Eurozone quote of the week

From Wolfgang Schäuble, in the FT:

Should a eurozone member ultimately find itself unable to consolidate its budgets or restore its competitiveness, this country should, as a last resort, exit the monetary union while being able to remain a member of the EU.

If you wanted to set up a system which maximised the probability of self-fulfilling market panics and speculative attacks, this sounds like a good way to go about it.

42 replies on “Eurozone quote of the week”

@Kevin O’Rourke
This is a gratuitously dangerous comment. Assuming it is honest it reflects a really deep German anger. Ireland needs to support fundamental reforms of the eurozone as this crisis can never be repeated.

@ Kevin O’Rourke,

I didn’t get around to commenting or blogging about the EMF concept earlier in the week. What I wanted to draw your attention(s) to is, look at any emergency relief effort. A lot of it is for the TV cameras to film the powerful nations moving in with their ground units, land rovers and temporary camps, to show some kind of presence. What many people now understand, is it costs a lot less to do something before the disaster, than it is afterwards. What I notice in the European effort in recent times, has been a great political attempt to frame events as isolated outbreaks of disasters. Individual casualties unable to fend for themselves. Rather than deal with some larger subject, which hints that the EC failed to think through their experiment properly, of what a single economic region would be. How the smaller nations at the periphery are meant to re-arrange themselves to function as part of some larger unit. I do find it strange, that even in Philip Lane’s very forward thinking fiscal policy council Irish Times piece, that we still frame the problem, as each individual (small, weaker) nation having to fend for itself and somehow assisted by the larger EC. When in fact, what we need is lots of proper ballast in the vessil, to soften the ride through the rough seas the EU is in at the moment. With the French and Germans providing much of the ballast at the moment, what is needed is for the PIIGS nations to group together somehow, to form a kind of third ballast in the vessel, which would add more to the overall stability of it. Rather than this pathetic effort, whereby the 2 no. large central powers of France and Germany are seen to be assisting the individual (small) member states. I mean, I think at this stage, it would make more sense for the Portuguese, Italian, Greek, Spanish and Irish to learn to cooperate together in some sort of combined fiscal policy making effort, to bring the weaker nations back into the overall European plan framework. We should have been doing it all along. In turn, the French and German would be free to get along and deal with more pressing problems, than trying to save these weaker nations, which they do not seem to understand that well. BOH.

Also, correct me if I am wrong, but maybe the European region did function better in the early days, when it enabled smaller nations such as Ireland, who could not generate their own fiscal stimulus package, to benefit from the injection of funding through state projects, from the EU. When Ireland moved off of that kind of economic assistance, of the early days, and instead began to fund a lot of its development through privately owned debt, that is when the wheels came off the wagon. Indeed, we are going through a process with NAMA, where much of that privately owned debt, is being converted back into Irish state owned debt, within the larger framework of the European economic union. I wonder myself, in John McHale’s article, a week before the one by Philip Lane, we see a suggestion again, that Ireland has to struggle on its own. Why can’t the PIIGS countries borrow jointly as a sub-economic union, from the larger member states, to fund some kind of counter cyclical measures. A public debt, which would be re-paid over time, by the PIIGS alliance working together, as one larger economic entity. I mean, surely the risk of all the PIIGS countries defaulting on some public debt, would be lower than the risk of each individual state failing? BOH.

“this country SHOULD…exit the monetary union”

Someone buy this man a thesaurus before he makes Soros another billion.

This is a disaster in the making. It should either be relatively easy to leave (so there is no speculative financial gain) or impossible. Otherwise there will be a constant gaming in attempts to push what buttons can be pushed on sovereigns.

Dangerous comments indeed…. but I hear there’s been a lot rougher said in the EU corridors of power in the past couple of days.

I made a post when I got home at some un-Godly hour this morning on another thread (Setting a standard in fiscal reform and oversight). About rumours that a financial package is being put together for Greece.

I heard that their PM had told them that if they don’t help then he can’t guarantee ‘democracy’ there. I wonder what that would do to the Euro? Some would say he’s playing his ace card.

