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EU proposes 'banking union'
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30-05-2012 4:47pm#1EU calls for 'banking union' to ease crisis
The European Union's executive office on Wednesday called on the 17 countries in the eurozone to create a "banking union" that can centrally oversee and — if needed — bail out the sector, which has become a weak link in the continent's financial system.
Bank failures have already overwhelmed the public finances of Ireland, forcing it to take an international bailout, and some fear Spain could be next. The European Commission, while recommending that Spain be given an extra year to meet its deficit targets, suggested that regulation of the entire eurozone banking sector be done centrally.
In its recommendations on how to deal with the financial crisis which has pushed the shared single currency to the brink, the Commission said it wants to boost cross-border management of banks, which are currently overseen by a patchwork of national regulators with different rules.
Part of that would see the eurozone's permament bailout fund, the ESM, charged with paying for bank bailouts. That would protect individual governments from having their public finances overwhelmed by the cost of rescuing a bank.
EU Commission President Jose Manuel Barroso said the ESM should be better able to help out troubled banks across national borders if need be. In the future, "the building blocks could include a banking union with integrated financial supervision and a single deposit guarantee scheme."
"Direct recapitalization by the ESM might be envisaged," the Commission's report said.
http://www.google.com/hostednews/ap/article/ALeqM5jzJH4H8Qmkh62X3XWBWZjNt9cN_w?docId=6780423279bf402c857be2ce96a611f5
No time frame given, and it's not clear in the article whether this recommendation will be considered in June.
Whether it will be retrospective or not is something that would need to be settled, but it would certainly be an improvement in future banking crises - at the cost of moral hazard for national banking regulation.
cordially,
Scofflaw2
Comments
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In its recommendations on how to deal with the financial crisis which has pushed the shared single currency to the brink, the Commission said it wants to boost cross-border management of banks, which are currently overseen by a patchwork of national regulators with different rules.
That's the biggest problem right there, which should have been addressed first when the crisis came up. The fact say Rabbo or RBS can operate under different rules here than they do in the Netherlands or UK leaves the various systems open for exploitation.
Hell HBOS coming into Ireland with cheep credit is a what kicked off the credit boom here. The competition in itself was not bad, but resulted in (credit check=no previous defaults, no checks on ability to pay) was catastrophic.
However I don't think that the 17 counties is enough. If we're in an open market situation we need the entire market playing off the same rules. If not, it opens the door to a repeat of HBOS in Ireland.0 -
The idea has been around for a while and has been proposed by Barosso in the past. In many ways we already have a banking union, it just hasn't been formalised and tends to operate either via sovereign intermediaries or extraordinary ECB operations like LTRO and ELA.
I don't see any problem in formalizing the system by allocating responsibility to the ESM, I think it ought to be reasonably un-controversial - certainly less so than fiscal union.
But there must be some sort of realistic procedure for determining what banks can be allowed to fall, and how, and what Europe's obligations will be.
The document in which this and other proposals are made is available here
http://ec.europa.eu/europe2020/pdf/nd/swd2012_euroarea_en.pdf
I would just point out this is still just an EU Commission suggestion - it seems to be a personal favourite of Barosso himself. However, Barosso is also keen on Eurobonds and lots of other proposals that are facing difficult political opposition in the strongest European economies. So I would be reluctant to call this an EU proposal.0 -
http://www.google.com/hostednews/ap/article/ALeqM5jzJH4H8Qmkh62X3XWBWZjNt9cN_w?docId=6780423279bf402c857be2ce96a611f5
No time frame given, and it's not clear in the article whether this recommendation will be considered in June.
Whether it will be retrospective or not is something that would need to be settled, but it would certainly be an improvement in future banking crises - at the cost of moral hazard for national banking regulation.
cordially,
Scofflaw
no!!!!...please.0 -
Sounds like another layer of administration to me that won't achieve much more than is already possible (as per later12's post)
Most likely another sop for "the markets" to try and take pressure off Spain, but no doubt one that will be ignored as most of the other "measures" have been.
Facts are that the EU/Euro is a busted flush. There's too many fundamental flaws in the "one size fits all" approach they've tried to maintain, "austerity for the masses" (but not the elite/political classes of course!) is being rejected by those same masses, and there's too many internal/national agendas at play here for the concept to EVER work as it stands now.
The "market" knows it, the masses know it, and even the politicians know it.. but seeing as the latter group are the ones who benefit most from the status, power and untouchability of the setup - of course they're going to try to keep things going till the bitter end, regardless of what it does to their countries by then.
It's just a matter of when, not if, the whole house of cards comes down at this stage in my opinion. Sooner the better I say so we can all get on with the task of rebuilding rather than trying to kick the can a bit further down the road.. because we're rapidly running out of that road and heading for the cliff!0 -
Absolutely no chance of this happening - Merkel will tell them where to go.
Joint and several liability - i think not.
Euro bonds dressed up in another manner.0 -
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has to happen including euro bonds, control over interbank flows of cash, followed by centrol control of taxes( i.e. the harmonisation we dread ). Otherwise the euro experiment is doomed.
Ignoring idiots who comment "far right" because they don't even know what it means
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*facepalm*
When will the world stop trying to repair a ship which has never been structurally sound to begin with?0 -
hatrickpatrick wrote: »*facepalm*
When will the world stop trying to repair a ship which has never been structurally sound to begin with?
What's "structurally unsound" about the euro, though? And please don't just say "several countries involved" or "different economic cycles", because frankly those aren't explanations in themselves.
I've asked in a number of threads what the supposedly obvious problems with the euro are, and so far the responses haven't impressed me. There's a crisis - OK, but you can't simply say "there's a crisis, some of the euro countries are in crisis, therefore there's a problem with the euro". That's not logic. And, yes, the euro undeniably had no crisis plan, lacking even the often self-defeating options open to national currencies and requiring public, ongoing and fraught multinational horsetrading, but that's an issue of response to the crisis.
The only really relevant points I've seen so far are: (a) a common interest rate created bubbles in some countries where the rate was inappropriately low; and (b) the market's appreciation of risk allowed sovereigns to borrow at inappropriately rates.
The second explanation, as far as I can see, really only applies to Greece (although one could perhaps argue it for Italy?),and isn't a feature of the euro itself, but an inappropriate market response to it.
The first explanation is highly popular and explains issues in more countries, but ignores the question of how countries could have responded to common interest rates, something which was hardly a surprise feature of the euro.
What am I missing?
cordially,
Scofflaw0 -
What's "structurally unsound" about the euro, though? And please don't just say "several countries involved" or "different economic cycles", because frankly those aren't explanations in themselves.
I've asked in a number of threads what the supposedly obvious problems with the euro are, and so far the responses haven't impressed me. There's a crisis - OK, but you can't simply say "there's a crisis, some of the euro countries are in crisis, therefore there's a problem with the euro". That's not logic. And, yes, the euro undeniably had no crisis plan, lacking even the often self-defeating options open to national currencies and requiring public, ongoing and fraught multinational horsetrading, but that's an issue of response to the crisis.
The only really relevant points I've seen so far are: (a) a common interest rate created bubbles in some countries where the rate was inappropriately low; and (b) the market's appreciation of risk allowed sovereigns to borrow at inappropriately rates.
The second explanation, as far as I can see, really only applies to Greece (although one could perhaps argue it for Italy?),and isn't a feature of the euro itself, but an inappropriate market response to it.
The first explanation is highly popular and explains issues in more countries, but ignores the question of how countries could have responded to common interest rates, something which was hardly a surprise feature of the euro.
What am I missing?
cordially,
Scofflaw
That nations who use it cannot devalue it(through QA) to become more competitive in economic recession.0 -
hatrickpatrick wrote: »*facepalm*
When will the world stop trying to repair a ship which has never been structurally sound to begin with?
What's "structurally unsound" about the euro, though? And please don't just say "several countries involved" or "different economic cycles", because frankly those aren't explanations in themselves.
I've asked in a number of threads what the supposedly obvious problems with the euro are, and so far the responses haven't impressed me. There's a crisis - OK, but you can't simply say "there's a crisis, some of the euro countries are in crisis, therefore there's a problem with the euro". That's not logic. And, yes, the euro undeniably had no crisis plan, lacking even the often self-defeating options open to national currencies and requiring public, ongoing and fraught multinational horsetrading, but that's an issue of response to the crisis.
The only really relevant points I've seen so far are: (a) a common interest rate created bubbles in some countries where the rate was inappropriately low; and (b) the market's appreciation of risk allowed sovereigns to borrow at inappropriately rates.
The second explanation, as far as I can see, really only applies to Greece (although one could perhaps argue it for Italy?),and isn't a feature of the euro itself, but an inappropriate market response to it.
