22/10/16: Irish 12.5% Tax Rate and Someone's Loose Lips

It has been some time since I commented here on the matters relating to Irish corporate taxation. For a number of reasons not worth covering. But one piece of rhetoric in the post-AppleTax ruling by the EU Commission has caught my mind today: the statement from the Taoiseach Enda Kenny on the issue of 'Loose Lips Sink Ships'.

Here's what happened: as reported in the Irish Independent, the Taoiseach "warned that "loose talk" about taxation in Ireland was potentially damaging in the face of the Brexit threat. "Ireland will obviously debate these things constructively but to be clear about it, our 12.5pc corporate tax rate is not up for grabs... It's always been 12-and-a-half and it will remain so."" The statement was prompted by the rumours (err... reports) "the European Commission has not ruled out examining 300 more of Ireland's tax rulings."

Mr Kenny said that "The commission have never stated that there are other impending state aid cases against Ireland and to suggest otherwise is mischievous, is misleading, and is wrong... And that type of loose talk is potentially very damaging to our country. It does impact upon companies looking - particularly given the Brexit situation - as to where they might want to invest."

So here's the problem, Mr. Kenny: no one is seriously suggesting that the problem with Irish corporate taxation is 12.5% headline rate. I have not seen any reasonably informed source commenting on this. The problem - as as subject of investigations by the EU Commission in the recent past - is the granting of preferential loopholes that went well beyond the 12.5% rate.

So what grave 'threat' to Ireland's tax regime is Mr. Kenny addressing by setting up a straw man argument about 12.5% rate 'rumours'? Answering that question would likely expose whose lips are loose on the matter. My suspicion is that Mr. Kenny deliberately creates confusion between the discussion of the headline rate (which is not happening) and the discussion of the loopholes (which is probably on-going, because (a) things might not have stopped with Apple; and (b) global tax reforms - e.g. BEPS-initiated process - are still rolling out. If so, then it is Taoiseach's lips that might be doing Ireland's 12.5% headline rate some damage.

Personally, I believe Ireland's 12.5% corporate tax rate is just fine. And I also believe that special, individual company arrangements on any tax matters are not fine. I also believe that Ireland should phase the latter out in a transparent fashion, instead of creating another maze of non-transparent and gamable by the larger corporation 'knowledge development box' incentives. Incidentally, tax personalization for Irish entities continues, it appears, with the publication of the Finance Bill this week, where tax procedures for Section 110 companies valuation of inter-company loans was left largely a matter for individual arrangements. BEPS will take care of the rest, or it might not, but that would no longer be a matter of Ireland's failure and it won't challenge our 12.5% tax rate.

14/9/16: Apple Tax on Keiser Report

My interview with Max Keiser for Keiser Report on Apple Tax fiasco: https://www.rt.com/shows/keiser-report/358886-episode-max-keiser-965/

6/9/16: The Pain in Spain: Growth vs Structural Deficits

FocusEconomics have published an interesting research note on Spanish economy. 

The country has been muddling through 

1. An ongoing political crisis - with already two elections failing to produce a Government and the latest failed efforts at forming one last week suggesting there is a third round of voting ahead - and 
2. The long-running fiscal crisis - with the EU Commission initiating series of warnings about Spain's failure to comply with the Fiscal Compact criteria and warning that the country is falling behind on deficit targets

Yet, despite these apparent macro risks, the economy of Spain has been expanding for some time now at the rates that are ahead of its other EURO 4 peers (Germany, France and Italy). 

In a guest post below, FocusEconomics shared their research with Trueeconomics readers:

The Pain in Spain: Robust GDP growth cannot mask the persistent structural deficit

Spain’s robust GDP growth despite the ongoing political impasse has made the headlines time and time again. The panel of 35 analysts we surveyed for this month’s Consensus Forecast expect GDP to expand 2.8% in 2016, one of the fastest rates in the Eurozone this year, before decelerating to 2.1% in 2017. 

And yet both Spain’s Independent Authority for Fiscal Responsibility (Airef) and the European Commission have warned in recent months that Spain is relying too heavily on GDP growth to reduce its deficit while neglecting much-needed progress with structural reforms to reduce its sizeable structural deficit (the part of the overall deficit which is adjusted for temporary measures and cyclical variations). This leaves it vulnerable to its deficit increasing in the future should economic conditions become unfavorable again. 

