Wednesday's Top 10 with NZ Mint: If only Europe had Tui billboards; How some Russians got their money out of Cyprus anyway; A creative compact?; Dilbert

Here's my Top 10 links from around the Internet at 1 pm in association with NZ Mint.

As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

See all previous Top 10s here.

My must read today is #1, which nails the problems in Cyprus and Europe.

1. 'Solidarity among the many and prosperity for all' - That was the promise of the European Union.

If they had Tui billboards in Europe, this would be the ultimate 'Yeah Right' candidate.

The way Europe has put little Cyprus to the sword has shocked many.

Many in the PIIGS (Portugal, Italy, Ireland, Greece and Spain) now see the European project as a sneaky way for the Germans to achieve their ultimate aim of taking over the continent without having to fight another war.

This may not be true, but the result sure seems like it.

Germany's exports are booming, unemployment there is near record lows and its investors are snapping up bargains across Southern Europe as governments and households are forced to devalue internally. Southern Europe is locked in depression. Their only hope now is political revolts and catastrophic withdrawals from the euro, along with the debt defaults that entails.

Why are the Germans so intent in driving their project at full speed into the brick wall?

 Here's Jeremy Warner with a nice summary of the Cypriot debacle

The terms of this latest bail-out are scarcely any better than the ones so comprehensively rejected by MPs only last week. The offshore banking model on which so much of the island’s recent prosperity has been built is being broken beyond repair. Small wonder the latest package is structured in a way that doesn’t require another parliamentary vote. Democracy is once again being suspended for the supposed sake of the single currency.

Few international investors are going to risk their money in a Cypriot bank after this. Uninsured depositors stand to lose up to 40pc of their money and, if capital controls are imposed as expected, will struggle to remove even what’s left.

No national banking system can survive such a restructuring. Thousands will lose their jobs, not just in the banks but in legal, accountancy and business services industries that the banks have supported. An immediate collapse of 10pc to 20pc in national income is in prospect, with unemployment soaring to more than a quarter of the population.

2. Banking union required from the start - Warner also makes the good point that the euro only stood a chance if it had included a banking union from the start.

Creating one after the fact is way too late.

Russian interest in Cyprus long pre-dated the euro but it was the single currency which turbo-charged their exposure. Cyprus offered a backdoor, no-questions-asked way into apparently “safe”, tax-efficient euro deposits. As part of monetary union, it should in theory have been as risk-free as putting your money in a German deposit account. And it would have been had monetary union been underpinned by the banking union, which is a prerequisite of any lasting form of exchange. If anyone is responsible for the bloated size of the Cypriot banking system, it is not the Cypriots, who were only pursuing a market opportunity, but the architects of the single currency.

A fundamental principle of monetary union – that the currency is worth the same, wherever it is held and whoever holds it – has been shattered. Some euros, it would seem, are more equal than others. The possibility of capital controls to prevent deposit flight when the banks reopen only further clouds the picture. Free movement of capital is another basic principle of monetary union which the eurozone seems casually prepared to disregard. This is not a proper currency.

3. Perhaps we can innovate our way out - Richard Florida writes at the Chronicle Review that the developed world may have just started innovating its way out of the Great Stagnation.

Here's hoping. 

During the upheaval of the Great Depression, the late Harvard University economist Alvin Hansen, often called the "American Keynes," said that our economy had exhausted its productive forces and was doomed to a fate of secular stagnation in which the government would be constantly called upon to stoke demand to keep it moving. Of course we now know from the detailed historical research of Alexander J. Field that the 1930s were, in the title of his 2008 paper, "The Most Technologically Progressive Decade of the Century," when technological growth outpaced the high-tech innovations of the 1980s, 1990s, and 2000s.

As the late economist of innovation Christopher Freeman long ago argued, innovation slows down during the highly speculative times leading up to great economic crises, only to surge forward as the crisis turns toward recovery. While data are scanty so early into our current recovery cycle, a new, detailed report from the Brookings Institution shows a considerable uptick in patented innovations over the last couple of years

4. A creative compact - Florida has an interesting idea to 'solve' the problem of technological unemployment and the myriad of jobless recoveries breaking out around the developed world.

We can't simply write off the tens of millions of workers who toil in dead-end service jobs, or the millions more who are unemployed and underemployed. The key to a broadly shared prosperity lies in new social and economic arrangements that more fully engage, not ignore and waste, the creative talents of all of our people.