Relevant
The first explanation is highly popular and explains issues in more countries, but ignores the question of how countries could have responded to common interest rates, something which was hardly a surprise feature of the euro.
What am I missing?
cordially,
Scofflaw
The relevant points you have noticed in themselves will be enough to destroy the euro .
The euro has no mechanism to deal with peripheral imbalances, by the time they are in place the markets will have brought the euro down . If the markets have not, national tensions will destroy it .
Whether the euro is structurally unsound is really irrelevant, when perception is what matters right now .0 -
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forfuxsake wrote: »That nations who use it cannot devalue it(through QA) to become more competitive in economic recession.
Devaluation is a two-edged sword, though - in our case, it would make all our imports more expensive. Given that we import virtually all out energy at a time of already high oil prices, devaluation is unlikely to have been a route we would voluntarily have taken - but membership of the euro has, on the other hand, protected us from a currency crisis and forced devaluation.
More to the point I was making, though, is the fact that devaluation is, again, a crisis response (and one that can be made, although not by Ireland alone), when I was asking what features of the euro led us to the crisis.
cordially,
Scofflaw0 -
coolshannagh28 wrote: »The relevant points you have noticed in themselves will be enough to destroy the euro .
The euro has no mechanism to deal with peripheral imbalances, by the time they are in place the markets will have brought the euro down . If the markets have not, national tensions will destroy it .
Whether the euro is structurally unsound is really irrelevant, when perception is what matters right now .
I'd certainly agree with the last point, but the points about 'market forces' and 'national tensions' have been being made repeatedly for,what, nearly 5 years now? Is the euro closer to breakup now than it was, and if so, how?
The 'peripheral imbalances' sound interesting - what are these, how do they build up, and how or why would they cause the destruction of the euro?
And, of course, same point as to forfuxsake - is this a feature of the euro that led us to where we are, as opposed to an outcome of the crisis and a feature of the response?
cordially,
Scofflaw0 -
What's "structurally unsound" about the euro, though?
What am I missing?
cordially,
Scofflaw
"Thatcher called the concept of the Euro - “perhaps the greatest folly of the modern era”. As Peter Osborne noted in the Telegraph back in 2010:
Right back in 1990, Mrs. Thatcher foresaw with painful clarity the devastation it was bound to cause. Her autobiography records how she warned John Major, her euro-friendly chancellor of the exchequer, that the single currency could not accommodate both industrial powerhouses such as Germany and smaller countries such as Greece. Germany, forecast Thatcher, would be phobic about inflation, while the euro would prove fatal to the poorer countries because it would “devastate their inefficient economies”.
It is as if, all those years ago, the British prime minister possessed a crystal ball that enabled her to foresee the catastrophic events of the past year or so in Ireland, Greece and Portugal. Indeed, it is one of the tragedies of European history that the world chose not to believe her."
There you go....you're now up to speed.
Edited to say: One thng that Thatcher missed was that Ireland is now among the top tier in Europe as Irish productivity has soared in the last 4 years in Ireland...we are now more productive than Germany and the Netherlands...but she couldn't have forseen Irelands radical transformation since 1990. This is one key metric which will help Ireland weather the storm better than most "PIIGS" and perhaps the reason we havent seen large scale social upheaval, tax collectors getting letter bombs...or banks fire-bombed like in other countries.0 -
"Thatcher called the concept of the Euro - “perhaps the greatest folly of the modern era”. As Peter Osborne noted in the Telegraph back in 2010:
Right back in 1990, Mrs. Thatcher foresaw with painful clarity the devastation it was bound to cause. Her autobiography records how she warned John Major, her euro-friendly chancellor of the exchequer, that the single currency could not accommodate both industrial powerhouses such as Germany and smaller countries such as Greece. Germany, forecast Thatcher, would be phobic about inflation, while the euro would prove fatal to the poorer countries because it would “devastate their inefficient economies”.
It is as if, all those years ago, the British prime minister possessed a crystal ball that enabled her to foresee the catastrophic events of the past year or so in Ireland, Greece and Portugal. Indeed, it is one of the tragedies of European history that the world chose not to believe her."
There you go....you're now up to speed.
Edited to say: One thng that Thatcher missed was that Ireland is now among the top tier in Europe as Irish productivity has soared in the last 4 years in Ireland...we are now more productive than Germany and the Netherlands...but she couldn't have forseen Irelands radical transformation since 1990. This is one key metric which will help Ireland weather the storm better than most "PIIGS" and perhaps the reason we havent seen large scale social upheaval, tax collectors getting letter bombs...or banks fire-bombed like in other countries.
In fact, Thatcher's comment is nothing like what happened at all - the "inefficient economies" were anything but devastated. On the contrary, they enjoyed perfectly reasonable growth in the euro. It seems likely that you're back-casting from the effects of the global crisis on a couple of these countries to claim the "devastation" in question, but without relating it to the euro other than through the quote.
But perhaps you can explain Mrs Thatcher's comment rather better? Show, perhaps, the devastation she envisaged in terms of depressed pre-crisis growth in the euro countries? Because, you know, looking at the growth rates of eurozone countries rather suggests that the "industrial powerhouses" like Germany had the least growth.
cordially,
Scofflaw0 -
Id say the euro must be very close to breakup much closer than 5 years ago . The volume of capital required to bail out Ireland Spain and Italy should ensure that . We may have a fudged 2 speed euro but it will not be the euro as we know it .coolshannagh28 wrote: »The relevant points you have noticed in themselves will be enough to destroy the euro .
The euro has no mechanism to deal with peripheral imbalances, by the time they are in place the markets will have brought the euro down . If the markets have not, national tensions will destroy it .
Whether the euro is structurally unsound is really irrelevant, when perception is what matters right now .
I'd certainly agree with the last point, but the points about 'market forces' and 'national tensions' have been being made repeatedly for,what, nearly 5 years now? Is the euro closer to breakup now than it was, and if so, how?
The 'peripheral imbalances' sound interesting - what are these, how do they build up, and how or why would they cause the destruction of the euro?
And, of course, same point as to forfuxsake - is this a feature of the euro that led us to where we are, as opposed to an outcome of the crisis and a feature of the response?
cordially,
Scofflaw
On peripherality ,it has been there for a couple of thousand years ,the euro project was an attempt to correct it by flooding the regions with cheap credit ,however we did not have the wit to invest it wisely and are now in a bind . If the core insists on getting its money back and it is not forthcoming how can the currency union survive unless the core takes a massive financial hit .
This would achieve the original aim of smoothing out peripherality but in an converse process to the intended, ie slowing the core .0 -
coolshannagh28 wrote: »On peripherality ,it has been there for a couple of thousand years ,the euro project was an attempt to correct it by flooding the regions with cheap credit
Couldn't be further from the truth. The cheap credit (3%-6%) happened because the French & German economies were sluggish. When they started picking up the interest rates started rising towards 6%.
The fact that Ireland needed 6% 3 years earlier to cap growth and inflation was irrelevant because we are such a small part of the whole.
The trick to the Euro is to have the correct monetary tools to correct these imbalances, without affected the value of the Euro.0 -
coolshannagh28 wrote: »Id say the euro must be very close to breakup much closer than 5 years ago . The volume of capital required to bail out Ireland Spain and Italy should ensure that .
Or not, depending on what estimates one uses. I think a lot of people are guilty of taking the Irish bailout and scaling it up to the size of other economies.coolshannagh28 wrote: »We may have a fudged 2 speed euro but it will not be the euro as we know it .
On peripherality ,it has been there for a couple of thousand years ,the euro project was an attempt to correct it by flooding the regions with cheap credit ,however we did not have the wit to invest it wisely and are now in a bind . If the core insists on getting its money back and it is not forthcoming how can the currency union survive unless the core takes a massive financial hit .
This would achieve the original aim of smoothing out peripherality but in an converse process to the intended, ie slowing the core .
One could look at it another way, and suggest that perhaps core and peripheral countries need to respond differently, using a rather more imaginative toolbox. The problem seems to have been that countries could no longer reach for the interest rate lever, and failed to substitute anything else for it.
Actually, in a sense, that does highlight a particular problem, which is that the institutional architecture that governs national currencies has evolved to suit circumstances which are no longer the case.
Central bank independence is the result of the painful recognition that politicians in government will not act responsibly with monetary policy - they are liable to follow loose monetary policy in booms in order to achieve even greater growth rates, and print money like billy-ho in downturns. So the traditional main monetary growth-affecting tool - interest rates - was taken out of the hands of politicians and put into the hands of unelected officials in a central bank. Central banks, with their eyes on each other rather than the credit-hungry electorate, then pursued policies aimed at stability rather than popularity.
