Man in his entirety...

From Teacher to Farmer: Why I Went Back to the Land
Posted By Kevin Ford On November 11, 2011 8:54 AM

A little more than a year ago, I quit my job as a theology teacher at a Catholic high school to become a full-time organic farmer. I like to call myself a “Catholic farmer”, because I am striving to live out the Church’s teachings on marriage and the family, as well as Catholic social teaching, in my work and in the daily life of my family. I had been contemplating a return to the land for several years, and I finally opened myself to the grace needed to take such a leap of faith. I feel as though my story is a microcosm of the Catholic Land Movement as a whole. I doubt if any will follow exactly the same path, but hopefully some will end up on the land, working to restore Catholic culture, just as I did. After much prayer and discernment, I have narrowed my reasons for returning to the land to the following: restoring Catholic family life, bringing wholeness to our lives, regaining simplicity, and building Catholic community.

In our world today, nothing comes under attack more often than marriage and the family. In this modern assault, I felt it necessary to flee to the fields in order to provide an environment that is natural for family life, one where my children could flourish. City life with its “damnable conveniences” as Fr. McNabb, O.P., called them, is often a source of great temptation. The pagan temples and idols of today are not so clearly perceived, because they are often disguised in masks of pleasure, convenience, and materialism. To me, a return to the land marks a radical departure from the frivolity of modern city life as I seek to live a life that is meaningfully fruitful. Pope Benedict XVI has stated: “The rural family must regain its place at the heart of the social order.”(1) The rural family has traditionally been the backbone of healthy cultures. Never in history has the mass of humanity been concentrated in the cities as they are today. Pope Pius XII speaks very wisely of the benefits of rural life for families in his address to Italian farm laborers:

Your lives are rooted in the family...; consequently, they conform very closely to nature. In this fact lies your economic strength and your ability to withstand adversity in critical times ... [and] the importance of your contribution to the correct development of the private and public order of society. You are called upon for this reason to perform an indispensable function as source and defense of a stainless moral and religious life. For the land is a kind of nursery which supplies men, sound in soul and body, for all occupations, for the Church, and for the State.(2) 

... I sought a place for my family to live out its life in totality without the distractions that city life often brings..., way out in the country whose nights are lit by heavenly lights alone.

... As I taught theology to high school students, I would often find myself thinking about my own children and the difficulty I would have passing on the faith to them, simply because of how much time I must spend at school. I did not doubt the dignity of the teaching profession. However, I doubted the wisdom of our modern age that insists on men working separate from their families, and always seeking after a wage. ... I began to realize that the breakdown of the family could be traced to the implementation of the wage system. ... [T]he family didn’t start to fall apart when mothers left the home for the work place. Rather, the family’s disintegration began when fathers left the home and the land for the convenience of a city wage. 

... The etymology of the word husband was absolutely fascinating. Hus-Band literally means house-bound. When a man was married he became house bound. There in the home with his wife he would bring forth a family. There in the home he would work and provide for the family; everything was centered around the home. The home was not a place to return to after work, but rather it was the place of work, it was the center of life, and it was the stability that fostered healthy families. I realized that what I wanted was a life that was whole, one that had integrity. I wanted to live, work, and pray with my family all the time, not just in the evenings or when I was off work. I wanted to be a husband in the true sense of the word, and I wanted to be a father who was always there. Working towards a self-sufficient life on the land offers me the opportunity to truly be a father to my children. I can’t express in words how beautiful this has been.

The third reason I returned to the land was to regain simplicity. Reading Eric Brende’s book, Better Off: Flipping the Switch on Technology, profoundly impacted my views on modern technologically-saturated life. ... It is not that all machines are bad, but the scale to which technology has infiltrated our lives led me to take my family down a different path. Now we analyze our technology piece by piece and look carefully at its effects on family life. If it is truly more harmful to family life than helpful, then we simply don’t need it. Too often a machine has taken the place of meaningful human and family interaction. 

Dishwashers haven’t decreased the dish loads, but rather increased the sinks full of dishes and decreased important interaction between people, especially children, as they learn to work together. ... We find that with less technology, we suddenly have time for activities we previously couldn’t squeeze in. Without the time in front of the television, we find time to read together, sing and dance with the piano, or simply sit out back in the evenings and watch the chickens scratch about (chickens can be a source of great hilarity, believe it or not). This simplicity gets rid of excess distractions and leaves us with more time for one another.

The final reason I returned to the land was in hope of rebuilding Catholic rural community. ... Today Catholic communal life is gravely lacking. ... [My wife and I] sought a Catholic village. Starting something like this from scratch was simply out of the question. ... We are still seeking ways to build Catholic community wherever God leads us. It is a dream of ours that one day we will have many neighbors farming and doing their various crafts next door, but until then we will have to wait for the right door to open.

Our faith is sacramental, and therefore it is not meant to be only a spiritual reality. Catholicism with its sacraments corresponds to man in his entirety. We who are embodied souls need a faith that is both physical and spiritual. Thus we seek in some way to incarnate our Catholic life on the land and to share that life with others. ... 

Going back to the land has radically changed my life and my goals. It has transformed my way of thinking, and it daily encourages me to be a better man. By throwing myself into the hands of providence, I am forced to give my fiat or give up. ... Yet, I have never done anything so rewarding and at the same time so difficult. I hope many others will follow in my footsteps, and that one day we may have a countryside filled with Catholic smallholdings once again. Vivat Christus Rex!

