European democracies and decision-making in times of crisis Post author By Philip Lane Post date July 9, 2011 Lorenzo Bini-Smaghi addresses this topic in this speech. Categories In Uncategorized 38 Comments on European democracies and decision-making in times of crisis ← Five Go Mad on Fiscal Rules. → July 10-24 38 replies on “European democracies and decision-making in times of crisis” A couple of points: “Another example is the attempt to involve private creditors in the financing of the Greek adjustment programme. While this objective is generally welcomed by some countries’ taxpayers – who certainly are attracted to the idea that their money should not be used to bail out banks – it can under certain circumstances – in particular in the midst of a financial crisis – lead to outcomes which are even more costly for them.” Hold on to nurse. “The attempt involve private creditors”: they’re already involved in that they lent the Greek government money. “in particular in the midst of a financial crisis”: when the crisis is over do the taxpayers get their money back? “lead to outcomes which are even more costly for them”: evidence would be welcome. “Much can be done also at national level, without having to change the Treaty or EU secondary law. For instance, the introduction of debt ceilings into national legislation that are consistent with stability programmes approved by the Council would arrest excessive debt growth even before EU procedures were initiated” Yes, no maybe so. But the tone of the speech seems to envisage a non-physical world. We have seen recently volcanoes going off, an e-coli outbreak, an earthquake that nearly resulted in a nuclear meltdown, revolutions, oil and energy supplies wobbling. Say, for example, Iceland joins the euro, then a super volcano goes off (hope not of course). Does Iceland get punished for hitting its debt ceiling? Is there anything to be learned from the USA’s current travails with its debt ceiling? Be silent. Keep your forked tongue behind your teeth. I did not pass through fire and death to bandy crooked words with a witless worm. Yeah right, Banker turns Politico, now you know what happens if you open Pandora’s box. Sure, let’s be honest, that’s what Lisbon was all about, strengthening a much desired paternalistic authoritarian structure. We really need more super civil servants Trichet style, utterly risible! JCT belongs in front of a European court. Europe is finished after this monster of a globalised finance industry and their engineered disaster has left nothing in it’s path but burned earth, their Mafia enforcers, EU/ECB/IMF, destroying freedom, liberty and justice in the process, substituting democracies with a totalitarian bureaucracy, police states instead. These financial fascists ripped entire economies into pieces, bankers who now turn politicians. Too big to fail got bigger and Mordor is open for business again, but it is the people who will ultimately teach them a lesson… The veiling shadow that glowers in the East takes shape. Sauron will suffer no rival. From the summit of Barad-dur his eye watches ceaselessly. But he is not so mighty yet that he is above fear. Doubt ever gnaws at him. The rumor has reached him.… I view this speech as the beginning of the next phase of the European Banking Putsch. It was quite unsettling reading. The fact is, the people of the different Member States have not fully understood that we already have a political union. Translation: The eurozone electorates up in arms about our continued mismanagement of the eurozone should learn their place. The attempt by certain politicians to shift the responsibility for monitoring and disciplining other countries’ policies to the financial markets betrays the spirit of the union, which is based on strong budgetary rules to be implemented and monitored by the member states. Is this what Mr. Bini Smaghi thinks the European Union actually is? A set of fiscal goals to be achieved by club members? So much for the days of one of the greatest social, cultural and democratic achievement in history. Europe has been reduced to a banker’s balance sheet. Another example is the attempt to involve private creditors in the financing of the Greek adjustment programme. While this objective is generally welcomed by some countries’ taxpayers – who certainly are attracted to the idea that their money should not be used to bail out banks – it can under certain circumstances – in particular in the midst of a financial crisis – lead to outcomes which are even more costly for them. ….. The main objective of some elected politicians seems instead to accommodate the instinctive reaction of their national electorate, even bashing the central bank when it tries to bring some rationality in the discussion. The ECB’s contempt for the people of Europe and their democratic processes is laid bare by these words. Mr. Bini-Smaghi and Co. appear to regard the people of Europe and even their elected representatives as little more than children who must learn to obey their betters. Revealed also are the true goals of the ECB board; making sure their bondholder friends are paid in spite of the protests, and issuing unsubtle threats of “more costly” outcomes if those goals are not achieved. By