@Kevin O’Rourke

I take an opposing viewpoint: This is not going to raise panic – it is part of new reality emerging – imho it will push the hedge-fund cabal on CFSs attacks on Greece back into the trenches. It is future directed – and sound – signalling the emergence of new order and the end of autarky in those who think they can make local policy without acknowlegement of their EZ partners. Greece will be backed up this time – as Ireland would be – but down the line if a member doesn’t cut it then the EZ link can be cut for them. Simple message – but reallly tough political battles coming up re institutional innovations. I’m all for a Strong Europe & Euro.

“What is decisive is Europeans’ ability to co-operate in partnership to deal with adversities. […] Without doubt, it will take a great deal of political willpower to adapt the rules of monetary union speedily to suit the new realities. […] The euro is now the second most important reserve and investment currency.” Wolfgang Schäuble, German Finance Minister {Financial Times, March 11, 2010}

What Schauble is saying to us (all the borrowers) is that the German people are no longer interested in the Euro project. He sees it as politically disastrous for his party, the idea that Germany will bail out the miscreants of the “Euro zone”

For us, this means that the Euro is a busted flush. All our hopes are destroyed. We need a new currency and it must be a “sound money” currency.

Get out the Austrian texts and start figuring out how to do this.

The FT is owned by London interests. Who are not pro EZ.

They produce some pro EZ articles, to avoid accusations of bias, but the main thrust is contra EZ.

One swallow does not a summer make! Hysteria is exactly what the FT want. Sad though it seems to lovers of fiat currencies, the Euro is the most stable fiat currency around. You also betray a poor knowledge of Austrian principles! Money is a store of wealth and should be inherently useful, if only as a gift for the girlfirend! Gold, silver, copper, engineered items, all can form a basis for real money. “Currency” does not exist except as fiat paper. Please be more explicit if you want to panic us more successfully!

What is your background?

“The FT is owned by London interests. Who are not pro EZ.”

Looks like what the Euro is really running out of is outsiders to blame. If the EU is such a hot-shot currency, why do its supporters constantly need to identify scapegoats outside the Euro? That’s all we have heard for the past few months; which outsiders are to blame. Apparently there are no mirrors in Europe,

As for Wolfgang Schäuble, what is he really doing but re-inventing Bretton Woods version one? You try really really hard to maintain a fixed exchange rate, until you can’t. Then there is a step function, and then you start trying really really hard again at a new exchange rate. BW-1 was nothing but a permanent gift to speculators They shorted weak currencies, knowing that sooner or later they would win, just not exactly when they would win.

I think that if God had intended us to have fixed exchange rates, he would not have given us markets.

@Pat Donnelly

My background? For the final time – deconstruct my texts on this blog – I’m an Irish Citizen Pat, an Irish Citizen; and a European Citizen, a European Citizen Pat; and a Global Cosmopolitan Citizen, a Kantian Pragmatist Global Cosmopolitan Citizen Pat – and this is more than sufficient legitimacy for me humble voice at the mo. Over and out.

@ Kevin – Given the various utterances by a variety of establishment figure in Germany recently, Schäuble might want to increase the probability of self-fulfilling market panics and speculative attacks.

This is as much a sign of the annoyance in Germany about the lack of disclipline among the Club-Med countries as it is a signal to the local voters. The race for the elections in Northrhine-Westfalia is heating up.

It is interesting to note that there is some debate among some German economists about the merits of this proposal – it certainly seems to be treated as a serious proposal. By the way Schäuble is very close to Merkel.

Dangerous indeed…if you’re determined to ignore the facts. Munchau is right, there’s only 2 possible endings:

1. Smaller eurozone / break-up.
2. Federal union.

Would a more effective solution be for Germany to exit the euro, redenominate into Reichmarks and then let its currency appreciate against the rest of europe. We would be instantly competitive again and some of the German surplus would flow out to avail of the higher returns on capital.

Then of course, the Germans could just re-invade Poland or the Balkans or even France if they so wish.

@tull mcadoo

With that last sentence, you insult European citizens such as I. Withdraw it.


Why should I?. It is a historical fact that there is a tendency on the right wing of the German political continuum to want their own way on things. If not they tend to throw the toys out of the pram. Ask the French in 1870, Europe in 1914 or 1939. Shcauble’s article is just another form of German jingoistic tub thumping.