Come the euro, and this tool was removed from national control. Unfortunately, the reaction to this was inappropriate, because while there are other tools in the fiscal toolbox that could be used to stimulate or calm the economy, such as taxation arrangements, those tools were still in the hands of politicians. As we saw here in Ireland, that meant they were used in the traditional way politicians use such tools - to stimulate growth when growth was already high, and in inappropriate ways.
I don't know whether the Central Bank here thought about trying to assemble an alternative toolbox - I've seen no evidence that they did so during the Tiger - but they do appear to be doing so now. And I think that's vital, because the failure to change those national arrangements meant that national control of the economy's growth shifted back into political hands, reversing a shift born from painful previous experiences.
cordially,
Scofflaw0 -
and (b) the market's appreciation of risk allowed sovereigns to borrow at inappropriately rates.
This is a very untypical ambiguous statement, but nonetheless insightful.
Do you think their appreciation was right considering socialisation of debt has to a large extent been the outcome?0 -
another stupid idea......europe is composed of different country's....they have not the same governments or people......they do not even care about each other...
their social costs are completely different......
thjere is now way on earth they are ready for such a drastic step.....0 -
golden lane wrote: »another stupid idea......europe is composed of different country's....they have not the same governments or people......they do not even care about each other...
their social costs are completely different......
thjere is now way on earth they are ready for such a drastic step.....
Which idea are you talking about that is stupid?
What drastic step do you mean?
In attempting to be clever with disconnected musings linked by ....... you make no sense.0 -
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antoobrien wrote: »coolshannagh28 wrote: »On peripherality ,it has been there for a couple of thousand years ,the euro project was an attempt to correct it by flooding the regions with cheap credit
Couldn't be further from the truth. The cheap credit (3%-6%) happened because the French & German economies were sluggish. When they started picking up the interest rates started rising towards 6%.
The fact that Ireland needed 6% 3 years earlier to cap growth and inflation was irrelevant because we are such a small part of the whole.
The trick to the Euro is to have the correct monetary tools to correct these imbalances, without affected the value of the Euro.
Interest rates fell from 4.5 % in 2000 rapidly to 2% oneuro entry in 02 and remained at 2 % until 06 this may partly have been a result of 9.11 but at the time the euro was sold as a stable low interest currency. It suited everyone but we certainty went on a binge .
As far as tools to correct the imbalances there are none except capital transfers which are happening the hard way at the minute .0 -
Which idea are you talking about that is stupid?
What drastic step do you mean?
In attempting to be clever with disconnected musings linked by ....... you make no sense.
He (I think) is referring to the point that this whole "single currency/single union" concept among a group of nations so socially, politically and economically diverse was flawed from the beginning.
Think about it.. most of Europe spent half of the last century blowing the other half up, and before that fighting to conquer the world ahead of their neighbors.
The whole idea that we are now "one big happy European family" is therefore relatively new and has proven to be unworkable in recent years as each nation looks out for their own interests - it's easy to be all buddy-buddy when times are good, but it's the tough times that show the strength of the relationships (or lack thereof), and on that score Europe has failed miserably in the past 4-5 years.
I do love the steadfast refusal of certain posters here to accept the reality that a "one size fits all" approach - politically, economically and socially - and the more recent "austerity for all some" demand hasn't and isn't working, especially when it's increasingly clear that that was never the real intention.
The last decade has been about keeping the major powers of Europe happy regardless of the needs of or impact to the "smaller weaker" members and now that things have gone pear shaped, those stronger members arrogantly insist the rest carry the can for those failed policies to save their own economies - it's like something you'd see Attenborough narrating when the runt of the litter is exiled/killed by his larger siblings or parents really... not very "happy family" though.0 -
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Tomorrow Spain will admit defeat and the Germans will be asked to bail out their banks. The government are denying it.0
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No surprise really - our lot were still denying it as the IMF were walking around Dublin.Tomorrow Spain will admit defeat and the Germans will be asked to bail out their banks. The government are denying it.
The funny thing is of course that neither they or the EU governing body are fooling anyone with this approach. The Euro is done and the sharks are circling.0 -
In fact, Thatcher's comment is nothing like what happened at all - the "inefficient economies" were anything but devastated. On the contrary, they enjoyed perfectly reasonable growth in the euro. It seems likely that you're back-casting from the effects of the global crisis on a couple of these countries to claim the "devastation" in question, but without relating it to the euro other than through the quote.
But perhaps you can explain Mrs Thatcher's comment rather better? Show, perhaps, the devastation she envisaged in terms of depressed pre-crisis growth in the euro countries? Because, you know, looking at the growth rates of eurozone countries rather suggests that the "industrial powerhouses" like Germany had the least growth.
cordially,
Scofflaw
Honestly...you are putting that graph forward to suggest that Greece, Italy and Spain had better growth than Germany? Did you even look at the graph?
OK...Thatchers waste land....I dont beleive she was talking about pre crisis....she foresaw the crisis itself...the current rate of unemployment? Does that count as bad? Im pretty sure she would have thought so.0 -
In fact, Thatcher's comment is nothing like what happened at all - the "inefficient economies" were anything but devastated. On the contrary, they enjoyed perfectly reasonable growth in the euro. It seems likely that you're back-casting from the effects of the global crisis on a couple of these countries to claim the "devastation" in question, but without relating it to the euro other than through the quote.
But perhaps you can explain Mrs Thatcher's comment rather better? Show, perhaps, the devastation she envisaged in terms of depressed pre-crisis growth in the euro countries? Because, you know, looking at the growth rates of eurozone countries rather suggests that the "industrial powerhouses" like Germany had the least growth.
cordially,
Scofflaw
"Devastation" = >20% youth unemployment. Maybe you have a different name for that level of unemployment?
If you are suggesting that uber efficient germany has lower than average productivity, I cordially (and hilariously) disagree!
However, if you are suggestigng that it has lower than average productivity growth, then I agree. A 4 minute mile man has less room for improvement than a 10 minute mile man...but even if the 10 minute mile man gets to 6, hes still way behind.
Do you understand why?0 -
Kaiser2000 wrote: »He (I think) is referring to the point that this whole "single currency/single union" concept among a group of nations so socially, politically and economically diverse was flawed from the beginning.
golden lane is making the basic eurosceptic nationalist point: we have nothing in common with each other in Europe. A small farmer in Ireland has more in common with a stock broker in Dublin than with a small farmer in Brittany. However, the small farmer in Ireland is typically assumed to have a lot in common with anyone in the USA or Australia. It is just a question of cultural prejudice, which most people do not feel nearly as strongly about as the europhobe. At least he didn't wrap it up in economic arguments.Kaiser2000 wrote: »Think about it.. most of Europe spent half of the last century blowing the other half up, and before that fighting to conquer the world ahead of their neighbors.
The whole idea that we are now "one big happy European family" is therefore relatively new and has proven to be unworkable in recent years
There are very few nation states that have always been one big happy family, without civil war and internal revolution. It is interesting to note that the US first became a "transfer union" about sixty years after its civil war.Kaiser2000 wrote: »I do love the steadfast refusal of certain posters here to accept the reality that a "one size fits all" approach - politically, economically and socially - and the more recent "austerity for all some" demand hasn't and isn't working, especially when it's increasingly clear that that was never the real intention.
The single market is a "one size fits all" approach that micromanages trading conditions all over Europe - and it works very well. The currency union can also work, if regulated properly.
BTY one of the purposes of the euro is to preserve this single market, and its existence keeps the nationalist reflex of imposing trade restrictions in times of difficulty off the agenda.0 -
This is a very untypical ambiguous statement, but nonetheless insightful.
Do you think their appreciation was right considering socialisation of debt has to a large extent been the outcome?
Yes and no, I suppose, although "socialisation of debt" isn't really applicable to sovereign debt, and the rates in question were the sovereign rates.
To have lent to Greece at nearly the same sovereign rates as Germany certainly required the markets to be under the impression that the other eurozone economies would stand over Greek debts. To some extent they have done so, and an outright default has been avoided - but there has been "private sector involvement", so the extent to which the other economies would stand over Greek debts was over-estimated.
cordially,
Scofflaw0 -
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Honestly...you are putting that graph forward to suggest that Greece, Italy and Spain had better growth than Germany? Did you even look at the graph?
No, I'm suggesting that if Thatcher's prediction had come true, the pattern of growth would be completely different. As it is, it's obvious that her prediction was rubbish.OK...Thatchers waste land....I dont beleive she was talking about pre crisis....she foresaw the crisis itself...the current rate of unemployment? Does that count as bad? Im pretty sure she would have thought so.