what right do these men decide the economic fate of a continent? When taking critical decisions that affect the stability of the euro area, the European Council risks becoming like the Polish-Lithuanian Commonwealth of several centuries ago, in which any member of the legislature could block any decision. We know how it ended. In fact the Commonwealth largely voted itself out of existence, its senators bowing to the threats of execution, loss of assets, and more dire consequences for the nation. Let us hope that EU politicians have more fortitude in the coming storm. The third component in strengthening euro area decision-making is to establish a strong enforcer of the rules. ….These proposals for stronger rules and tougher enforcement naturally raise questions of accountability….But ultimately an enforcer of rules cannot be held accountable for outcomes. Enough! I’ve read enough. It’s clear that the idea of an independent eurozone central bank is the greatest threat to european democracy since the days of the Soviet Union. These words are truly frightening. The ECB, sensing the growing discontent of electorates, is making a grab for supreme, unaccountable power over the monetary and banking system of 17 states and over 300 million people–over and above that which it has already enjoyed and abused. This speech should chill the blood of every democrat across the continent. I think it is past time for Mr. Bini-Smaghi to go. It is ironic that Lorenzo Bini Smaghi should publish this sermon as he is about to move to the Italian Central Bank. His country in sinking deeper into a political crisis as the Prime Minister Silvio Berlusconi attacks the most competent member of his cabinet – Finance Minister Giulio Tremonti – over the relatively mild austerity measures he is trying to introduce. I read this very carefully. You should be afraid of people like this. Very afraid. I read this very carefully. You should be afraid of people like this. Very afraid. YUP! Boy am I happy that I am not the only one who perceives it this way!!!!!! This speech should chill the blood of every democrat across the continent. +1 He wants a Confederate States of Europe as a stepping stone to a United States of Europe. Such a move would end up with the same political cohesion and democratic legitimacy as the real Confederacy at the end of its days. No doubt he has fantasies of playing some heroic Robert E. Lee enforcer role along the way. Why, I do declare, Jefferson, it’s the natural order of things, and for their own good you see, but they don’t have the reckonin’ to understand that. If y’all ask me they should be as happy as dead pigs in the sunshine for everything we do for them… In summary, Consumers of Europe, know your place! ………………….. ‘Had such a system been in place, Greece would neither have been able to hide nor incur the higher deficits and debts in 2009 or in the preceding years. It would have been forced to adopt corrective measures at a much earlier stage. The same would have applied to other countries’ It wouldn’t have made a blind bit of difference to the Irish though. I would suggest that this speech is addressed to the present leadership in Germany (especially having regard to the location in which it was delivered) and is best read in conjunction with the article by the Polish minister for finance in the FT on which I have commented on another thread. The two most pertinent extracts, in the sense that they provide a comment on German policy over the past eighteen months and an indication of an alternative practical approach, are the following. “Let me conclude. Winston Churchill said: “You can always count on Americans to do the right thing – after they’ve tried everything else”. The last 18 months suggest that Europeans, too, may do the right thing, after trying everything else”. AND “Debt ceilings, however, contain an inherent “good times” bias – there is nothing to prevent national governments infringing them when difficult decisions about adjustment and consolidation have to be taken. One way to prevent this – and to ensure that decisions are in the collective interest – would be to make public debt issuance a union competence for euro area countries. Member States could transfer to a supra-national agency the right to issue their debt, up to levels agreed by the Council in the context of the yearly approval of the stability programmes. It would no longer be possible to issue debt to cover expenditure over the debt limit set every year. Had such a system been in place, Greece would neither have been able to hide nor incur the higher deficits and debts in 2009 or in the preceding years. It would have been forced to adopt corrective measures at a much earlier stage. The same would have applied to other countries. This strong constraint – a genuine “debt brake” – would force a country to make an early decision when its public debt gets too close to the agreed limit. Either it would come up with immediate additional consolidation, or it would have to request the support of the European Stability Mechanism to finance its residual deficit. In this latter case consolidation would happen via an adjustment programme and strong conditionality. In both scenarios, the damaging effects that deferred