Just as we forged a new social compact in the 1930s, 40s, and 50s that saw manufacturing workers as a source of productivity improvements and raised their wages to create a broad middle class to power growth, we need a new social compact—a Creative Compact—that extends the advantages of our emergent knowledge and creative economy to a much broader range of workers. Every job must be "creatified"; we must harness the creativity of every single human being.

I'm optimistic, even in the face of deep economic, social, and political troubles, because the logic of our future economic development turns on the further development and engagement of human creativity.

5. 'If only we cut the size of government and regulation' - There's a strong school of thought from the libertarian right that the best way to restart economic growth is to just reflexively cut the size of government and regulation to make everything better.

Here's Josh Barro at Bloomberg rebutting that idea. 

This weekend, the Wall Street Journal assembled a redoubtable list of conservative heavies in economics (George Schulz! Gary Becker! John Taylor!) to produce a completely insane account of what is wrong with America's economy and how to fix it. The upshot of the piece is that the U.S. economy is in the tank because the government gives too much money to poor people, and so it should stop.

What's most amazing about this piece is what's not in it: any acknowledgement of the specific circumstances that led to the downturn of 2008 and the slow recovery from it. There's no discussion of the housing bubble and the financial crisis, of weak consumer demand as households struggle to deleverage, or of the vast number of job seekers for each available job.

Instead, the authors identify the country's pressing problems as "excessive spending and taxes, growing debt, interventionist monetary policy, and burdensome regulations that have slowed economic growth and job creation." Some of these conditions have indeed arisen from the 2008 crash: Recessions cause government spending and debt to rise relative to the economy. But the authors have the causation wrong: Slow growth has led to rising spending and debt, not the other way around.

So why focus on high spending and regulation rather than the actual cause of our economic woes? Conservatives have made these complaints for the past 30 years. The choice to ignore current economic conditions allows them to advance the same set of soak-the-poor policy solutions at any time and in any economic condition.

6. Some Russians got their money out anyway - Here's Reuters with a report that the Russians seemed to have used the week of chaos in Cyprus to get their money out anyway.

The moral of this story is bleak. If you hear the merest hint of problems at a bank, pull your money out as fast as possible. There are no prizes for being last out the door.

While ordinary Cypriots queued at ATM machines to withdraw a few hundred euros as credit card transactions stopped, other depositors used an array of techniques to access their money.

Companies that had to meet margin calls to avoid defaulting on dealswere granted funds. Transfers for trade in humanitarian products, medicines and jet fuel were allowed.

Chris Pavlou, who was vice chairman of Laiki until Friday, said while some money was withdrawn over a period of several days it was in the order of millions of euros, not billions.

7. Here come the security guards - Ekathamerini reports the same security firm that stuffed up the Olympics is going to be guarding Cypriot banks in the coming days...

G4S apparently will send out unarmed guards. If the Russians are coming they may be in for some trouble

While the banks have been closed, businesses have been calling on the security company to find places to keep their cash and asking for guards and alarms to protect their assets. They are also using G4S as an intermediary to bring money from overseas to pay wages and suppliers, and drawing on its systems for shipping cash to provide guarantees for payments abroad, effectively using it as a kind of bank.

The next big test will come on Thursday when 180 G4S guards will be deployed at bank branches to help handle an anticipated surge of customers demanding cash and answers.

"The staff will be based outside branches and are there to control queues, if there are any queues," he said. "We will be in contact with the police. Basically it is to make the banking people feel safe and the customers as well."

8. Derivatives worth US$1.2 quadrillion - That's a lot of billions. That's the notional worth of the world's derivatives instruments, according to Americablog at Naked Capitalism. 

One of the biggest risks to the world’s financial health is the $1.2 quadrillion derivatives market. It’s complex, it’s unregulated, and it ought to be of concern to world leaders that its notional value is 20 times the size of the world economy. But traders rule the roost — and as much as risk managers and regulators might want to limit that risk, they lack the power or knowledge to do so.

A quadrillion is a big number: 1,000 times a trillion. Yet according to one of the world’s leading derivatives experts, Paul Wilmott, who holds a doctorate in applied mathematics from Oxford University (and whose speaking voice sounds eerily like John Lennon’s), $1.2 quadrillion is the so-called notional value of the worldwide derivatives market. To put that in perspective, the world’s annual gross domestic product is between $50 trillion and $60 trillion. 

9. 'Helicopter Ben has taken off and is dropping money on Wall St, but he's not dropping money on Main Street' - So says economist Michael Hudson in this video. HT Naked Capitalism.

10. Totally John Stewart on something. 

(Updated with cartoons)