According to the Airef, without further reforms, a structural deficit of approximately 2.5% will still persist in Spain in 2018. 

Meanwhile, the European Commission predicted in its updated spring forecast that the structural deficit will reach 3.2% that year—well beyond the new 2.1% revised structural deficit target for 2018 (as part of an overall 2.2% deficit target) that it recently announced in July. Spain’s general government deficit is the sum of the deficits of the central government, the regional governments, the local authorities and the social security system, and most of the overshoot is expected to come from the underperformance of the regional governments and social security. Spain has gradually been reducing its overall general government deficit in recent years, albeit not at the speed stipulated by the European Commission, but it is the persistence of the structural part of the deficit that is the main cause for concern.

After deciding last month to waive the budgetary fine on Spain for missing its targets, the European Commission set a new series of targets up until 2018 in order finally to bring Spain’s overall deficit below the long-targeted 3% that year. In 2016 it expects Spain to meet an overall general government deficit target of 4.6%, not more than 3.1% of which is expected to be a structural deficit. This is in line with the European Commission’s updated spring forecast for the country, since it has decided not to impose additional adjustment requirements on Spain this year (attributing this in part to the fact that lower-than-expected inflation, which is out of the government’s control, has hindered deficit reduction efforts this year). In 2017 and 2018, however, the Spanish government will have to implement structural reforms to make savings equivalent to 0.5% of GDP each year to bring its structural deficit down to 2.6% in 2017 (as part of an overall deficit target of 3.1% that year) and 2.1% in 2018 (as part of an overall deficit target of 2.2%). Achieving this will require a strong government able to press ahead with a reform program—something which currently looks rather a panacea. Spain’s ongoing failure to form a new government since the first inconclusive elections in December last year may not have impacted the current resilience of its GDP growth, but it certainly puts its fiscal compliance in jeopardy and prolongs the structural problems of its economy.

The agenda ahead is tight. Under the Spanish Constitution, 1 October is the deadline for the government to present its proposed 2017 budget to the Spanish Parliament. And under the EU’s rules, the European Commission must receive the budget (which must, of course, indicate how Spain will meet the required 2017 targets) by 15 October, or Spain faces a fine. Spain is still struggling to form a government after two elections in the last nine months and looks highly unlikely to have a new government in place by October that is able to push through a budget with the requisite reforms. Mariano Rajoy, who heads the current caretaker Popular Party (PP) government and is seeking to be sworn in as prime minister again, failed to garner sufficient support at both his first investiture attempt on 31 August (for which he would have needed an absolute majority in his favor) and his second attempt on 2 September (at which a simple majority would have sufficed). He might have another attempt at being appointed after the regional elections in the Basque Country and Galicia at the end of September if by chance the circumstances look more favorable by then, but otherwise Spain will probably be going to the polls again on 25 December, in what would be an unprecedented event. Even if a new government is formed by some miracle, it looks highly likely to be a weak one that might not manage to last long, let alone implement a convincing reform program.

Click on the image to enlarge

A closer look at the political turmoil

Spanish parties are simply not used to formal coalition politics at central government level, and don’t seem to be willing to adapt to the times in a hurry. Since 1982, either one or other of the two main parties, the conservative PP and the Socialist Party (PSOE), had always managed to form either a majority government or alternatively a strong minority government, in the latter case achieving working majorities by striking mutually beneficial deals with regionally-based nationalist parties—especially in the Basque Country and Catalonia—to secure their support in the Spanish Parliament (a classic case of “I’ll scratch your back if you scratch mine”). Neither party was prepared for two quite successful newcomers—the populist left-wing Podemos (“We Can”) and the centre-right Citizens party (C’s)—coming along to break up their longstanding dominance, at the same time as the pro-independence wave in Catalonia makes reviving the traditional mutual support arrangements with the Catalan nationalist parties impossible. 