decisions have on the rest of the euro area – as we have witnessed with every financial assistance package over the last year – would be mitigated. This is not a proposal for so-called Eurobonds. National treasuries would still be responsible for their own debt, and there would be different debt instruments from one country to another, but the total amount for each country would have to be approved by the Eurogroup, as is currently done for the yearly stability programmes, and it would be binding. There would be no need for explicit or implicit transfers, or tax sharing – ideas often included in Eurobond proposals – as the costs of an excessive fiscal policy would remain with the country concerned.” The key reference is to “supranational”. The term can only be understood in a European institutional context. It means simply, to a layman such as myself, that legislation adopted at an EU (international) level becomes part of national legislation of the member states and has to be interpreted and defended, and the rights of citizens under it, in the same way as national legislation. It is likely that a legal base for the establishment of a European Debt Agency could be found in the existing treaties using the enhanced cooperation provisions to confine it to the member countries of the EZ. It may be noted that the proposal is seen by LBS as a complement to the ESM. It is also clear from other elements in the speech that decisions by the Agency would not require unanimity. The European Parliament has refused, as yet, to accede to the wishes of Merkel and Sarkozy, as agreed in Deauville, as to whether it is the Council (i.e. governments) or the institutional procedures of the EU, via the Commission, has the last word in relation to breaches of the SGP. This unwillingness on the part of governments to recognise the constraints of the political union into which they, and their peoples, have freely entered is at the core of this excellent and timely speech. Italy is now at the edge of the vortex. Well done JCT. Ireland is no longer isolated. Perhaps the commentariat were right. It’s like the end of the Wizard of Oz. http://www.irishtimes.com/newspaper/finance/2011/0429/1224295670727.html It is now clear the G7, Ecofin and the ECB all ruled out burning the bondholders, leaving Ireland isolated. He who pays the piper calls the tune and no amount of chatter from the commentariat will change this reality. As a PS, I note the following from today’s IT (Derek Scally from Berlin). “During a joint press conference Mr Westerwelle spoke of his “great respect and recognition” for Ireland’s reform efforts and Berlin’s wish for a new, independent rating agency. “The current discussion shows the need for a neutral, independent rating agency in Europe that will examine financial markets in an unjaundiced fashion using the same technical criteria internationally,” said Mr Westerwelle. “I see it necessary to create an agency. To guarantee its independence one could create a foundation model. No doubt this is something we will need to discuss.” This can be contrasted withe letter from the head of the EFSF to the FT (which can be consulted on its website). http://www.efsf.europa.eu/mediacentre/news/2011/2011-005-letter-to-editor-of-financial-times.htm As to the rest, the elephant in the Irish sitting room has been described from its trunk to its tail in a recent contribution by Seamus Coffey. With one’s own rating agency, one could draw a screen in front of it and similar herbivores in the EZ. But where would that leave the EFSF? OK typical Lorenzo rubbish – although his threats are real as executives have given these psychopaths a knife for some strange reason. One thing I would like to question is the its only 6% of GDP meme. I think GDP is a poor metric for the debt load. The fact is the ECB oversaw a hyperinflation of credit produced in the core and exported to the periphery. This debt load is obviously negative to GDP in Ireland and elsewhere as it is leading to a subtraction of deposits or CAPITAL to pay the newly structured IMF/EU debt and other debt. So what % of the Euro debt / savings are located in the periphery – even if we should exclude Spain from this calculations which we probably should not I would imagine its quite far north of 6%. Is there anybody withen the ECB questioning the efficiency of this debt to produce real wealth ? Or are they Greenspan like in their view of debt being all equal once the serfs can pay the interest and now give up their capital. Again I would like to make the point that fiscal debt & cash are pretty much the same thing – its not really debt – one has a time function and the other has not. The ECB can increase the base cash at anytime to reduce the private debt load – this is more difficult then the US as the Euro does not have a petro currency but the current debt contracts are unsustainable in any case. Also periphery countries such as Ireland can convert their domestic term accounts into domestic sov debt so as to reduce the outflow of interest payments and also peserve some value to the currency. But alas it seems the Euro masters do not have a altruistic bone in their body -it is clear they do not care for the concept of the euro as they so often lecture us