Notes


(1) Message of his Holiness BENEDICT XVI to the Director General of the Food and Agriculture Organization (FAO) for the Celebration of World Food Day, from the Vatican, 16 October, 2006


(2) Speech delivered by His Holiness to the delegates at the Convention of the National Confederation of Farm Owner-Operators in Rome on November 15, 1946, #4.

Production coterminous with consumption...

‘The Distributive Alternative’

Posted By Russell Sparkes On November 6, 2010 7:09 AM

... Probably the greatest and most persistent attack on Distributism was the notion ... that it was an otherworldly invention by Chesterton and Belloc as part of their romantic attachment to the Middle Ages, and alleged desire to return there. This was often caricatured as policy of giving everybody ‘three acres and a cow’, which was in fact a policy slogan of Joseph Chamberlain in the 1880s.

There is little truth in this argument, for, as we shall see later, Chesterton and Belloc did not reject modern technology, but they did fundamentally disagree with the economic system on which modern society is based. As we shall see, they called it ‘plutocracy’, or rule by the rich.

Probably the original inspiration behind Distributism, was both Chesterton and Belloc’s keen interest in English political, social, and economic history. I believe that Chesterton was also struck by a vein of social commentary in literary men like Dickens ... [and] William Cobbett, that doughty fighter for the poor of England. Chesterton describes Dickens’ hated [sic] of the way the free-market economists of the Nineteenth Century, the so-called ‘Manchester School’, advocated starvation and misery for the poor as a necessary evil:

‘He didn’t like the mean side of the Manchester philosophy: the preaching of an impossible thrift and an intolerable temperance…. Thus, for instance, he hated that Little Bethel (a workhouse) to which Kit’s mother went: he hated it simply as Kit hated it. ... [i]

It was also inspired by the recent practical success of Land Reform in Ireland as they were impressed by the peaceful and successful redistribution of land in Ireland which was carried out following the 1903 Wyndham Act. They both knew its author, the Conservative Minister George Wyndham, who became a great friend of Belloc. Finally, both Belloc and Chesterton were Catholics, and they were certainly inspired by the formidable figure of Cardinal Manning, of whom more later.

Hence the ‘received wisdom’ on Distributism—that its main proponents were well-meaning idealists ignorant of the real world of politics and economics is quite wrong. Hilaire Belloc was a Member of Parliament from 1906-1910 before he resigned his seat in disgust. Chesterton was a well-known and widely respected journalist whose views helped shape popular opinion.... In 1927 Chesterton was invited to lecture at the London School of Economics.... 

 In 1936 Keynes revolutionalised economics by inventing macroeconomics in his The General Theory of Employment, Interest, and Money. Keynes’ great discovery was that the focus of previous economists on the individual firm meant that they had ignored the fact that the economy was an organic whole; what to an individual firm was a cut in costs (wages) was to the worker a cut in income. Chesterton made exactly the same point in 1926, before the Great Depression began in 1929 -- but then he was not blinkered by having absorbed the doctrines of economics:

‘Capitalism is contradictory as soon as it is complete; because it is dealing with the mass of men in two different ways at once. When most men are wage-earners, it is more and more difficult for most men to be customers. For the capitalist is always trying to cut down what his servant demands, and in doing so is cutting down what his customer can spend. As soon as his business is in any difficulties, as at present in the coal business, he tries to reduce what he has to spend on wages, and in doing so reduces what others have to spend on coal. He is wanting the same man to be rich and poor at the same time.’ [iii]

One last point about classical economics is how it has often mirrored the wishes of the rich and powerful, contradicting its earlier teaching to do so. ... As Chesterton wrote in 1927:

‘But what is interesting to note is the way in which the sophistry of political economy changes and adapts itself to the needs of the luxurious at any particular moment. Whatever the politician may want to do, there is always a political economist beside him to say that it must be done, and whenever the rich want to be luxurious, it is always opportunely discovered that luxury is a form of economy.’ [iv]

They pointed out that Adam Smith’s insistence on the need to specialize and trade, rather than to produce locally, led economics to neglect transport costs, the uncertainty involved in trade, and broader environmental considerations. As Vincent McNabb pointed out, in the language of economics, Smith’s error: 

‘I have often said that the most efficient social and economic unit is one wherein the area of production tends to be co-terminous with the area of consumption; i.e. that things will be produced where they are to be consumed.’ [v] 

[i] G.K. Chesterton, The Victorian Age in Literature, London, Home University Press, 1910. 

[iii] G.K. Chesterton, The Outline of Sanity, (first published 1926), reprinted Ignatius Press 1992, page 59 

[iv] G.K. Chesterton, ‘Very Political Economy’, from G.K.’s Weekly, 5 August 1927. 

[v] Fr Vincent McNabb, Old Principles and the New Order, Sheed and Ward 1942, page 12.

Let it rust...

What We Are Getting At


G. K. Chesterton — Posted On July 3, 2011 11:07 AM

Distributists ... are not out to improve the present industrial system, but to destroy it. We want to shift the center of gravity from the machine to the craftsman, from the factory to the farm. We want to decentralize production, so that each district may tend to be self-supporting, we want to have little knots of craftsmen everywhere supplying the needs of the district which feeds them. 

