 100% of GDP. Not a piece of cake, to say the least. Why does Germany have so many gross foreign assets? Well, current account surplusers have the jobs and the cash. The price they have to pay for that is having to make loans to the current account deficiters. That's mathematics and not economics!

Switzerland, as a micro-example, seems to have decided to put the whole country - financially speaking - outside of its borders. Their current account surpluses run around 11% of GDP!

I am no expert on Switzerland but I take it from the internet that its GDP is about 600 billion CHF. Well, do the Swiss know that they have about 3.600 billion CHF at risk in foreign countries?

Current account surpluses have net capital exports as a consequence. How much more capital do the current account surpluser want to export until they realize that there is quite a bit of risk involved in that strategy?