The re-run elections held on 26 June have so far simply resulted in another stalemate. The PP won again and this time managed to increase its seats from 123 to 137, but it still fell far short of an absolute majority of seats (176) in Spain’s Parliament. The only plausible option for Rajoy in the circumstances is to form a minority government, since both the PSOE and C’s ruled out the possibility Rajoy had initially advocated of a “grand coalition” comprising the PP, the PSOE and potentially C’s too—an option which market participants had considered the most likely to deliver the structural reforms Spain needs, but which would not have provided the “government of change” that so many Spanish citizens voting for new parties seek. Rajoy had managed to reach an agreement with C’s (32 seats) for it to support his investiture attempts on 31 August and 2 September, as well as the commitment of the one MP from the Canary Coalition (CC) to do the same, but he failed to secure the 11 abstentions he would also have needed to be voted in on the second attempt with a simple majority. This would have required some of the PP’s arch rival the PSOE to abstain, and PSOE leader Pedro Sánchez remains absolutely adamant that his party will continue to vote against Rajoy instead. Sánchez is in a weak position since the PSOE declined at the re-run elections and is under pressure from Unidos Podemos (an electoral coalition between Podemos, the United Left party and some other smaller left-wing forces), so he is not in a strong position to try and form a government himself, but he does not want to lose yet more voters to Unidos Podemos by being seen to allow or to prop up a conservative government either. It looks like only an internal crisis within the PSOE could possibly change the circumstances.

There is an outside chance that Rajoy could attempt an investiture vote again after the Basque regional elections on 25 September, if it looks like he might be more likely to get the Basque Nationalist Party (PNV)—which has 5 seats in the Spanish Parliament—on board then, to continue to boost his numbers and up the pressure on the PSOE to deliver the final few abstentions. The only plausible circumstance in which the PP might stand any chance of getting the PNV on side is if, after the Basque regional elections, the PNV itself finds it needs the PP’s support to be able to govern in the Basque region. This is not totally beyond the realm of possibility, since the PNV is likely to win the Basque elections with a minority of votes and could struggle to form a working majority, especially if its traditional ally, the Basque Socialist party (PSE)—the Basque federation of the PSOE—declines as expected amid the rise of Podemos, which could potentially build alliances with other left-wing forces including the Basque anticapitalist and secessionist EH Bildu coalition of parties. Podemos is proving particularly attractive in the Basque Country (and Catalonia too) given that it is the first Spanish party to support the idea of self-determination for Spain’s constituent territories. Indeed, the PNV itself, a traditionally centre-right party which is struggling to attract the younger generations of Basque voters, is far from immune to the risk of losing some of its voters to the populist party: at the Spanish general election re-run in June, it was significant that Unidos Podemos beat the PNV not only in terms of votes but also seats in the PNV’s traditional Basque stronghold of the province of Vizcaya (one of the three provinces making up the Basque region). In these changing circumstances, the PNV could possibly end up needing the support of the PP in the Basque Parliament in order to govern, which would inevitably require it to return the favour in the Spanish Parliament, but this is only one of various possible outcomes at this stage and the PNV certainly looks highly unlikely to contemplate this option as anything but a very last resort.  

Summing up

Overall, the political impasse thus looks set to continue for the foreseeable future—though if we’re looking for silver linings, at least Spain’s nearly nine-month hiatus is still nowhere near Belgium’s 2011 record of 19 months without a government. Spain faces unprecedented challenges as it undergoes a fundamental political transformation stemming from the widespread disillusionment with existing political institutions and actors and the emergence of new players, not to mention the territorial crisis due to the Catalan challenge to the integrity of the Spanish state. While Spain’s GDP growth has remained remarkably resilient in recent quarters, there is no room for complacency. The country’s persistent structural deficit—which cannot be effectively addressed during the current political deadlock—still renders its economy particularly vulnerable to future changes in economic climate and puts the country on a collision path with Brussels over the required fiscal consolidation trajectory. 

Author: Caroline Gray, Senior Economics Editor, FocusEconomics

17/2/16: EU Commission Analysis of the Irish Economy Own Goal

In a recent assessment of the economic outlook for Ireland for 2016, the DG for Economic and Financial Affairs of EU has heaped praise on the country (see full list of country-specific assessments here: http://ec.europa.eu/economy_finance/eu/forecasts/2016_winter_forecast_en.htm?utm_source=e-news&utm_medium=email&utm_campaign=e-news132). Much of it - justified.

However, a glaring miss in the analysis was a truthful representation of the balance of sources for growth in the economy.

Per EU Commission: “The Irish economy grew again strongly in the third quarter of 2015 although more moderately than earlier in the year. …However, survey indicators point to … GDP growth for 2015 as a whole to 6.9%. In 2016 and 2017, the moderation in GDP growth is expected to continue towards more sustainable rates of about 4% and 3% respectively.”

All of which is fine.