While we admit the existence of certain exceptional forms of ownership, as in a mine or a factory, we insist that they are exceptions, and even here we make a distinction between a mine, which we must have, and a factory, which perhaps we need not have. We may find it useful to prepare definite plans for the Distributist working of mines. There is no sense in preparing detailed plans for the Distributist working of a factory. ...

We can start dealing with the small owner in industry and agriculture and, wherever possible, with owners in our own district. ... Some can, if they have the courage of giants, help to form groups of craftsmen, like the Distributing group. Others, again with the courage of giants, can start tilling the land. 

... [R]equests have been received from Distributists for a complete plan of how our theory is to be applied to the modern conditions of industry and agriculture. We are accused of being vague, of having nothing to offer the vast army of people employed in factories and offices. Well, we have nothing to offer them—except a way out. We do not intend to devise schemes for making life in a factory or an office tolerable; that is what the monopolists intend to do, and no doubt they will do it. Our business, so far as the factory and office employee are concerned, is to make them desire freedom and to show them how they may be free. 

... We hope to turn back the tide of monopoly, we hope to change England from a nation of machine-miners, clerks and carriers to a nation of farmers and craftsmen. But we do not hope to do it all at once. The change, if it is made, will be made piecemeal—by converting Englishmen to Distributism, and by gradually building up a Distributist community outside monopolist organization. 

That may appear to place us at a debating disadvantage with the Socialists, who know precisely how they will take over and work monopoly. But the reason for their precise knowledge is that they are themselves monopolists. We don’t intend to take over monopoly. We intend to destroy it by starting an exodus from its factories. 

Our main immediate concern is to gain converts ... [a]nd when a likely subject asks what we shall do with the steel trade or what not, we must not be ashamed to say: “We shall do nothing with it. We shall leave it to rust.”

... We think that something can be done through Parliament to make small ownership easier to gain and to hold. But we are not a Party, and our main effort must be always outside Parliament. ...

The one thing needful is to preach steadily and work steadily for small ownership and the localization of production and consumption, while refusing to consider the irrelevant problem of the big town. ... 

To each one according to his own worth...

An Introduction to Distributism, Part I

 Posted By Donald P. Goodman III On October 10, 2011 9:41 AM 

Catholic social teaching is as old as Catholicism; the Scriptures themselves teach the basics of economic justice. ... However, formalized economic teaching from the Magisterium is a relatively recent thing; its pioneering document was that of the great Pope Blessed Leo XIII, Rerum novarum.  

Rerum novarum has been received less than enthusiastically by modern economic thinkers; some, even Catholics, argue that it was based on ignorance5 or even that it has since been changed.6 Nevertheless, the correct attitude of the Catholic toward this great encyclical was enunciated early on by Pope St. Pius X, in his own encyclical Singulari quadam: 

Therefore, in the first place, we proclaim that the duty of all Catholics is… to hold firmly and to confess fearlessly the principles of Christian truth, handed down by the Magisterium of the Catholic Church, especially those which Our most wise predecessor explained in the encyclical letter Rerum novarum.7 

... Rerum novarum, and its daughter encyclicals from later popes, is the blueprint for Catholic economic thought, the schematic to which all our bricks and mortar must conform.  

Rerum novarum was unpopular in some circles because it identified deeply rooted flaws in all the currently popular economic systems, particularly those called capitalism and socialism. ... 

Pope Leo identified four primary problems with the prevailing economic situation: the lack of workingmen’s guilds; unrestrained competition; usury; and the concentration of property into few hands.19 All of these problems, though, really point to the last...[:] the overconcentration of productive property into the hands of a few, wealthy capitalists. This remains the defining characteristic of our current system. ... 

And such market concentration is a definite problem, as the Pope himself pointed out. Indeed, the fact that “the hiring of labor and the conduct of trade are concentrated in the hands of comparatively few” is a problem so severe that it has laid “upon the teeming masses of the laboring poor a yoke little better than that of slavery itself.”25 Nor is this mere hyperbole; as the great Catholic historian Hilaire Belloc observed, wealth is necessary to human existence, and “[t]herefore, to control the production of wealth is to control human life itself.”26 Capitalist society’s tendency toward the ever-increasing concentration of the means of producing wealth, then, is also a tendency toward the control of life by the owning few, exercised on the non-owning many. This limits the economic, and therefore political, significance of the bulk of the population while giving the few owners of productive property a great deal of power over the state. 

The great pope ended his encyclical with an appeal to Catholics throughout the world: 

We have now laid before you… the means whereby this most arduous question must be solved. Every one should put his hand to the work which falls to his share….27 

And Catholics responded, attempting to imbue their societies, so corrupted by the revolution, with the principles of a Catholic social order. They devised systems which would apply those principles toward definite goals in particular societies. One such system acquired the name “Distributism.” 

Distributism attempts to resolve these problems by recourse to an ancient principle of social interaction, distributive justice, ... [the] virtue “according to which a ruler or steward gives to each one according to his own worth.”29 The importance Distributism places on distributive justice is supported by Leo XIII himself, who taught that maintaining distributive justice toward all classes of society is “the first and chief” of a ruler’s duties.30 

Distributism applies the principle of distributive justice to property, particularly to productive property. Pope Leo taught us that “[t]he law… should favor ownership, and its policy should be to induce as many as possible of the people to become owners,”31 noting that “[m]any excellent results will follow from this; and, first of all, property will certainly become more equitably divided.”32 It is clear, further, that Pope Leo is speaking here of the distribution of productive property, not property simply, for he continues by arguing that this policy would greatly increase production, and the only type of property he specifically mentions is land, the epitome of the productive asset.33 

The just distribution of productive property defines Distributism....34 While in a socialist society none are owners, and in a capitalist society only a few are owners, in a Distributist society most are owners of productive property. This is the defining characteristic of Distributism: the widescale distribution of productive property throughout society, such that ownership of it is the norm, rather than the exception. ... 