That's mildly hilarious and a little bit sad, because it's very obvious she's not predicting a crisis but talking about a process.Amberman wrote:"Devastation" = >20% youth unemployment. Maybe you have a different name for that level of unemployment?
If you are suggesting that uber efficient germany has lower than average productivity, I cordially (and hilariously) disagree!
However, if you are suggestigng that it has lower than average productivity growth, then I agree. A 4 minute mile man has less room for improvement than a 10 minute mile man...but even if the 10 minute mile man gets to 6, hes still way behind.
Do you understand why?
Obviously. It doesn't change the inconvenient fact that the "inefficient economies" weren't "devastated" as per Thatcher's prediction until a global crisis - caused largely by exactly the kind of financial industry deregulation show herself pioneered (this time) - intervened and caused devastation across a very wide range of economies.
So, once again, a quote from some authority, or parroted sloganonomic theories like "one size fits all can't work" claiming there is a special crisis caused by the euro, fails to offer any explanation, and fails the most obvious and basic tests against observation. The euro didn't create the current crisis - it has certainly helped shape it for eurozone countries, and it is equally certainly dominating the response to the crisis by the eurozone countries, but claims that it is the cause of it are highly questionable.
cordially,
Scofflaw0 -
Seriously people why are you engaging in this discussion, it's got an agenda?0
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No, I'm suggesting that if Thatcher's prediction had come true, the pattern of growth would be completely different. As it is, it's obvious that her prediction was rubbish.
That's mildly hilarious and a little bit sad, because it's very obvious she's not predicting a crisis but talking about a process.
Obviously. It doesn't change the inconvenient fact that the "inefficient economies" weren't "devastated" as per Thatcher's prediction until a global crisis - caused largely by exactly the kind of financial industry deregulation show herself pioneered (this time) - intervened and caused devastation across a very wide range of economies.
So, once again, a quote from some authority, or parroted sloganonomic theories like "one size fits all can't work" claiming there is a special crisis caused by the euro, fails to offer any explanation, and fails the most obvious and basic tests against observation. The euro didn't create the current crisis - it has certainly helped shape it for eurozone countries, and it is equally certainly dominating the response to the crisis by the eurozone countries, but claims that it is the cause of it are highly questionable.
cordially,
Scofflaw
How can you tell that she was talking about a process? She made two statements.
1. Germany would be phobic about inflation ... obviously this is true.
2. Inefficient countries would be devastated inside the Euro. This is clearly true. They are inefficient, their economies are being devastated. The common currency is a major reason why they are being devastated. It is also a major reason why the core countries aren't suffering in the same way...and why Germany is doing very nicely, thankyou very much. Their export machine is benefiting from a weaker currency than Germany would have on its own. This is directly as a result of being in the common currency. Germany is winning at the expense of the weaker countries...who have a stronger currency than they should have.
If you had 2 Eurozone currencies, the core and the periphery, the core would be a much stronger currency than the periphery. This point isnt really debated seriously because it is so self evident.
What you are pointing to as growth was nothing more than an illusory debt fueled boom which produced rampant malinvestments all over the place. The tide has gone out, the party is over...and we can now see the true picture of the Euro...and its a slow motion train wreck.
The boom wasn't reality...it was masking it.0 -
Germany is doing very nicely, thank you very much.
Their export machine is benefiting from a weaker currency than Germany would have on its own.
This is directly as a result of being in the common currency.
Germany is winning at the expense of the weaker countries.
Who have a stronger currency than they should have.
The boom wasn't reality...it was masking it.
I think this is the reality of the situation.
Euro is only benefiting powerful export based countries like Germany at the moment.
Cost of making BMW's, Merc's in Germany would go up alot with a stronger currency.
While cost of manufacturing would go down in Spain, Italy etc thanks to weaker currency.0 -
Before the Euro came along, countries had three primary tools they could deploy when downturns hit...
1. Fiscal policy - deficit spending
2. Monetary policy - interest rates
3. Currency policy - devaluation
None of these tools are available to Spain, Ireland, Italy, Greece etc today.- They are (supposed to be) limited in running up their budget deficits because of the Maastrict treaty caps...they have ceded control of fiscal policy.
- Their interest rates are set by the ECB, so they no nationally focused monetary policy...though PIIGS do have a voice, but are subordinate to more powerful actors in the common currency area
- The cant devalue...they share common currency.
0 -
How can you tell that she was talking about a process? She made two statements.
1. Germany would be phobic about inflation ... obviously this is true.
Sure.2. Inefficient countries would be devastated inside the Euro. This is clearly true. They are inefficient, their economies are being devastated. The common currency is a major reason why they are being devastated. It is also a major reason why the core countries aren't suffering in the same way...and why Germany is doing very nicely, thankyou very much. Their export machine is benefiting from a weaker currency than Germany would have on its own. This is directly as a result of being in the common currency. Germany is winning at the expense of the weaker countries...who have a stronger currency than they should have.
Except that you're now defining "devastated" as "unable to react to a global crisis in certain ways" and "inefficient economies" as "those coming badly out of the crisis", both of which are special pleading
You're also pretending that Thatcher was specifically foreseeing this global crisis - brought about, I'll stress again, by the kind of financial deregulation she pioneered. That's simply a huge stretch of what she was saying, which contains no references to a crisis where the euro might make responses less national, but to a devastation of inefficient economies by virtue of the euro itself.If you had 2 Eurozone currencies, the core and the periphery, the core would be a much stronger currency than the periphery. This point isnt really debated seriously because it is so self evident.
But being true doesn't make it necessarily relevant.What you are pointing to as growth was nothing more than an illusory debt fueled boom which produced rampant malinvestments all over the place. The tide has gone out, the party is over...and we can now see the true picture of the Euro...and its a slow motion train wreck.
The boom wasn't reality...it was masking it.
And that, again, results from the very financial deregulation Thatcher pioneered. It does not result from the euro - the depth and severity of the crises in crisis-hit countries, whether inside or outside the euro, relates primarily to features of their deregulation. The very fact that both euro and non-euro countries have been hit in virtually identical ways would tell an unbiased observer that euro membership lacks much explanatory power on the pre-crisis buildup of problems in these countries.
There's a reason people point at Iceland as being similar to us - because their crisis is extremely similar. Their response to it is what is different, but their problems were similar. Clearly, however, euro membership cannot explain Iceland - so it's highly unlikely to be a good explanation for almost identical problems in Ireland. Financial deregulation, on the other hand, is.
cordially,
Scofflaw0 -
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Sure.
Scofflaw, just for my reference - and apologies if this is considered off topic - but can you enlighten me what your agenda is regarding the Euro/EU?
I ask this as every post I read from you is pro-Euro and condescending replies such as this are the norm to anyone who disagrees or points out something that is contrary to your opinion.
I realise you are a mod here of course, but I'm genuinely curious at this stage0 -
"Devastation" = >20% youth unemployment.
Youth unemployment in the UK is (just shy) of 22% which presumably means that the UK is "devasted" also.
It was a bit remiss of Mrs Thatcher to neglect to "predict" that the UK's failure to adopt the Euro would result in such "devastion" there, wasn't it?
Or for that matter that 8 out of the 10 EU economies with youth unemployment rates less than 20% are Eurozone economies (and that Denmark, one of the two non-Eurozone ones, effectively acts as a de facto Eurozone economy in practice)...
Her "clairvoyance" would appear to have been a bit limited, wasn't it?0 -
Kaiser2000 wrote: »Scofflaw, just for my reference - and apologies if this is considered off topic - but can you enlighten me what your agenda is regarding the Euro/EU?
I ask this as every post I read from you is pro-Euro and condescending replies such as this are the norm to anyone who disagrees or points out something that is contrary to your opinion.
I realise you are a mod here of course, but I'm genuinely curious at this stage
I'm fascinated by your response and it brings me back to a post I made about biases on boards.The more I read this thread the more I'm convinced that people's own biases are reflected in how they perceive others. This isn't news to be me but interesting none the less.
I have no interest in getting into who's left or right wing. Though I will say I find the moderation to be excellent. People perhaps don't seem to realise they are being warned/infracted/banned as they simply break the clearly laid out forum rules. There seems to be an impression from some they are victims of some sort of conspiracy when the simple explanation is they are just wrong.
I was consistently accused online of being paid for my support of a Yes in the Fiscal treaty. All I got out of the Fiscal treaty was a pain in the arse. It didn't seem to cross their minds that perhaps I disagreed with them as they were wrong, it certainly crossed my mind that I was wrong. It's seems to me some of you guys keep saying things that are provably wrong and then wonder why people disagree. Isn't it obvious?0 -
I'm fascinated by your response and it brings me back to a post I made about biases on boards.