but for the continued payment of interest even when it is clearly destroying long term wealth generation. It seems the Euro was entirely a shadow banking creation rather then a synthesis of bank and prince as under the nation state. It gives me no pleasure in saying this – but I was one of the first on this site to observe that the euro masters consider private paper superior to goverment money – events over the past year has proven my point without reasonable doubt. Please I ask the more civic minded of the various petty elites here to consider planning for the withdrawal of Ireland from the eurozone. This boot over our necks will only get more uncomfortable as time moves on. Picking a couple more bits: “An example: last year’s less-than-stringent stress tests in certain euro area countries failed to take account of concerns about the robustness of the financial sector, so the exercise is being repeated this year.” – LBS This from the ECB, July 2010: “The stress-testing exercise is comprehensive and rigorous. It confirms the resilience of EU and euro area banking systems to major economic and financial shocks. The exercise, therefore, represents an important step forward in supporting the stability of the EU and euro area banking sectors.” Also, this from Irish Times in June, “One in six banks could fail stress tests” “The EBA [European Banking Authority] wants the number of banks that do not pass the tests to be around that level to show the examinations are serious, said a second source, adding that the authority did not want to push for more, for fear it could spark panic and intensify the euro zone’s debt crisis.” “…The tests are technical, as well as political. While the EBA and ECB want to show up the failures, national regulators want to stop their banks appearing on the list, concerned they would look incompetent for having failed to spot such problems themselves.” Why should the nervous kittens in the markets believe anything the ECB says? Later: “Voters should hold their representatives accountable for their domestic policies and for how they act under the SGP in constraining the policies of the others, because these policies, especially if they are out of line, will affect them in turn.” – LBS I love that. How exactly does one use one’s STV to do that? http://www.irishtimes.com/newspaper/breaking/2011/0628/breaking43.html http://www.ecb.int/press/pr/date/2010/html/pr100723.en.html @DOCM re: eurobonds That’s all very well, but what is to stop a state from doing side-issues in secret? Through regions, HFA-type structures, mortgaging public assets etc.? It is no improvement on the leaky bucket to only fill one hole in it. It, like many other measures proposed, provides the illusion of stability by fighting the last war. It will work until it totally fails to. The Zepellins are not a future threat… @seafoid “Italy is now at the edge of the vortex. Well done JCT. Ireland is no longer isolated. Perhaps the commentariat were right. It’s like the end of the Wizard of Oz. ” Rather than the tin man, perhaps you should be congratulating Auntie M. http://m.spiegel.de/international/germany/a-772969.html This call by a German politician for Greece to leave the Euro is still not a mainstream view but getting there. We’re wasting time worrying about El B.S. – he’s not that important anymore. When the turmoil comes we should be ready to take advantage – if we are down to zero deficit – we can use it as a cover for default. The key is reducing our deficit I am vaguely bewildered to see a man who’s been so anti-default in the past proposing a debt ceiling, after seeing the shenanigans in the US Congress over the past while. LBS really is an idiot. @Eureka If there is no defecit there is no money supply now – the banks are not loaning out money into the economy. Farmers will be forced to bring their cows into the pub in exchange for a pint. Calls to zero the defecit will bring all convential commerce to a standstill. Why bring commerce to a standstill to repair irreparable bank balance sheets ? The money supply does not need to be tied to fictitious bank assets. Because we have a rogue CB which is effectivally acting like the keeper of 19th century free banks we have no choice but to break free from the ECB. The ECB is a anti – central bank – its function is to promote misadventure rather then be a patrician head of a bunch of rascals. These men are disciples of F.Heyak and his denationalisation of money treatise. They want free banking brought back from the 19th century – using a denationalised currency as a torture tool. In fact this is worse then the 19th century – these free banks can pump & dump a currency that outwardly appears to the population as being similiar to the previous national currency in form. ( the old banks produced their own indivdual paper) and yet is completly divorced from exchequer control. Please remember they can produce Euro cash at will – it has nothing to do with govermental defecits. Ultimate monetory power – the purest expression of a banked basket case. Shorter LBS: Una Duce, Une Voce. As the saying goes…give a dog a bad name…and the siren voices are impervious to reason. Private burden sharing on debt seems an equitable option but is it wrong to suggest