Tull McAdoo
Good defence! Some people think that they can censor others. Little Hitlers? 😉

Jon Livesey
Not a great defence of media bias! Try harder? Kevin O’Rourke’s point does go to the heart of the matter? The article was infantile as the central point, quoted by Kevin, demonstrates. Well done, Kevin! Bias eventually degrades the product itself.

David O’Donnell
Any relation to that great Irishman Brendan Behan? He was a tad sensitive too? As Tull has made abundantly clear, thanks to your concerns, Germany is well able to defend itself. Ireland is the one in trouble, in part because of German economic policy which is very successful! We are competing…? Identify your enemies?

@Pat Donnelly – “Ireland is the one in trouble, in part because of German economic policy” – Ireland was not forced into the EURO neither did Germany control Ireland’s fiscal policy – this is a homemade problem.

@tull mcadoo – how long would you give the EURO if Germany left it? As for your other comments that are clearly aimed at causing offence I would recommend that you thought a little harder before making them – a good history book might also help.

Just as the Irish mess is homemade the Greek mess is even more so. Schäuble would much prefer not to have to deal with the Greek tragedy or any other tragedy among EURO members. Of course it does not help that the Greek prime minister was trying to use extortion tactics.

Greece is looking for a bailout and the Germans are expected to pick up the bill – why should they? If they are going to pay the piper they will also call the tune – nothing jingoistic about it. Likewise, if some countries can’t manage the discipline required to stay in this monetary union they might be better off outside – nobody is stopping Greece trying to leave the EURO, but as has been discussed here before it’s not going to make their problems go away. As I wrote above “self-fulfilling market panics and speculative attacks” might be exactly what Schäuble has in mind.

@ Edgar Morgenroth

We Irish have a brass neck looking for scapegoats elsewhere.

There are 16 countries in the EMU — the ones in trouble have had one consistency: an appalling standard of governance with a high tolerance for cronyism and corruption.

In 2013, 40 years after joining the then ECC, we will become a net contributor to the EU budget — in cash terms over €40 billion of foreign aid.

When the proceeds of the bubble gave us the arrogance of the nouveau riche, we saw ourselves closer to Boston than Berlin.

There is nobody perfect but wouldn’t Ireland be lucky to have a leader with the personal integrity and political standards of an Angela Merkel?

A Godwin each to Messrs Donnelly and mcadoo!

Down with this cosmopolitan sort of thing!

Let’s stick to echt Gaelic neoliberalism and fiscal fetishism in this forum pulleeease!

@Michael Hennigan – absolutely right. The one thing that the PIIGS (Club-Med + Ireland) have in common is the fact that they were the principal recipients of hte Objective 1 Structureal Funds and the Cohesion Fund. This fact is not lost on the German public nor on their politicians.

As for the leadership qualities of Angela Merke, she is not without critics, particularly in the last few weeks, but in order to win elections in Germany one has to respond to the (current) interests of the public (not necessarily the public interest as economists would define it). Capture of the political system by small interst groups is probably less likely in large democratic countries (emphasis on democratic) than in small countries, although it can’t be said that ‘peculiar’ decisions are not taken in Germany.

@Michael Hennigan

… not forgetting the progressive social legislation that most of our time_serving, ultra conservative, hierarchical, inward looking legislature would have been incapable of thinking, let alone implementing.

@Edgar Morgenroth

“Capture of the political system by small interst groups is probably less likely in large democratic countries (emphasis on democratic) than in small countries …”

On small countries – there is more than probably sufficient evidence around here at the mo to support this proposition. stat sig ***

@David O’Donnell – interesting article. It is consistent with what I have been saying – option 2 – a smaller EZ might be the outcome Schäuble is after. Public opinion in Germany is hugely against a bailout.

Munchau warns ‘be careful what you wish for” – I am not so sure that exchange rate volatility with Club-Med countries worries German exporters all that much. Their key markets are the stronger EU members and countries outside the EU, and in relation to competition this will not be much different to facing competition from the new member states.

If this is really what they are after it will shake the EU foundations very hard as this would indicate a withdrawal of solidarity. On the other hand Schäuble might simply be preparing the ground for some tough rules attached to bailouts for the Club-Med countries. Of course there might be something completely different going on e.g. EU foreign policy.

One way or another Schäuble has never been the kind of politician who worries overly about causing a bit of a stir if it gets the desired results.

The IMF hitman speaks. Banking as a weapon. Get the suckers to work for you sort of thing.