I was consistently accused online of being paid for my support of a Yes in the Fiscal treaty. All I got out of the Fiscal treaty was a pain in the arse. It didn't seem to cross their minds that perhaps I disagreed with them as they were wrong, it certainly crossed my mind that I was wrong. It's seems to me some of you guys keep saying things that are provably wrong and then wonder why people disagree. Isn't it obvious?
I guess my point is more that certain posters (Scofflaw is just an example above) seem even unwilling to consider the opposite view - or at least that's how it comes across. It's the online equivalent of sticking ones fingers in ones ears and going "la la la I am not listening!", or repeating your own view often enough in the belief that eventually people will agree with/believe it.
To use the current topic - I think the Euro/EU in its present form is done and my posts would reflect that, but that said, I do see merit in some of the opposing viewpoints and will freely admit that my opinions have changed on some topics having debated it here and elsewhere.
I guess my point is that surely a discussion flows better when both sides recognize that there are things they can learn from the other - not necessarily that they agree with it, but that they can appreciate the view regardless.0 -
Kaiser2000 wrote: »Scofflaw, just for my reference - and apologies if this is considered off topic - but can you enlighten me what your agenda is regarding the Euro/EU?
I ask this as every post I read from you is pro-Euro and condescending replies such as this are the norm to anyone who disagrees or points out something that is contrary to your opinion.
I realise you are a mod here of course, but I'm genuinely curious at this stage
I'm not sure what you're picking up there - "sure" as you quoted means "yes, I entirely agree". While that's often a statement used sarcastically, if I'm being sarcastic I make it more obvious. I'm simply agreeing with Amberman there, and it's interesting that you pick it up as sarcasm. I admit to being occasionally condescending, but I'm unlikely to be being as condescending as you think I'm being, so I'm not going to worry about it too much.
As for my "agenda" - I'm pro-EU. And I'm largely pro the EU that actually exists - the cumbersome and often awkward tangle of grey bureaucracy that works for the Member States - as opposed to being pro either a federal USE or an EEC.
I don't agree with everything it does, I don't agree with the architecture of some major policy areas, I'd happily see more power go to the Parliament (but not legislative initiative), and I view the largest part of the "democratic deficit" as being our national inability to control what our government does in the EU and the complete lack of attention paid to that by our media. But I'm in favour of an unelected Commission with the right of initiative, have no problems with a commitment to "ever closer union" but likewise no problem with people resisting it. I would consider the EU's 'constitutional architecture' as superior in practice to ours.
I think the European level of politics is massively more important than the level of attention it's given most of the time, and would love to engage in constructive debate about where the EU is going, but find I spend most of my time simply trying to correct a wide range of misunderstandings, distortions, and outright lies about it - an exercise without which no meaningful debate is possible, and which I personally happen to enjoy in an odd kind of way, because I like the EU but don't care too much about it. I wouldn't have any real issues with going back to the far more splintered Europe I grew up with.
As to the claim that I stick my fingers in my ears and go "la-la-la" rather than take other people's points on board - I'd reject that entirely. Obviously, when I add to that by saying that it's kind of rare for people opposed to the EU to make good points, you're obviously going to regard that as equivalent, but that reflects your bias as well as my own. Most points made against the EU do tend to start from "European integration is a bad idea in itself" and work backwards to reasons why this is so, which means those points are unlikely to wash with me, because I don't agree with that basic premise - on balance, I would hold the opposite view, althugh not in terms of cultural homogenisation, which personally I would tend to ascribe to media culture rather than the arcane workings of trade regulation.
I used to do very much the same kind of thing with Creationism and science (see the Religion forum for details), but found it repetitive after a couple of years, and I don't do it with respect to the so-called "climate change debate" because I do care too much about it and tend to lose my temper.
Does that help?
cordially,
Scofflaw0 -
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Sure.
Except that you're now defining "devastated" as "unable to react to a global crisis in certain ways" and "inefficient economies" as "those coming badly out of the crisis", both of which are special pleading
You're also pretending that Thatcher was specifically foreseeing this global crisis - brought about, I'll stress again, by the kind of financial deregulation she pioneered. That's simply a huge stretch of what she was saying, which contains no references to a crisis where the euro might make responses less national, but to a devastation of inefficient economies by virtue of the euro itself.
But being true doesn't make it necessarily relevant.
And that, again, results from the very financial deregulation Thatcher pioneered. It does not result from the euro - the depth and severity of the crises in crisis-hit countries, whether inside or outside the euro, relates primarily to features of their deregulation. The very fact that both euro and non-euro countries have been hit in virtually identical ways would tell an unbiased observer that euro membership lacks much explanatory power on the pre-crisis buildup of problems in these countries.
There's a reason people point at Iceland as being similar to us - because their crisis is extremely similar. Their response to it is what is different, but their problems were similar. Clearly, however, euro membership cannot explain Iceland - so it's highly unlikely to be a good explanation for almost identical problems in Ireland. Financial deregulation, on the other hand, is.
cordially,
Scofflaw
Obviously, you arent reading what I've said.
The tools to emerge from a crisis have been taken away from peripheral countries.
Thats my point. Thats the weakness in the Euro.
This structural weakness is widely understood.
The crisis itself isnt the issue.0 -
Youth unemployment in the UK is (just shy) of 22% which presumably means that the UK is "devasted" also.
It was a bit remiss of Mrs Thatcher to neglect to "predict" that the UK's failure to adopt the Euro would result in such "devastion" there, wasn't it?
Or for that matter that 8 out of the 10 EU economies with youth unemployment rates less than 20% are Eurozone economies (and that Denmark, one of the two non-Eurozone ones, effectively acts as a de facto Eurozone economy in practice)...
Her "clairvoyance" would appear to have been a bit limited, wasn't it?
I dont think it was clairvoyance...just joining the dots. Countries at the core and countries who still have control of their own currency, fiscal and monetary policy obviously have lower unemployment.
22% in the UK is a lot better than @50% in Spain, Greece etc.
Do you understand why weaker periphery countries inside the EZ have these astronomical unemployment rates?
Can you see that not having control of their own currency, fiscal and monetary policy has a direct negative impact on weaker peripheral countries ability to withstand downturns?
They don't have the tools to act...hence unemployment sky rockets.
Can you join those dots in your mind?0 -
I'm not sure what you're picking up there - "sure" as you quoted means "yes, I entirely agree". While that's often a statement used sarcastically, if I'm being sarcastic I make it more obvious. I'm simply agreeing with Amberman there, and it's interesting that you pick it up as sarcasm. I admit to being occasionally condescending, but I'm unlikely to be being as condescending as you think I'm being, so I'm not going to worry about it too much.
As for my "agenda" - I'm pro-EU. And I'm largely pro the EU that actually exists - the cumbersome and often awkward tangle of grey bureaucracy that works for the Member States - as opposed to being pro either a federal USE or an EEC.
I don't agree with everything it does, I don't agree with the architecture of some major policy areas, I'd happily see more power go to the Parliament (but not legislative initiative), and I view the largest part of the "democratic deficit" as being our national inability to control what our government does in the EU and the complete lack of attention paid to that by our media. But I'm in favour of an unelected Commission with the right of initiative, have no problems with a commitment to "ever closer union" but likewise no problem with people resisting it. I would consider the EU's 'constitutional architecture' as superior in practice to ours.
I think the European level of politics is massively more important than the level of attention it's given most of the time, and would love to engage in constructive debate about where the EU is going, but find I spend most of my time simply trying to correct a wide range of misunderstandings, distortions, and outright lies about it - an exercise without which no meaningful debate is possible, and which I personally happen to enjoy in an odd kind of way, because I like the EU but don't care too much about it. I wouldn't have any real issues with going back to the far more splintered Europe I grew up with.
As to the claim that I stick my fingers in my ears and go "la-la-la" rather than take other people's points on board - I'd reject that entirely. Obviously, when I add to that by saying that it's kind of rare for people opposed to the EU to make good points, you're obviously going to regard that as equivalent, but that reflects your bias as well as my own. Most points made against the EU do tend to start from "European integration is a bad idea in itself" and work backwards to reasons why this is so, which means those points are unlikely to wash with me, because I don't agree with that basic premise - on balance, I would hold the opposite view, althugh not in terms of cultural homogenisation, which personally I would tend to ascribe to media culture rather than the arcane workings of trade regulation.
I used to do very much the same kind of thing with Creationism and science (see the Religion forum for details), but found it repetitive after a couple of years, and I don't do it with respect to the so-called "climate change debate" because I do care too much about it and tend to lose my temper.