that such a choice comes with a cost? China, the biggest reserve holder, has an interest in maintaining the euro as the second reserve currency and LBS is correct in pointing out that the euro is not at risk. For example, Germany’s lowest trade balance is within the Eurozone. Troubled peripheral countries could in time mutually leave the EMU, but countries like Poland, which has growing trade ties with Germany, could offset the loss. When difficult decisions have to be taken which involve potentially conflicting interests between countries, particularly between debtors and creditors, the national media tend to adopt extreme positions and to resort to stereotypical descriptions of the others. We have seen examples of such behaviour in some Greek and German newspapers. A more moderate ‘European’ view, which tries to explain the common interest, has great difficulty in finding an audience in the various countries. This makes it even more difficult for national politicians to search for compromise in the broader European, and ultimately national, interest. Hardly extremism? This speech is all about taking considerable power away from elected governments to a small group of people who would masquerade as some pseudo public body but actually clearly be operating in the interests of private, too-big-too-fail-too-big-too-jail financial corporations. I think we can take it as read that this is a representative view of the ECB. In a nutshell their response to the obvious & deep flaws of the Euro currency is less democracy. Democracy & it’s supposedly supporting institutions have been shown to be as bankrupt as the financial system in the global crisis, but handing over fiscal authority in the way proposed is tantamount to making the smaller Euro states imperial colonies. Presumably we can expect this mouthpiece of the bankster cartels to continue promoting this agenda in his forthcoming position as Italian finance minister? Anyone from our new Advisory Council care to let us know what they think of LBS’ proposals? Does anyone really think that remaining in the Euro, loaded with permanent massive debt & its interest burden, even if by some miracle we are not overwhelmed by it, is in the interests of the majority of Irish people? As a species we are rapidly approaching serious ecological limits. In particular, the fossil derived energy upon which our modern global society depends. The just-do-more-of-the-same-consume-more is reaching its peak probably over the next decade, certainly within two. The present monetary & financial systems are not fit for purpose in any way that does not lead to conflict & rapidly reducing life expectancy. A new system is both essential & possible. (See links below.) @ Eureka Default & remaining within the Euro is a rediculous proposition without full co-operation of EU states & banks, and with the attitudes demonstrated already by the authorities that is a non-starter. With our own currency the defecit should +not+ be the ‘key’ as you put it. Rather careful & prudent fiscal management to optimise & maximise our natural & labour resources, whilst ensuring we do not ‘overshoot’ & cause excess inflation or undue imbalance in imports vs exports. As a currency issuer, the state is not credit contstrained in doing this. For more information on this: http://pragcap.com/resources/understanding-modern-monetary-system http://dollarmonopoly.blogspot.com/p/issuer-user-paradigm.html http://www.feasta.org/2011/07/05/money-theory-%E2%80%93-a-primer-on-the-issues/ Good list of other resources, academic economists & other: http://dollarmonopoly.blogspot.com/p/resources_10.html @Michael Hennigan The start of the speech is innocuous enough, but the whole business about legally enforceable debt ceilings is nonsense, and dangerous nonsense at that. @ All Eureka has provided a very interesting link to an article in Der Spiegel. Followers of Hayek, the last of note being Margaret Thatcher, will be especially impressed. However, the key sentence is the following and worth highlighting. QUOTE So, Mr. Schäffler, the presenter soon asks, would it be best if Greece were to leave the euro-zone? “If Greece were to do that itself, then I would recommend it,” he says. UNQUOTE What a courageous statement! Professor Sinn would be proud of it. Those attacking the supposed anti-democratic nature of the speech by LBS might care to explain how the current EFSF, an instrument set up as a Special Purpose Vehicle – of wider renown – based on Luxembourg law, can be seen as improving the gaiety of nations and the advancment of democracy. The EU has an institutional structure, based on the democratic principle of the division of powers, with a directly elected European Parliament, which LBS sees as the basis of an eventual resolution of a problem which is now extremely serious, a point on which veryone is agreed. As the saying has it, “when all else fails, read the instructions”. Colm McCarthy in ‘The Sunday Independent’ ‘European rating agency wouldn’t have credibility’ http://www.independent.ie/business/european/european-rating-agency-wouldnt-have-credibility-2817761.html The Irish academic heard mentality…is really difficult to comphrehend principally because the contagion in case of Ireland is home-made