Look for Part II next week.

Germany, Greece, and the Euro...

Let the Greeks ruin themselves

Germany has Europe’s deepest pockets, but it does not want to pay to save troubled euro-zone economies

Feb 18th 2010 | BERLIN | from the print edition

LESS than a year before the euro became the currency of 11 European countries in January 1999, a declaration signed by 155 German-speaking economists called for an “orderly”—ie, long—delay. The prospective euro members, they said, had not yet reduced their debt and deficits to suit a workable monetary union; some were using “creative accounting” to get there, and a casual attitude towards deficits would undermine confidence in the euro’s stability.

Now the prediction is coming true, says Wim Kösters, of the Ruhr University in Bochum and one of the original signatories. ...

This dilemma is felt especially keenly in Germany. It was a wrench to surrender the Deutschmark, symbol of post-war recovery and economic success. On the eve of monetary union 55% of Germans were against it, making their nation the euro zone’s most reluctant founders. When a “rescue” is mentioned, all eyes fix on Germany, Europe’s biggest economy and most creditworthy borrower. Germans fear that a rescue of Greece would, in effect, extend their welfare state to the Mediterranean.

... A harsh austerity plan, they hope, will be enough to deter speculators—and to reassure their voters at home that Greece is not getting off lightly. The model is Ireland, whose brutal spending cuts restored market confidence without aid from its European neighbours.

A bail-out, Mrs Merkel fears, would break the bargain Germany struck in accepting the euro: that the single currency’s members would never jeopardise its stability nor ask Germans to pay for anyone else’s mismanagement. ...

The path out of the crisis is unclear. Greek bonds remain under pressure (see chart). Arguments rage over which chain reaction would be more damaging: serial bail-outs or serial defaults. ...

+ + + 

How to save the euro


It requires urgent action on a huge scale. Unless Germany rises to the challenge, disaster looms


Sep 17th 2011 | from the print edition

... It is a sobering thought that so much depends on the leadership of squabbling European politicians who still consistently underestimate what confronts them (see article). But the only way to stop the downward spiral now is an act of supreme collective will by euro-zone governments to erect a barrage of financial measures to stave off the crisis and put the governance of the euro on a sounder footing.

The costs will be large. Few people, least of all this newspaper, want either vast intervention in financial markets or a big shift of national sovereignty to Europe. Nor do many welcome a bigger divide between the 17 countries of the euro zone and the EU’s remaining ten. It is just that the alternatives are far worse. That is the blunt truth that Germany’s Angela Merkel, in particular, urgently needs to explain to her people.

... A rescue must do four things fast. First, it must make clear which of Europe’s governments are deemed illiquid and which are insolvent, giving unlimited backing to the solvent governments but restructuring the debt of those that can never repay it. Second, it has to shore up Europe’s banks to ensure they can withstand a sovereign default. Third, it needs to shift the euro zone’s macroeconomic policy from its obsession with budget-cutting towards an agenda for growth. And finally, it must start the process of designing a new system to stop such a mess ever being created again.

... So far the euro zone’s response has relied too much on two things: austerity and pretence. Sharply cutting budget deficits has been the priority—hence the tax rises and spending cuts. But this collectively huge fiscal contraction is self-defeating. By driving enfeebled economies into recession it only increases worries about both government debts and European banks (see article). And mere budget-cutting does not deal with the real cause of the mess, which is a loss of credibility.

... Instead of austerity and pretence, a credible rescue should start with growth and, where it is unavoidable, a serious restructuring of debt. Europe must make an honest judgment about which side of the line countries are on. Greece, which is unambiguously insolvent, ought to have a hard but orderly write-down. ... Freeing up services and professions, privatising companies, cutting bureaucracy and delaying retirement will create conditions for renewed growth—and that is the best way to reduce debts.

How to prevent contagion? ... Core countries like Germany and the Netherlands have enough cash to look after their own banks, but peripheral governments may need euro-zone money. Ideally that would come from the European Financial Stability Facility (EFSF).... But it also makes sense to set up a euro-zone bank fund, together with a euro-zone bank-resolution authority. ...

None of this will work unless the Europeans create a firewall around the solvent governments. That means shoring up euro-zone sovereign debt. Spain and Italy owe €2.5 trillion. ... The ECB must declare that it stands behind all solvent countries’ sovereign debts and that it is ready to use unlimited resources to ward off market panic. That is consistent with the ECB’s goal to ensure price and financial stability for the euro zone as a whole. ...

Even so, this is a huge step. The ECB’s German officials have taken to resigning in protest at the limited bond-buying undertaken so far. ...

The issue now is not whether the euro was mis-sold or whether it was a terrible idea in the first place; it is whether it is worth saving. Would it be cheaper to break it up now? ... The sobering truth about the single currency is that getting in is a lot easier than getting out again. Legally, the euro has no exit clause. ...