Does that help?
cordially,
Scofflaw
Nothing wrong with being pro EU. I generally wary of it myself. Your posts are always good especially in the area of dispelling the barstool ranters. However your unwillingness to face fundamental flaws in the Euro construction (a political fancy) undemines what you are now saying. You asked someone earlier to advance an argument why the Euro was unstable but only without mentioning the most important criticisms every economist has ever attacked it with. The ones that blow apart all forced imbalanced unions. Dishonest mate.
The laws of theromodynamics trump politcal sky castles. The great travesty is that this time of crisis is about to be used as leverage to create a united states of Europe. Accept this voters or the sky will fall.0 -
Dotsie~tmp wrote: »Nothing wrong with being pro EU. I generally wary of it myself. Your posts are always good especially in the area of dispelling the barstool ranters. However your unwillingness to face fundamental flaws in the Euro construction (a political fancy) undemines what you are now saying. You asked someone earlier to advance an argument why the Euro was unstable but only without mentioning the most important criticisms every economist has ever attacked it with. The ones that blow apart all forced imbalanced unions. Dishonest mate.
I do try not to be dishonest - what are the important criticisms in question?
I'm not looking here for the ones Amberman keeps raising, because he keeps coming up with the problems the euro is experiencing in responding to the crisis, which wasn't what I was asking about, and which is something I have covered in some length elsewhere - the euro never had even the slightest element of crisis planning, which was obviously going to be an issue in a crisis, but which doesn't answer my question about the so-called "structural issues with the euro" that led to the crisis.Dotsie~tmp wrote: »The laws of theromodynamics trump politcal sky castles. The great travesty is that this time of crisis is about to be used as leverage to create a united states of Europe. Accept this voters or the sky will fall.
It won't create a USE or even necessarily lead to a USE, but it will obviously be a major integration step.
I don't think we're quite there yet, but I don't think we're now very far away from national politicians being able to envisage a lightweight USE as something actually happening within their own political horizons. Certainly we're at a point where that decision,or rather those decisions, are hoving into view - the crisis has brought them forward by perhaps 20 years.
cordially,
Scofflaw0 -
I do try not to be dishonest - what are the important criticisms in question?
I'm not looking here for the ones Amberman keeps raising, because he keeps coming up with the problems the euro is experiencing in responding to the crisis, which wasn't what I was asking about, and which is something I have covered in some length elsewhere - the euro never had even the slightest element of crisis planning, which was obviously going to be an issue in a crisis, but which doesn't answer my question about the so-called "structural issues with the euro" that led to the crisis.
I like the EU and its accomplishments. Its single greatest isn't trade or wealth, its life and death. It has pacified a continent capable of committing unspeakable acts against each other on a regular basis. For this it deserves to exist and in failure to try again. Its problem was and still is its being rushed, forced even. The union should have been given 5 or 6 generation for the borders of the heart and mind to gradually dissolve. For economies through trade agreements and harmonisation to synchronise economically and socially when the entropy gradient became minimal. Then a time for true political and monetary union could have come about and Europe's strengths be harnessed to service its citizens and the world.
It didn't happen. The ideologues behind it were impatient and wanted it to happen in their lifetimes. The cart was put before the horse and EMU was use as lever to induce rapid political union. Instead of boiling the people of Europe in a pot slowly the are rammed together cold and hard. Bring two different potentials together and sparks WILL fly. Now the potentials have resulted in massive capital flows in certain directions. One side holds a lot of paper the other a lot of anger. All egged on by by the perfect combination of lax oversight, inexperience, corruption in the southern to western arc plus self interested German control at the ECB which poured petrol on a fiscal fire. Big booms, big profits for creditor nations, nobody likes interrupting a party even when the sensible people (in all nations) are sounding alarms.
Some say its the PIIGS fault for not controlling themselves but when the only two weapons that matter to fight such things have been removed from your control (rates and monetary easing/contraction) it is INEVEITABLE. The capital flows downhill to where the returns are as core capital did. So now here we are. A good thing ruined, but not completely. The self interest that drove the problem has sabotaged every solution (I believe we passed any solution point when the ECB subordinated holders of troubled countries debt and Germans said no to expansionary policy north to get the capital recycling back). No growth south, increasing debt burden south and only madmen buying future south debt in such a scenario.
Once again everything rushed. De leveraging, oversight, southern reform, integration all in two or three years. They must believe in miracles. But of course nothing changes in Germany. No blame there paragons of virtue. Rubbish of course, their banks took big risks and they knew it too but its hard to resist a boom, actually its impossible it you don't adjust the levers. These are the flaws Scoff. They aren't EU flaws they are just plain economic flaws which are based on fundamental rules of physics. It hard to watch the British being classed as Euro sceptic as I don't believe they are generally. They know the benefits of a peaceful Europe but they saw the danger of rushed union and rightly pointed them out.
As I said I believe the current problem has become too big to solve via the methods Germany want (deflationary reform which worked for them). I think its a time to consolidate, assign the debts let them filter fairly through the system and stop adding more. The PIIGS must commit to reform and in the long term that the goal is full harmonisation and eventually union. Short term Germany has to tell us citizens that they are on the hook in every scenario for losses. It cant be avoided and if its hard to swallow well that's exactly how most ordinary citizens of the PIIGS feel. We don't need more Europe, we need less now, more reality and maybe more Europe later.
And in all this. Does anyone actaually ask the people of Europe whether they want this? It goes in this order. Democracy -> Peace -> Prosperity.
PS i forgot to add this. I believe this idea is gaining traction in Germany outside the insulated elites.
http://www.irishtimes.com/newspaper/world/2012/0609/1224317568965.html0 -
answer my question about the so-called "structural issues with the euro" that led to the crisis.
OK...for clarity, lets divide this into 2 categories...
1. Pre-crisis - what caused it
2. Post-crisis - whats making it drag on
1. This one is the key structural issue...and it was the pricing of sovereign debt.
What led to the crisis was that weaker peripheral countries were able to raise money in markets at 8 to 11 basis points higher than German bonds.
This artificial borrowing ability allowed the false, credit fueled boom...seen clearly in Ireland and Spain in property bubbles and as growth in unsustainable entitlements and government largesse elsewhere.
It is important to understand who the main actors in the sovereign bond markets were.
The "market" for sovereign debt in Europe was dominated by politically connected actors...banks, pension funds, insurance companies etc. How much Greek debt is held by their national institutions?
@50%.
The local bond markets were dominated by local institutions. Captive buyers who were mandated to buy sovereign debt. They were also the key buyers of CDS...which is why that witch hunt cooled down as Merkozy understood how these markets actually worked after their initial hissy fit.
This "market" mispricing of risk led directly to the crisis.
Why was this risk mispriced? Because weaker countries should never have been able to borrow at anywhere near the same rates as stronger countries.
The market for the sovereign debt was skewed by the mandated nature of the purchases to grow the money supply and take on "risk free" (chuckle!) investments to underpin their portfolios.
This mispricing has now been fixed somewhat and spreads over bunds in the periphery more accurately reflect the reality that weaker debtors like Greece are nowhere near the same as stronger actors like Germany because of internal inefficiencies, fraud and corruption.
Debt can only grow faster then GDP up to a certain limit (120-130% of GDP is widely believed to be the range of this limit).
Cost of carry of the debt is also important...as Italy went from great to full blown crisis when yeilds spiked 100 basis points to 6% in the last 12 months.
Once the limit is reached, the crisis blows up...as we have seen...and people stop worrying about return ON capital and focus on return OF capital, which sends yeilds higher and reinforces the problem.
This isn't actually the problem...it is the cure, as painful as it may be...the problem was in the mispricing in the first place.
In some places, the crisis is forcing the needed structural adjustments....in other places, not so much as peripheral actors are now gaming Germany...and Germany has blinked every time...so far.
This was a structural issue in the Euro itself...caused by the single currecny being created without a fiscla union. This was the direct cause.
However, the bond markets now accurately reflect the differing levels of sovereign risks...yet problems persist.
The fix however has revealed the key issues which are now sustaining the crisis.
These are issues which are sustaining the crisis are certainly structural issues in the current framework of the union...as we can clearly see.
2. Post-crisis
I've already made clear that the lack of crisis tools is a key structural weakness in the current crisis. No one seems to dispute these issues.
This lack of adequate policy tools have made achieving escape velocity impossible...leading to the deflationary trap we are seeing playing out today.- The debt binge put the peripheral countries into the prison cell.
- The cell itself...what is preventing freedom, is the lack of available policy tools to get out.
- Germany is the jailor...it holds the keys to the cell door...but won't open the cell because of its inflation fears.
The bailouts make politically unpopular (but much needed) structural reforms very difficult in many countries...and voters will vote for the person that gives them the most free stuff (Hollande).