Then the assessment goes on: “While the recovery started in the external sector, domestic demand is now driving GDP growth. It expanded by more than 8% (y-o-y) in the first nine months of 2015, with household consumption growing by 3.5% and investment by over 25%.” I covered the latest figures for Irish national accounts in a series of posts here: http://trueeconomics.blogspot.com/2015/12/131215-irish-national-accounts-3q-post.html, and in particular, domestic demand growth drivers here: http://trueeconomics.blogspot.ie/2015/12/111215-irish-national-accounts-3q-post.html. And as I noted in my analysis, the problem is that Domestic Demand printed by CSO no longer actually reflects purely indigenous economy activity.

EU assessment hints at this: “…as developments in some companies and sectors are boosting investment and imports in the economy. Multinationals have been transferring a number of patents to Ireland. In the first nine months of 2015, these transfers generated a growth in investment in intellectual property of over 100% (y-o-y) and an equivalent increase in services imports. In 2016 and 2017, the fees for the use of these patents are expected to benefit the current account balance and lead to more company profits being booked in Ireland. Conversely, the purchase of airplanes by international leasing companies based in Ireland collapsed in the third quarter of 2015, leading to a large fall in equipment investment. Excluding intangibles and aircraft, core investment was strong, growing by over 11% (y-o-y) in the first three quarters of 2015, despite the delayed recovery in construction activity. The growth in core investment is forecast to continue more moderately in 2016 and 2017.”

All of which goes to heart of the argument that so-called domestic demand-reported ‘investment’ is heavily polluted by MNCs and aircraft purchases. In other words, stripping out effects of MNCs on domestic demand, actual growth has once again been heavily (around 1/2) concentrated in the external (MNCs-led) sectors. And worse, going forward, transfers of patents signal that Irish economy is likely to become even more unbalanced in the future, with tax arbitrage inflows from the rest of the world to Ireland making us ever more dependent on remaining a corporate tax haven in the face of globally changing taxation environment.

Politically correct public communications from the EU Commission won’t put it this way, but we know that behind the scenes, our shenanigans, like the introduction of the ‘Knowledge Development Box’ tax loophole are unlikely to go unnoticed… especially when it leads to a 100% growth in patents offshoring.

17/7/15: Brussels makes its excuses and leaves us with no answers

My op-ed for Irish Independent on the EU Commission report on Ireland's 'Adjustment Programme' 2010-2013 and its analysis of the Irish Banking Guarantees: http://www.independent.ie/opinion/comment/brussels-makes-its-excuses-and-leaves-us-with-no-answers-31383508.html.

15/4/15: In Case You've Missed it: Google Reply to EU Commission

Google reply to the EU Commission charges: http://googleblog.blogspot.be/2015/04/the-search-for-harm.html. From people who created one of the most successful platforms for innovation (predominantly - innovation by others), a response to the accusations levelled by the people who never succeeded in creating anything innovative.

Still wondering why Europe is celebrating the prospect of reaching 1.2-1.4 percent growth this year as an achievement?...

10/4/15: Comments on the EU Comm Paper “Building a Capital Markets Union”

I have recently been asked to present my views on the European Capital Markets Union proposals from the European Commission to the Oireachtas Joint Committee on Finance, Public Expenditure and Reform. Here is the briefing paper to accompany my presentation:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2592918

26/9/2014: Those Fabled Euro Area Structural Reforms: Greece, Spain, Portugal & Italy

EU Commission has published some interesting research on structural reforms in Italy, Spain, Portugal and Greece (strangely, no Ireland or Cyprus).

The full paper is available here: http://ec.europa.eu/economy_finance/publications/european_economy/2014/pdf/ee5_en.pdf

But here is an interesting set of charts, showing the effect of the said 'reforms' on the economies of these 'peripheral' states.

First chart shows employment growth against productivity growth in 2001-2008 and 2008-2013:

Above clearly shows that in two 'peripheral' countries covered, namely Portugal and Spain, productivity (as measured by value added per hour worked) rose during the crisis period, while the same fell in Greece and Italy. Productivity growth accelerated over the crisis period in Portugal and Spain and de-accelerated in Italy and literally fell off the cliff in Greece. And in all four economies, hours worked collapsed.