Attaching hard numbers to any of this is difficult. Analysts at UBS, a bank, reckon that euro break-up could cost a peripheral country 40-50% of GDP in the first year, and a core country 20-25% (see article). ... [T]he immediate bill for a break-up of the single currency would surely be in the trillions of euros. By contrast, a successful rescue would seem a bargain. ...

German taxpayers might accept that the immediate costs of our rescue plan are smaller than break-up. But what they detest is the idea that it might let feckless Italians and Portuguese off the hook. Safe in the knowledge that the ECB stands behind their bonds, they may shy away from reform and rectitude.

Two risks flow from this. The immediate (and real) one is that furious Germans will demand that Greece is thrown out (or bullied out) of the euro to frighten the others. Such a horrific event would indeed scare Portugal and Ireland, but a threat to expel Italy or Spain is empty: they are too big and too tightly tied into the EU. Simply chucking out Greece because it was convenient would permanently undermine the security of small members of the EU. Besides, once Greece defaults and restructures, its economy stands a good chance of making a credible start on its long journey to economic health.

The longer-term risk has to do with “more Europe”. Fans of political integration say that the only way to enforce discipline is to create a United States of Europe (see Charlemagne). ... The ten countries, including Sweden, Poland and Britain, that kept their own currencies may face a choice: to join the euro or be excluded from a new “core Europe”, which in effect starts setting policies. ...

... The euro has reached the point where nobody is going to get what they want—something that needs to be spelled out to the Germans more than anybody. ... For the ECB to stand behind less prudent countries may be unwelcome to Germans; but letting the euro fall to bits is much, much worse. Spell that out clearly to your voters, Mrs Merkel.

+ + +

The future of the EU


Two-speed Europe, or two Europes?


Nov 10th 2011, 2:23 by Charlemagne | BRUSSELS

NICOLAS Sarkozy is causing a big stir after calling on November 8th for a two-speed Europe: a “federal” core of the 17 members of the euro zone, with a looser “confederal” outer band of the ten non-euro members. ...

You cannot make a single currency without economic convergence and economic integration. It's impossible. But on the contrary, one cannot plead for federalism and at the same time for the enlargement of Europe. It's impossible. ... We are 27. We will obviously have to open up to the Balkans. We will be 32, 33 or 34. I imagine that nobody thinks that federalism—total integration—is possible at 33, 34, 35 countries. ... [T]he single currency is a wonderful idea, but it was strange to create it without asking oneself the question of its governance, and without asking oneself about economic convergence. 

... The European Union is, in a sense, made up not of two but of multiple speeds. ... But Mr Sarkozy’s comments are more worrying because, one suspects, he wants to create an exclusivist, protectionist euro zone that seeks to detach itself from the rest of the European Union. ...

In other words, France, or Mr Sarkozy at any rate, does not appear to have got over its resentment of the EU’s enlargement. At 27 nations-strong, the European Union is too big for France to lord it over the rest and is too liberal in economic terms for France’s protectionist leanings. Hence Mr Sarkozy’s yearning for a smaller, cosier, “federalist” euro zone.

This chimes with the idea of a Kerneuropa ("core Europe") promoted in 1994 by Karl Lamers and Wolfgang Schäuble, who happens to be Germany's current finance minister. Intriguingly, it is the first time that Mr Sarkozy, once something of a sceptic of European integration, has spoken publicly about “federalism”.... It echoes the views of Mr Sarkozy's Socialist predecessor, François Mitterrand.

... Mr Sarkozy probably wants to create a euro zone in France’s image, with power (and much discretion) concentrated in the hands of leaders, where the “Merkozy” duo (Angela Merkel and Nicolas Sarkozy) will dominate. Germany will no doubt want a replica of its own federal system, with strong rules and powerful independent institutions to constrain politicians. ...

Done properly, by keeping the euro open to countries that want to join (like Poland) and deepening the single market for those that do not (like Britain), the creation of a more flexible EU of variable geometry could ease many of the existing tensions. ... But done wrongly, as one fears Mr Sarkozy would have it, this will be a recipe for breaking up Europe. Not two-speed Europe but two separate Europes. ...

Mr Sarkozy’s words seem to have caught the attention of Joschka Fischer, elder statesman of Germany's Green party and a former foreign minister, who said that the EU at 27 had become too unwieldy. “Let’s just forget about the EU with 27 members—unfortunately,” he told Die Zeit, a German weekly newspaper. “I just don’t see how these 27 states will ever come up with any meaningful reforms.” Indeed, some think the euro zone itself might be smaller than the 17 members (Greece may soon default and leave the euro).

The speech that everybody is waiting for now is Mrs Merkel’s. The chancellor wants to change the treaties, and on November 9th she called for “a breakthrough to a new Europe”. ...

+ + +

The German problem


To save the single currency, Angela Merkel must take on her own country’s economic establishment


Nov 19th 2011 | from the print edition

... At her party’s conference on November 14th the chancellor, Angela Merkel, left no doubt about the gravity of the euro crisis (see Charlemagne). “If the euro fails, then Europe fails,” she said.

On the same day Jens Weidmann, the president of the Bundesbank, roiled financial markets with hardline comments ... [ruling out reliance on] the European Central Bank (ECB) as a lender of last resort to governments, arguing it would be illegal and wrong for the bank to hold down bond yields. ...