Sooner or later though, the continent will elect a politician that promise to tear up the bailouts and default. Even Krugman said there is no end in sight to the pain in Greece inside the Euro.
That sort of message cuts through everything...and could force the first exit.
Should Greece exit, devalue, reform and come back to growth after a horribly deep recession, there could be a stampede for the exits from the periphery who are still locked into the prison...which by then would include Italy and Spain...if the while thing doesn't blow up before then.
I don't know what will happen...but the muddle through looks like it is coming to an end with Spain and Italy entering the crosshairs.
I think the time to shove or fold is fast approaching.
Soros says 3 months...he might be right. The Euro cannot survive as it is...that much must be clear to everyone by now.0 -
I think the time to shove or fold is fast approaching.
Soros says 3 months...he might be right. The Euro cannot survive as it is...that much must be clear to everyone by now.
What do you envisage the shove being? Big push for full union? That wont solve the debt mountain (they must be realised eventually by restructuring, monetizing whatever). A forced union with half the continent in penury, and richer half pulling the strings is a recipe for a colossal backlash from extremism right and left, irrational or not. Can you see voters going all in? I can't. Europeans aren't close enough yet to endure such a thing in solidarity.
The fold? Exits, banks folding losses being passed up the line. Return to currencies and some competitive devaluation thrown in. Lot of sore losers here, if its uncontrolled it could break the EU.0 -
Dotsie~tmp wrote: »What do you envisage the shove being? Big push for full union? That wont solve the debt mountain (they must be realised eventually by restructuring, monetizing whatever). A forced union with half the continent in penury, and richer half pulling the strings is a recipe for a colossal backlash from extremism right and left, irrational or not. Can you see voters going all in? I can't. Europeans aren't close enough yet to endure such a thing in solidarity.
The fold? Exits, banks folding losses being passed up the line. Return to currencies and some competitive devaluation thrown in. Lot of sore losers here, if its uncontrolled it could break the EU.
I think debt monetisation is the shove...money printing. Without that, I see no future for the Euro in it's current form...and an end very soon in some way. The falling dominos of Spain, then Italy, then France will see to that. Either the core goes all in, or its a clear fold. I don't see any way around that. We're not quite at the river card yet...but it's about to be dealt next. The time for bluffing and posturing has almost passed.
The fold could be a whole host of scenarios...either the PIIGS break away, the core does (France is no longer in the core...and they need money printing to address their own issues), or they split into two currencies...or everyone goes their separate ways...lots of possibilities.
The core is clearly saying that there will be no front door (Eurobonds) or backdoor (banking union) unlimited joint liability on their credit card without further loss of sovereignty for the debtor nations. They haven't budged an inch from this position...and I don't blame them.
Can you really see Spain and Italy ceding enough sovereignty to satisfy the Northern bloc? I can't.
This is a truly horrible situation and theres a small chance it could possibly spark the sort of conflict that the entire Euro project was meant to avoid for good.
Depressions of the sort that this break up could cause have often lead to large conflicts in the past.
However, I think the bridges built in Europe over the last several decades will help to avoid this...so from that point of view, this experiment has been a success.
I hope they'll go back to the drawing board after a bit of shouting and finger pointing and try to make another system that can actually work in the real world for more than the handful of years this one has managed.0 -
OK...for clarity, lets divide this into 2 categories...
1. Pre-crisis - what caused it
2. Post-crisis - whats making it drag on
1. This one is the key structural issue...and it was the pricing of sovereign debt.
What led to the crisis was that weaker peripheral countries were able to raise money in markets at 8 to 11 basis points higher than German bonds.
This artificial borrowing ability allowed the false, credit fueled boom...seen clearly in Ireland and Spain in property bubbles and as growth in unsustainable entitlements and government largesse elsewhere.
That seems to me to conflate the question of sovereign bond yields with interest rates for private borrowers, which are rather different things. I'm not sure how you plan on relating the two, or explaining how Spanish debt/GDP didn't change much during the pre-crisis period.
The only country that seems to have gone on a public borrowing spree courtesy of the low bond prices is Greece.It is important to understand who the main actors in the sovereign bond markets were.
The "market" for sovereign debt in Europe was dominated by politically connected actors...banks, pension funds, insurance companies etc. How much Greek debt is held by their national institutions?
@50%.
The local bond markets were dominated by local institutions. Captive buyers who were mandated to buy sovereign debt. They were also the key buyers of CDS...which is why that witch hunt cooled down as Merkozy understood how these markets actually worked after their initial hissy fit.
This "market" mispricing of risk led directly to the crisis.
Why was this risk mispriced? Because weaker countries should never have been able to borrow at anywhere near the same rates as stronger countries.
The market for the sovereign debt was skewed by the mandated nature of the purchases to grow the money supply and take on "risk free" (chuckle!) investments to underpin their portfolios.
This mispricing has now been fixed somewhat and spreads over bunds in the periphery more accurately reflect the reality that weaker debtors like Greece are nowhere near the same as stronger actors like Germany because of internal inefficiencies, fraud and corruption.
Sure - I've said as much myself elsewhere.Debt can only grow faster then GDP up to a certain limit (120-130% of GDP is widely believed to be the range of this limit).
Cost of carry of the debt is also important...as Italy went from great to full blown crisis when yeilds spiked 100 basis points to 6% in the last 12 months.
Once the limit is reached, the crisis blows up...as we have seen...and people stop worrying about return ON capital and focus on return OF capital, which sends yeilds higher and reinforces the problem.
One can easily argue that the problem is not necessarily the total load of debt, since there are countries with higher debt ratios than Spain or Italy who are not particularly in trouble, while the latter has been sustaining its current debt levels for rather a while.This isn't actually the problem...it is the cure, as painful as it may be...the problem was in the mispricing in the first place.
In some places, the crisis is forcing the needed structural adjustments....in other places, not so much as peripheral actors are now gaming Germany...and Germany has blinked every time...so far.
This was a structural issue in the Euro itself...caused by the single currecny being created without a fiscla union. This was the direct cause.
However, the bond markets now accurately reflect the differing levels of sovereign risks...yet problems persist.
The fix however has revealed the key issues which are now sustaining the crisis.
These are issues which are sustaining the crisis are certainly structural issues in the current framework of the union...as we can clearly see.
But the markets' mispricing of risk isn't a structural issue with the euro - it was an inappropriate response to the euro by the markets to a common currency that didn't include a fiscal union. And the rules stating that Germany wouldn't be paying Greece's bill were in place all the way through - the lack of fiscal union was, therefore, absolutely explicit.
And that's quite aside from the fact that the eurozone countries - wit the notable exception of Greece - didn't in fact use the low sovereign rates to go on sovereign borrowing sprees.2. Post-crisis
I've already made clear that the lack of crisis tools is a key structural weakness in the current crisis. No one seems to dispute these issues.
This lack of adequate policy tools have made achieving escape velocity impossible...leading to the deflationary trap we are seeing playing out today.- The debt binge put the peripheral countries into the prison cell.
- The cell itself...what is preventing freedom, is the lack of available policy tools to get out.
- Germany is the jailor...it holds the keys to the cell door...but won't open the cell because of its inflation fears.
Which worked out hugely well, delaying the recession we should have had, and helping turn it into the crisis we're now having.The bailouts make politically unpopular (but much needed) structural reforms very difficult in many countries...and voters will vote for the person that gives them the most free stuff (Hollande).
Sooner or later though, the continent will elect a politician that promise to tear up the bailouts and default. Even Krugman said there is no end in sight to the pain in Greece inside the Euro.
That sort of message cuts through everything...and could force the first exit.
Should Greece exit, devalue, reform and come back to growth after a horribly deep recession, there could be a stampede for the exits from the periphery who are still locked into the prison...which by then would include Italy and Spain...if the while thing doesn't blow up before then.
I don't know what will happen...but the muddle through looks like it is coming to an end with Spain and Italy entering the crosshairs.
I think the time to shove or fold is fast approaching.
Soros says 3 months...he might be right. The Euro cannot survive as it is...that much must be clear to everyone by now.
But the euro is not attempting to survive as it is. What we're witnessing is a scramble to do what should have been done at the euro's inception, and wasn't - the creation of crisis response mechanisms.
I could summarise what you've said there as the markets mispriced euro risk, got into the weaker economies becaue they offered better returns, panicked when they realised come the crisis that the legal lack of a fiscal transfer union all along meant the lack of an actual fiscal transfer union in a crisis, bailed out as fast as possible from the weaker economies and fled into the stronger economies.