This all means two things:

• Firstly, jobs destruction failed to sustain growth in productivity in Italy and Greece (in other words, the two economies suffered jobs losses dispersed across all sectors of activity), while jobs destruction did sustain improved productivity for the remaining active workforce in Spain and Portugal (where jobs destruction was more concentrated in several domestic sectors, such as retail and construction). 
• Secondly, given that all four economies developed broadly similar 'structural reforms' packages, albeit with varying degree of implementation, the above suggests that the said reforms had zero-to-negative effect on economic performance in Italy and Greece, and potentially positive effect in Spain and Portugal. This is basically equivalent to saying that reforms overall effectiveness is not anchored in the structure of reforms, but is rather being driven by something else, something more idiosyncratic. Or, alternatively, that the reforms had no discernible effect whatsoever and instead nature of jobs destruction is driving differences in productivity growth.

The second chart shows annual trajectory in hours worked against productivity growth from 2008 through 2013.

Again, the above chart shows that in all four economies, relationship between productivity growth and employment is broadly negative. The diagonal line shows two segments of the chart: above the line, jobs destruction / creation effects are dominated by productivity growth effects. Below the line, the opposite takes place. So in a summary, the chart shows that the dominant driver in every economy as jobs destruction, not productivity growth. If structural reforms are of any significant help in driving productivity of workers, one would expect at least one of the economies to perform above the diagonal line. None do.

Quite surprisingly (or may be not) EU Commission offers an entirely opposite arguments on reforms efficacy. Even in the case of Greece - a country where both employment and productivity collapsed, the Commission paper argues that "Greece made a substantial adjustment in terms of employment while productivity stopped falling down". The folks in Commission believe that once the economy is completely exhausted on the downside, the lack of further declines is a sign of 'reforms-driven improvements'. This is about as crazy as cheering the fact that a lifeless body at the bottom of the empty pool is no longer falling.

Here is the Commission own guide to the above charts:

Do tell me which of the four countries locates in 'jobless growth' (early stage of reforms and structural changes working) area? Do note that other area of "Repositioning (growth less restructuring)" - which sounds exactly what it is: mindless demolition of jobs in hope that such a move can improve the remaining average. This is the best the 'periphery' has been able to achieve so far under the watchful eye of the EU Commission boffins.

21/6/2013: Europe's Capacity Deficit Illustrated

Want an example of Europe's 'capacity deficit' I mention here: http://trueeconomics.blogspot.ie/2013/06/1962013-european-federalism-and-emu.html

Look no further than the latest set of quotes fired off by ECFIN E-news letter:

Let's take them through reading.

Mr Rehn says that 'Banking Union is not about bailing banks'. Of course he is right - the EU has bailed out the banks before it conceived the EBU. However, one major objective of the EBU is about systematising future bailouts of the banks, in theory - to restrict taxpayers' expected liabilities in such bailouts, and to regulate future depositors' liabilities. And EBU is - according to the EU Commission and the ECB - a necessary element of the sovereign-banks 'break' that includes ESM. Now, ESM is about bailing out the banks.

Is EBU 'about getting a banking system that serves the real economy'? Well, nothing in the EBU proposals so far has much to do with the 'real economy' in a positive sense of serving it. At least nothing that requires an EBU and cannot be done absent EBU. Deposits insurance? Doesn't need an EBU. Joint supervision and regulation? Hardly much to do with the real economy, unless one is to make a claim that the two are fail-proof way of ensuring that a new crisis won't happen. In fact, when it comes to the real economy, the EBU is a part of the policy instruments package that includes depositors  bail-ins, mechanism for sovereign liabilities imposition and fiscal harmonisation - these are about the real economy, but there is little in terms of 'support' here. More like 'limiting damage' by 'spreading the cost'. Reality check: UK has an EBU equivalent, US and Japan have one... all had banking crises that cost their real economies dearly...

So Mr Rehn is just plain propagandising, right? Well, sort of - the EBU is a necessary, but not a sufficient condition for the survival of the Euro. If you accept the thesis that Euro's survival is the 'service' that real economy needs, then you have 1/2 of Rehn's equation there.

Onto Mr Lamy who says that Europeans need something new to drive their attention away from the bad things that are old. Contemplating the past is disuniting the peoples of Europe. Giving them something new to desire (may be a promise of a new iPad for everyone would work?) will shift them to work toward the future, presumably forgetting and forgiving the past and the present. How did the Soviet leaders not think this one up? 'We promise you this better future because we screwed up your past and present' school of politics...