Mr Weidmann is not a lone ideologue. Mario Draghi, the ECB’s new Italian president, has ruled out acting as a lender of last resort to governments, albeit less categorically (see article). Mr Weidmann has his supporters among the Finns and the Dutch, too. But the rigidity of his argument is embedded in the solid rock that is Germany’s economic establishment, which holds that big rescues are counterproductive because they both dull governments’ incentives to act and create new dangers. ...

The problem is that the dogmatic prescriptions of the “German orthodoxy” are pushing the single currency towards collapse. If Mrs Merkel wants to save the euro, therefore, she must challenge her country’s economic establishment, and explain to voters why the revered Bundesbank’s rigidity is wrong. ... German orthodoxy ignores the possibility that rising bond yields are being driven by a self-fulfilling panic in financial markets. ...

The euro zone’s most recent plan—to amplify the existing rescue fund with financial engineering and money from China—has failed miserably. ... Either Europe’s governments will have to assume explicitly some joint liability for each other’s debts. Or they will have to do so implicitly, by allowing the ECB to counter a panic with purchases of government bonds: in effect, letting it act as a lender of last resort. The danger lies in eschewing both options. ...

+ + +

Is this really the end?

Unless Germany and the ECB move quickly, the single currency’s collapse is looming

Nov 26th 2011 | from the print edition

EVEN as the euro zone hurtles towards a crash, most people are assuming that, in the end, European leaders will do whatever it takes to save the single currency. That is because the consequences of the euro’s destruction are so catastrophic that no sensible policymaker could stand by and let it happen.

A euro break-up would cause a global bust worse even than the one in 2008-09. The world’s most financially integrated region would be ripped apart by defaults, bank failures and the imposition of capital controls (see article). ...

Yet the threat of a disaster does not always stop it from happening. The chances of the euro zone being smashed apart have risen alarmingly, thanks to financial panic, a rapidly weakening economic outlook and pigheaded brinkmanship. ...

Add the ever greater fiscal austerity being imposed across Europe and a collapse in business and consumer confidence, and there is little doubt that the euro zone will see a deep recession in 2012—with a fall in output of perhaps as much as 2%. That will lead to a vicious feedback loop in which recession widens budget deficits, swells government debts and feeds popular opposition to austerity and reform. Fear of the consequences will then drive investors even faster towards the exits.

Past financial crises show that this downward spiral can be arrested only by bold policies to regain market confidence. ...

Without a dramatic change of heart by the ECB and by European leaders, the single currency could break up within weeks. Any number of events, from the failure of a big bank to the collapse of a government to more dud bond auctions, could cause its demise. ...

The only institution that can provide immediate relief is the ECB. As the lender of last resort, it must do more to save the banks by offering unlimited liquidity for longer duration against a broader range of collateral. ... One promising idea, from Germany’s Council of Economic Experts, is to mutualise all euro-zone debt above 60% of each country’s GDP, and to set aside a tranche of tax revenue to pay it off over the next 25 years. Yet Germany, still fretful about turning a currency union into a transfer union in which it forever supports the weaker members, has dismissed the idea.

This attitude has to change, or the euro will break up. ... Debt mutualisation can be devised to stop short of a permanent transfer union. Mrs Merkel and the ECB cannot continue to threaten feckless economies with exclusion from the euro in one breath and reassure markets by promising the euro’s salvation with the next. Unless she chooses soon, Germany’s chancellor will find that the choice has been made for her.

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HOW GERMANY COULD SAVE THE EURO

25 NOVEMBER 2011

BY John Muellbauer, Official Fellow, Nuffield College; Professor of Economics, Oxford University (Originally published at VOXEU)

For months economists have been arguing that Germany holds the key to ending the Eurozone crisis. Should it relax its anti-inflation stance and allow the ECB to inflate away sovereign debt? Or should it write a cheque of its own to the EFSF? Neither, says this column. ... Eurobonds are the answer – but with conditions.

... The German Ministry of Finance could offer a two-year loan to the Italian government at 3% above what it pays, and promise that next year, if the Italian reform programme is showing visible signs of success, the spread could fall to 2.5% and then to 2% if progress continues. With backsliding, the cost would rise. This solidarity gesture would be highly profitable for the German taxpayer. The conditionality of the offer would keep the new Italian government committed to reform, aiding Italy’s credibility as a Eurozone member. Conventional Eurobonds, meanwhile, with the same funding costs for every country but with risk collectively underwritten, would likely be a recipe for disaster. They would encourage lax fiscal policy, backsliding on reform, and moral hazard. ...

Conditional Eurobonds would institutionalise, for all Eurozone countries, the simple example above of Germany lending to Italy. The conditional Eurobonds, issued on new borrowing, would be collectively underwritten by member governments of the Eurozone. ... The proceeds of the payments could be distributed in several ways. In the simple example of a bilateral loan from Germany to Italy, Germany would retain the entire spread. With multilateral underwriting, all Eurozone countries would receive shares of the payments into the central fund. The shares would be determined by the size of their own borrowings and their spreads relative to Germany. Per unit of borrowing, less risky countries such as France would receive more than riskier countries such as Belgium, but less than Germany itself. ...

A hugely important point about conditional Eurobonds with spreads is that they address the German fear about the Eurozone becoming ‘a transfer union’. The point is also not made clearly enough that this kind of bond, by creating the right fiscal incentives, allows a kind of fiscal decentralisation or subsidiarity....