You view this series of market actions as a "structural weakness in the euro", whereas I really don't see how one can claim that market's response to the euro, which was visibly foolish, is something built into the structure of the euro. It looks to me much more like an outcome of the market's belief that they had managed to "eliminate risk" - evidence of the same market complacency and herd idiocy that drove the bubbles, and for much the same reason, which was the globalisation and deregulation of the finance industry over the last two decades, as well as their increasing reliance on "quantitative" methods and increasingly complex risk-management techniques.
I'd certainly agree that policy-makers, both at the European and national levels, went along blithely accepting the financial industry's view of itself and acting as if risk had been eliminated, which puts them all equally squarely in the frame.
That, for me, is what produces the correlation between the bubbles and the sovereign debt crisis - they're both bubbles, in effect, and both symptoms of a wider issue with global capital management, and with the management of the global financial industry. And I think people know that, in a kind of inferential and rather vague way - people tend to talk about it in different ways depending on their ideological bent, but the common factor is a very grave and two decade long clusterfsck in the global financial industry, accepted and in some countries (us, for example) encouraged at the political level.
I sometimes get the impression that some people - you, for example - are waiting/hoping for the markets to 'fix' the euro, most probably by dissolving it, while I would, I think, come down on the other side. The euro is a political project, but while politicians are currently, and rightly, in disgrace, they do in the end have to account to the public, and the markets don't. Markets don't have to solve a crisis - they only have to work out how to make money out of it.
cordially,
Scofflaw0 -
That seems to me to conflate the question of sovereign bond yields with interest rates for private borrowers, which are rather different things. I'm not sure how you plan on relating the two, or explaining how Spanish debt/GDP didn't change much during the pre-crisis period.
Then you need to understand how money is created in a fractional reserve system...loan demand "pulls" the money into being from vapour...it isnt backed by "deposits" as you would likely understand them.
Then banks go back and raise that money to fill their "reserves" (which are really just capital adequacy buffer ratios sent down from above) from the markets...some banks who are intermediaries for the central bank, use the central bank directly, others use the interbank market. The lag between demand pulled and supply pushed from the markets is was 20 days...but I think its longer now.
If borrowers weren't able to pull loans demanded through the banks from the markets, the banks wouldn't have been able to meet all those calls for mortgage loans at the rates they did.
The only country that seems to have gone on a public borrowing spree courtesy of the low bond prices is Greece.
I suppose it depends on how you define "public". Are banks public? As you know, they mostly are now. This was the funding mechanism of the splurge of choice in most places...but speaking traditionally, you are right...though France jumped quite a bit after 2000...from 55% to about 70%.
Italy actually paid debt DOWN...by quite a bit from 2000 till 2007...but their anemic GDP growth, productivity growth, half hearted tax collection and corruption caught up with them.
It was a mixture of both public and private that got everyone who is in trouble in trouble.
One can easily argue that the problem is not necessarily the total load of debt, since there are countries with higher debt ratios than Spain or Italy who are not particularly in trouble, while the latter has been sustaining its current debt levels for rather a while.
Other countries may have higher debt ratios NOW...but not soon...in Spain, the banking system has large and growing holes...100bn is nothing. The market is looking at this number, looking forward...pulling out a calculator and driving these yields higher.
Italy can sustain its debt at 4...even 5%...but at 6% its in trouble, at 7%, on a 2.4tr debt pile, (120% of a 2tr economy) thats almost 170bn a year in interest...in an economy that has shrinking tax revenue which is currently taking in around the 400bn a year mark. They are also highly uncompetitive in terms of social programs and productivity and GDP growth.
If Italy collected taxes as well as Germany, there wouldn't be a problem...but it doesn't...so the debt servicing costs, even if they move up just a bit, blow it wide open just as its population is aging and drawing down on all the promises they were made.
But the markets' mispricing of risk isn't a structural issue with the euro - it was an inappropriate response to the euro by the markets to a common currency that didn't include a fiscal union. And the rules stating that Germany wouldn't be paying Greece's bill were in place all the way through - the lack of fiscal union was, therefore, absolutely explicit.
I'm actually not sure if it is a structural problem specific to the Euro...and I hesitated to put that in there. I know what the reality on the ground is...most banks, life co and pension funds are basically, through a variety of means, strong armed into buying the sovereigns debt. It happens everywhere...US, Japan, UK, Europe. The "risk free rate of return" falicy.
BTW, this horror is coming to those countries in one way or another at some point for the same reason. However, it will be less pronounced in these countries because they have more tools at their disposal to address the crisis once it erupts.
And that's quite aside from the fact that the eurozone countries - wit the notable exception of Greece - didn't in fact use the low sovereign rates to go on sovereign borrowing sprees.
I don't believe I said that this was limited to only sovereign debt spending binges. I included the banks in the last post. Whats your point here?
Incase I didnt make it clear, the banks also used the low sovereign debt to go on a lending binge and on the sovereigns back is where the bank debt ended up. In Greece, and to a lesser extend France, it was the sovereign debt...with some banking debt thrown in in France for good measure.But the euro is not attempting to survive as it is. What we're witnessing is a scramble to do what should have been done at the euro's inception, and wasn't - the creation of crisis response mechanisms.
Agreed. This was a terrible flaw. Keeping the Euro alive will likely mean living in a German dominated Europe...but honestly, I don't see whats so bad about that? Do you?
They're obviously the smartest and most responsible.I could summarise what you've said there as the markets mispriced euro risk, got into the weaker economies becaue they offered better returns, panicked when they realised come the crisis that the legal lack of a fiscal transfer union all along meant the lack of an actual fiscal transfer union in a crisis, bailed out as fast as possible from the weaker economies and fled into the stronger economies.
You view this series of market actions as a "structural weakness in the euro", whereas I really don't see how one can claim that market's response to the euro, which was visibly foolish, is something built into the structure of the euro.
You need to understand what was driving the market for bonds. Whether this was ever really a true free market. Whether there was more than just economics at play here...because it sure seems like it to me.It looks to me much more like an outcome of the market's belief that they had managed to "eliminate risk" - evidence of the same market complacency and herd idiocy that drove the bubbles, and for much the same reason, which was the globalisation and deregulation of the finance industry over the last two decades, as well as their increasing reliance on "quantitative" methods and increasingly complex risk-management techniques.
If that was true, why weren't all bonds trading within 11 points of bunds? What made the Euro special?
This all boils down to politics versus economics. I honestly don't know how (I am guessing that the strong arm tactics made national players in bond markets take national debt...but I dont have a shred of evidence to prove it...its just circumstantial.
The question I ask myself is why would the An Post pension fund buy Irish bonds that were trading at only a fraction above German bonds. Same for Greece, Spain, etc.
If these fiduciaries were allowed to have a free hand in their asset choices, I find it incredible that they would have made this choice. No sane money manager, insurance company, or pension fund would make that choice.
Maybe you are right...maybe it was a herd mentality.
Honestly, I doubt it. There was something else here IMO. Whether it was misguided nationalism, forced nationalism from CB's, regulators, Ministers, an unspoken but widely understood policy from Brussels to the heads of maybe a few hundreds orgs in Europe...who knows. I have little doubt that the stewards of capital were working with a forced hand in the bond markets.I'd certainly agree that policy-makers, both at the European and national levels, went along blithely accepting the financial industry's view of itself and acting as if risk had been eliminated, which puts them all equally squarely in the frame.
That, for me, is what produces the correlation between the bubbles and the sovereign debt crisis - they're both bubbles, in effect, and both symptoms of a wider issue with global capital management, and with the management of the global financial industry. And I think people know that, in a kind of inferential and rather vague way - people tend to talk about it in different ways depending on their ideological bent, but the common factor is a very grave and two decade long clusterfsck in the global financial industry, accepted and in some countries (us, for example) encouraged at the political level.
I believe that they knew implicitly they would get bailed out...and that was down to politics...I sometimes get the impression that some people - you, for example - are waiting/hoping for the markets to 'fix' the euro, most probably by dissolving it, while I would, I think, come down on the other side. The euro is a political project, but while politicians are currently, and rightly, in disgrace, they do in the end have to account to the public, and the markets don't. Markets don't have to solve a crisis - they only have to work out how to make money out of it.
The markets can't fix the Euro...but they can apply pressure for a resolution to the crisis.
They're pushing very hard right now...and they aren't going to let up until the politicians manage to make their electorates go all in...or fold.
In the end, it will be up to countries like Italy and Spain I think. Either they roll over to German demands, or Germany picks up its ball and goes home.
I really beleive its as simple as that.
What I want Scofflaw is for the suffering to end as fast as possible.
Real people are dying, seeing their dreams go up in smoke and losing everything they own. The human cost of this is incredible.
If we have to live in a German Europe, so be it.
Personally, I think living in a German dominated Europe would completely invigorate it.0 -
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