Ireland's Taoiseach is honestly thinking that EBU is necessary to give credibility to European leaders because they promised EBU. Neither the concept of 'do we need A in the first place', nor the irony of his party pre-election promises not being delivered on strike Mr Kenny as being a touch testing. And then there's 'following through on decisions is the very least our citizens expect and demand'. Not really. Citizens demand that political leaders (a) adopt right decisions, then (b) implement right decisions. Having not established that EBU is right fails both (a) and (b).

But the most priceless bit of Mr Kenny's statement is that he believes that something is crucial because it is a credibility test. Mr Kenny's logic here is risking a resemblance to a schoolboy's logic who, in fear of hearing 'Chicken! Chicken!' from a schoolyard bullies heads off to carrying out a silly and dangerous deed, lest his 'credibility' be challenged.

This, per the EU's powerful, is 'leadership' at the time of a crisis?..

6/5/2013: Self-contradictions & EU Commission

Trapped in their own failures, EU 'leaders' are no longer simply contradicting each other - they are now contradicting themselves. And, I must add, via ever more apparent and bizarre statements.
Behold the latest instalment of absurdity from one of the multiple EU 'Presidents': the man in charge of the EU economic policies and performance, European Commission chief Jose Manuel Barroso. As reported in the EUObserver (http://euobserver.com/economic/120040), Mr Barroso stated that "What is happening in France and Portugal is not Merkel's or Germany's fault … The crisis and their problems are not a result of German policy or the fault of the EU. It is the result of excessive spending, lack of competitiveness and irresponsible trading in the financial markets."
Thus,

1. Loose monetary policy by the ECB that was custom-tailored to suit German needs during 2002-2007 period had nothing to do with the crisis in the peripheral states, despite the fact that it triggered vast inflows of capital from Germany (and other core states) into the euro area periphery, inflating assets bubbles left, right and centre, and leading to unsustainable debt accumulation in these economies.
2. ECB (heavily influenced by German ethos and political economy) and EU Commission and regulatory bodies' insistence on treating all sovereign bonds issued by the euro area states as risk-free assets on banks balance sheets (the main trigger for Cypriot crisis and the reason for massive transfers of banking sector costs onto taxpayers in Ireland and other member states) had nothing to do with Berlin or with Berlin's insistence on closing its eyes on what was happening in regulation / enforcement EU-wide.
3. Berlin's inability to reign in German (among other) banks' gross misplacing of risks in interbank lending to other euro area banks had nothing to do with the crisis.
4. Berlin's insistence, repeated parrot-like by Mr Barroso and his colleagues in the Commission, that the whole crisis can be addressed via fiscal adjustments (recall, that was the position the EU Commission occupied for the last 6 years) and current account rebalancing has nothing to do with mis-shaped economic policy responses across the EU since 2008 crisis onset.
5. Berlin's 'guidance' toward internecine and economically illiterate Fiscal Compact, eagerly endorsed by Mr Barroso and his colleagues in recent past, has nothing to do with the failure of Europe to respond to the crisis.
6. Berlin's opposition to the half-baked EU ideas about stimulating growth in euro periphery that shut the door on any real stimulus has nothing to do with the crisis.
7. Berlin's opposition to increasing domestic demand and abandoning contractionary pursuit of current account surpluses, also noted by Mr Barroso's Commission in the past, had nothing to do with the crisis duration or depth.

Mr Barroso also claimed that Chancellor Merkel is "one of the only [leaders], if not the only leader at the European level who best understands what is going on."

Really? Suppose so. In this case, Mr Barroso has either no clue what is going on, or simply doesn't care to be consistent with his own exhortations of the recent past, because he openly and directly contradicted Ms Merkel couple of weeks ago by claiming that 'austerity was overdone' and had "reached its limits."

Irony has reached so far in Mr. Barroso's waltzing across the ideological & economic policy landscape that according to the EU's 'President', Ms Merkel's brilliance also encompasses the fact she is presiding over German economy currently sliding toward a recession. IMF analysis shows real GDP growth in Germany will fall from 4.024% and 3.096% in 2010 and 2011 to 0.865% and 0.613% in 2012 and 2013. This might be better-than-average record for the euro area, but it is hardly an achievement worth praising.

Someone should point to Mr Barroso that eating one's cake (taking a populist position against austerity, and thus Ms Merkel) and having it (taking an appeasing position toward the major architect of all economic policy blunders so far deployed in Europe since the onset of the crisis) is just something that doesn't happen outside the make-belief world of Brussels.