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Beware of falling masonry

The crisis in the euro area is turning into a panic and dragging the zone into recession. The risk that the currency disintegrates within weeks is alarmingly high

Nov 26th 2011 | from the print edition

FIRST Greece; then Ireland and Portugal; then Italy and Spain. Month by month, the crisis in the euro area has crept from the vulnerable periphery of the currency zone towards its core, helped by denial, misdiagnosis and procrastination by the euro-zone’s policymakers. Recently Belgian and French government bonds have been in the financial markets’ bad books. Investors are even sniffy about German bonds....

Worse, there are signs that the euro zone’s economy is heading for recession, if it is not there already. Industrial orders in the euro zone fell by 6.4% in September, the steepest decline since the dark days of December 2008. ...

European banks are dumping the bonds of the least creditworthy, and other assets, in an attempt to conserve capital and improve cashflow as a full-blown funding crisis looms. Governments are promising ever more severe budget cuts in the hope of pacifying bond markets. The direct result of these scrambles is a credit crunch and a squeeze on aggregate demand that is forcing Europe into recession. ...

Consider the three ingredients for recession: a credit crunch, tighter fiscal policy and a dearth of confidence. ... A downturn of such severity will hugely increase the pressures within the zone. Investors will be even less willing to finance banks, as more garden-variety loans to businesses and householders turn bad. As unemployment rises, tax receipts will go down and welfare payments up, making it harder for governments to rein in their deficits and hit the targets they have set, and causing bond markets to question their solvency more pointedly still.

... With a few exceptions, the benchmark cost of credit in each euro-zone country is related to the balance of its international debts. Germany, which is owed more than it owes, still has low bond yields; Greece, which is heavily in debt to foreigners, has a high cost of borrowing (see chart 2). Portugal, Greece and (to a lesser extent) Spain still have big current-account deficits, and so are still adding to their already high foreign liabilities. Refinancing these is becoming harder and putting strain on local banks and credit availability.

The higher the cost of funding becomes, the more money flows out to foreigners to service these debts. This is why the issue of national solvency goes beyond what governments owe. The euro zone is showing the symptoms of an internal balance-of-payments crisis, with self-fulfilling runs on countries, because at bottom that is the nature of its troubles. ...

The prospect that one country might break its ties to the euro, voluntarily or not, would cause widespread bank runs in other weak economies. Depositors would rush to get their savings out of the country to pre-empt a forced conversion to a new, weaker currency. Governments would have to impose limits on bank withdrawals or close banks temporarily. Capital controls and even travel restrictions would be needed to stanch the bleeding of money from the economy. Such restrictions would slow the circulation of money around the economy, deepening the recession.

External sources of credit would dry up because foreign investors, banks and companies would fear that their money would be trapped. A government cut off from capital-market funding would need to find other ways of bridging the gap between tax receipts and public spending. It might meet part of its obligations, including public-sector wages, by issuing small-denomination IOUs that could in turn be used to buy goods and pay bills. ... Scrip of this kind becomes, in effect, a proto-currency. In a stricken euro-zone country, it would change hands at a discount to the remaining euros in circulation, foreshadowing the devaluation to come. To pre-empt further capital outflows, a government would have to pass a law swiftly to say all financial dealings would henceforth be carried out in a new currency, at a one-for-one exchange rate with the euro. The new currency would then “float” (ie, sink) to a lower level against the abandoned euro. The size of that devaluation would be the extent of the country’s effective default against its creditors.

... [T]he likeliest trigger for a disintegration of the euro is unknowable. But there are plenty of candidates. One is a failed bond auction that forces a country into default and sends a shock wave through the European banking system. ... Another danger is a disagreement between Greece and its trio of rescuers (the EU, the IMF and the ECB) over the conditions of its bail-out. ...

The few left in the euro (Germany and perhaps a few other creditor countries) would be at a competitive disadvantage to the new cheaper currencies on their doorstep. As well as imposing capital controls, countries might retreat towards autarky, by raising retaliatory tariffs. The survival of the European single market and of the EU itself would then be under threat.

Such a disaster can still be averted. The ECB might launch a programme of bond-buying on the pretext that a deep recession in the euro area threatens deflation. If done on the scale that the Bank of England has undertaken, it could restore stability to Europe’s panicky bond markets. ... But any lasting stability for the euro must lie with governments, particularly in the degree to which they are willing to give up fiscal sovereignty in return for pooling liabilities. Germany stands firmly at one extreme of this debate. Its chancellor, Angela Merkel, wants big changes to force probity..., but has opposed the idea of jointly guaranteed “Eurobonds”. German officials have argued that any open-ended commitment to joint liabilities would encourage errant governments to profligacy, violate Germany’s constitution and raise its borrowing costs. Even now, the head of the Bundesbank, Jens Weidmann, appears to believe that the imposition of fiscal rigour will be enough to restore calm to Europe’s bond markets.

... Another new proposal is intriguing—thanks, in part, to its provenance. Germany’s Council of Economic Experts recently proposed a “European Redemption Pact”. This scheme would place the debt, in excess of 60% of GDP, of all euro-zone governments not already in IMF rescue plans into a jointly guaranteed fund that would be paid off over 25 years. Modelled in part on the federal government’s assumption of the debt of America’s states begun by Alexander Hamilton in 1790, the fund would provide joint liability for these debts under strict conditions. ...