Yes. Quite right. But the Germans dominate and have a surplus led economy and some cohesion would be cool and might even get more to claim they were “European citizens”. I have to say that they are in no way to blame, but they have enlarged their markets rather neatly. Besides are you saying none of the “foreign” bondholders who stuffed our goose were German? Without that, we could not have over-indulged so much. Indeed, as a weapon, it might be very effective indeed, see Thos Jefferson, some old economist type.

The Greeks, Irish, Spanish, Brits possibly even the Italians all have one thing in common. They owe rather a lot of money to a bankrupt and disfunctional German banking system along with the French banks. Dexia alone is believed to hold 4bn of Greek sovereign debt while Depfa probably is the anchor tenant of the long end of the Italian curve.

It could be that the Greeks have figured out that the Germans and the French have a bit of a problem now. If the Greeks were to threaten to default it would not go down well in the board rooms of Frankfurt and Paris. Moreover German politicians might then have to explain where their voters savings went to.

@Pat Donnelly – “some cohesion would be cool and might even get more to claim they were “European citizens”” – huge transfers from the rich EU members (not just Germany) have been given since 1989 so if that did not do it why should another load of money do it. Is it really that good an idea to buy Europeanness??

Regarding bondholders – yes there will be some German ones among them, but public opinion in Germany is probably more hostile to them than to the Greeks (what do they say about killing two birds with one stone?). No seriously, this is an issue that will worry Schäuble, and lets face it bankers have some influence in Germany too, and indeed some banks have always been in public ownership (and many of those have been in big trouble for some time).


The Solidarity Bond will hold. I have argued this from the beginning of this one – A new order is in emergence, and needed.

After NorthRhine_Westphalia The Chancellor will have leeway to ‘act’ as distinct from ‘speak’ or allow ‘proxies’ to speak for her – and if election goes reasonable she will be strong enough to rein_in her ‘out of control’ minor partner, or dump them and get another one. We would all be better off imho re decision_making if we still had the previous German coalition.

@Pope ePopt
“… echt Gaelic neoliberalism and fiscal fetishism” – the enemies within (-; Quite!

@David O’Donnell – the election in Northrhine-Westfalia is very important, and you are probably right about solidarity, but people will do well to recognise that Merkel is not Kohl and the dynamics within Germany and within the EU have changed. At the Federal level Merkel is stuck with the FDP so there will be more of the same unless there is a CDU-Green coalition in Northrhine-Westfalia (who would have thought that possible?).

There is a real worry that the Club-Med will be a significant drain on German taxpayers so this is not just a little game among different German parties – I doubt you will find one openly in favour of a bailout. What has struck me is the seriousness with which some of the more radical ideas are being debated.


Yes – radical debates – there is an acceleration taking place in this zeitgeist – and much further than I would have expected as I’m used to the slow, really slow, laborious, painstaking, 1000 page reports of the Commission – but all this is healthy … CDU_Green: the times they a changing. The socialists also gave Sarkosy bit of a hammering in locals, far right back above 10% hence left will prob win in France next time – so less than two years for leading centre right ……… and the centre left in EU are, mostly if tacitly, letting the centre right run with this ……. not insignificant. I’m optimistic enough on all of this ……… going in my direction ……..

It is an observation that a transfer, even of credit, is worth far more in bad times than in good.
I speak of deliberate decisions to attack the Irish banking system by lending it money when it was obvious what was going to happen. I doubt the German people would do this. Merely because banking war machinery is registered in country A and uses funds from country A to damage country B does not mean that country A is causing the attack. It does not free that country from obligations similar to those of the regulators in country B, to ensure systemic soundness. An investigation might be very useful in ascertaining the responsibility of the persons, individuals, who made the decisions. Their liability might be large and accountability must be ascertained to enable moral hazard of a very particular kind, to be avoided. There is a valid analogy with Iceland, Icesave and the UK/Netherlands.

One very good reason why capital will be scarcer soon and for the next decade or two …… If currencies which shall be nameless, fall over as well! None of which augurs well for the general economic climate. We still cannot afford the slimmer version of NAMA …….. As time passes that becomes ever more evident! A breathing space and a thinking space. Now we need some hard decisions. We cannot afford more borrowings of any kind.

Should be easy!

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