At its peak, the redemption pact would be huge: the joint liability would amount to €2.3 trillion. But it would technically be temporary. For all these safeguards, Germany’s government has so far poured cold water on the idea. But time is running out. And the scale of the impending catastrophe demands radical answers.

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Can Germany save Europe? Will it?

By Thomas Mucha, Created 6220-11-29 13:22

An extraordinary plea today aimed at Berlin. It comes from an unlikely place.

Europe's ongoing debt crisis took another very dramatic turn today.

And it came from a most unlikely place, considering Germany's long and difficult history: Poland.

Here's what Polish foreign minister Radoslaw Sikorski said in a speech Monday in the German capital, as reported by the Financial Times [3]:

"I demand of Germany that, for your own sake and for ours, you help it survive and prosper,” he said. “You know full well that nobody else can do it. I will probably be the first Polish foreign minister in history to say so, but here it is: I fear German power less than I am beginning to fear German inactivity. You have become Europe’s indispensable nation."

... It's an incredibly lucid and forthright account of the troubles facing Europe (and Germany) right now, so I'll point you to three more key points that the Polish diplomat made.

... Sikorski ended his Polish pep talk with this dire warning:

"What, as Poland’s foreign minister, do I regard as the biggest threat to the security and prosperity of Poland in the last week of November 2011? It’s not terrorism, and it’s certainly not German tanks. It’s not even Russian missiles which President Dmitry Medvedev has just threatened to deploy on the EU’s border. The biggest threat to the security of Poland would be the collapse of the eurozone."

Thrive by thrift...

G.K. Chesterton’s Distributism

Posted By Dale Ahlquist On August 11, 2011 6:32 AM

The word “economy” and the word “economics” are based on the Greek word for house, which is oikos. The word “economy” as we know it, however, has drifted completely away from that meaning. Instead of house, it has come to mean everything outside of the house. The home is the place where the important things happen. The economy is the place where the most unimportant things happen. ...  

There is another rather neglected meaning to the word “economy”: the idea of thriftiness. ... Chesterton points out that inside the word thrift is the word thrive.9 We can only thrive within our means, just as we can only be free within the rules. The modern understanding of the word economy is, once again, just the opposite. It is about accumulation instead of thrift. Even worse, it is about mere exchange. It is about trade, and not even about the things that are traded. It is about figures in a ledger. It is about noughts. It is about the accumulation of zeros. It is more about nothing than it is about something.

Our separation of economy from the home is part of a long fragmentation process. ... We have separated everything from everything else. We have accomplished this by separating everything from the home. Feminism has separated women from the home. Capitalism has separated men from the home. Socialism has separated education from the home. Manufacturing has separated craftsmanship from the home. The news and entertainment industry has separated originality and creativity from the home, rendering us into passive and malleable consumers rather than active citizens.

There is more to Distributism than economics. That is because there is more to economics than economics. Distributism is not just an economic idea. It is an integral part of a complete way of thinking. ...

It takes a complicated key to fit a complicated lock. But we want simple solutions. We don’t want to work hard. We don’t want to think hard. We want other people to do both our work and our thinking for us. We call in the specialists. And we call this state of utter dependency “freedom.” We think we are free simply because we seem free to move about. ...

The Distributist ideal is that the home is the most important place in the world. Every man should have his own piece of property, a place to build his own home, to raise his family, to do all the important things from birth to death: eating, singing, celebrating, reading, writing, arguing, story-telling, laughing, crying, praying. The home is above all a sanctuary of creativity. Creativity is our most Godlike quality. We not only make things, we make things in our own image. The family is one of those things. ...

But Chesterton’s Distributist ideal not only called for mothers to stay at home, it called for fathers to stay at home as well. The home-based business, the idea of self-sufficiency would not only make for stronger, healthier families, but a stronger, healthier society. ... A home-based society is naturally and necessarily a local and de-centralized society. ...

Though Chesterton would argue that a Distributist society would be most fully realized if it were based on a Catholic worldview, he would not insist upon that basis as essential for achieving such a society. In fact, he would argue that such a society is more congenial to the different religions than any other societal plan. Freedom of religion, as it now supposedly exists under a huge centralized government, actually needs to be “enforced” by that government. The result, as we have seen, is that religion has actually been stifled where the government watchdog is there to “guarantee” the freedom. ...

The dilemma of Distributism is the dilemma of freedom itself. Distributism cannot be done to people, but only by people. It is not a system that can be imposed from above; it can only spring up from below. ... If it happens, it seems most likely that it would be ushered in by a popular revolution. In any case, it must be popular. It would at some point require those with massive and inordinate wealth to give it up. ... The Christian argument, if taken seriously, should be more terrifying to a rich man than a mob with axes and torches. ... The central figure of the Christian religion said quite unambiguously that it is easier for a camel to go through an eye of a needle than for a rich man to enter heaven. No matter how the rich man may try to breed smaller camels and manufacture larger needles, no matter how hard he snorts and stomps, he cannot get around the reality that to cling to his riches is to put his soul in peril. ... As Chesterton says, “The obligation of wealth is to chuck it.”13

But the rich are a small part of the problem–only because there are so few of them. The larger part of the problem is the mentality that drives so many people to chase after money. Again, religion provides a practical solution. There is a commandment that states, “Thou shall not covet.” This little known commandment would have to be rediscovered and re-emphasized in order to build a Distributist society.