political demise, in first instance. Neither Brussels nor EU had any decision-making on how Ireland subsumed its nefarious banks debts…and more. What LBS is courageously trying to determine is how do you built a fail-safe SGP mechanism which doesn’t repeat the Irish and other PIGS foolhardiness in trying to get rich-on-the-cheap! Try and use some of your intuitive intelligence to, first, ascertain why someone like LBS would be allowed to speak on the subject with obvious consent of the ECB management – although he makes clear it’s his personal opinion. @ All I posted the text below on the John McHale thread regarding Moody’s downgrade of Portugal (and on which Hogan Mayhew has an entirely appropriate comment). As an example of fiddling while Rome burns, the negotiations on the ESM could hardly be bettered. Nevertheless, LBS draws the ire of a majority of commentators on this thread for pointing this out. Strange! @ Brian G A bit late but herewith the relevant extracts from the ESM Treaty to be formally signed by finance minsters on Monday (courtesy of Dutch government website which one assumes is reliable). ARTICLE 12 Principles 1. If indispensable to safeguard the financial stability of the euro area as a whole, the ESM may provide financial assistance to an ESM Member, subject to strict economic policy conditionality under a macro-economic adjustment programme, commensurate with the severity of the economic and financial imbalances experienced by that ESM Member. 2. An adequate and proportionate form of private-sector involvement shall be sought on a case-by-case basis where financial assistance is received by an ESM Member, in line with IMF practice. The nature and the extent of this involvement shall depend on the outcome of a debt sustainability analysis and shall take due account of the risk of contagion and potential spill-over effects on other Member States of the European Union and third countries. If, on the basis of this analysis, it is concluded that a macro-economic adjustment programme can realistically restore public debt to a sustainable path, the beneficiary ESM Member shall take initiatives aimed at encouraging the main private investors to maintain their exposure. Where it is concluded that a macro-economic adjustment programme cannot realistically restore the public debt to a sustainable path, the beneficiary ESM Member shall be required to engage in active negotiations in good faith with its non-official creditors to secure their direct involvement in restoring debt sustainability. In the latter case, the granting of financial assistance will be contingent on the ESM Member having a credible plan for restoring debt sustainability and demonstrating sufficient commitment to ensure adequate and proportionate private-sector involvement. Progress in the implementation of the plan will be monitored under the programme and will be taken into account in the decisions on disbursements. 3. Collective action clauses shall be included in all new euro area government securities, with maturity above one year, from July 2013, in a standardised manner which ensures that their legal impact is identical. Annex III (N.B. An integral part of treaty) Pricing policy The ESM stability support pricing structure is the following: ESM funding cost, plus a margin consisting of: 1) A charge of 200 bps applied on the entire loan; 2) A surcharge of 100 bps for loan amounts outstanding after 3 years. For fixed rate loans with maturities above 3 years, the margin will be a weighted average of the charge of 200 bps for the first 3 years and 200 bps plus 100 bps for the following years. @ Mike The Euro is toast and We can’t keep servicing other peoples debt. @ All FTI http://www.reuters.com/article/2011/07/10/us-eurozone-idUSTRE7691HM20110710 @ All FYI http://www.ft.com/intl/cms/s/0/20695168-a977-11e0-bcc2-00144feabdc0.html#axzz1RjLu6Hrs “last year’s less-than-stringent stress tests in certain euro area countries failed to take account of concerns about the robustness of the financial sector, so the exercise is being repeated this year.” This comment by Lorenzo Bini Smaghi, who is a Member of the Executive Board of the ECB, may be the most revealing. Of the 2011 recapitalisation requirements for Irish Banks, €18.3 billion – not including the contingency amount of €5.7 billion – a total of €13.2 billion is being provided to fund discounted offloading of non-strategic loan portfolios with a book value of €72 billion, i.e. a discount rate of around 18.3%, with the €58.8 billion receipt going to the ECB. The Irish taxpayer is likely to pick up around €9-10 billion of this discounting + all of the contingency funding. This is taxpayers money down the hole. I accept it is necessary to bring about a rejigging of the funding side of the collective balance sheets. But surely this could be managed better, more creatively. Apologizes if you have seen this before, but could this proposal work. It has the virtue of do away with Smaghi’s anti-democratic crusade. http://varoufakis.files.wordpress.com/2011/04/ceb1-modest-proposal-2-2-6th-april-20111.pdf @DOCM The latest ESM wording just institutionalizes the current chaos. There’s an undefined sustainability criterion, and everybody gets their favourite phrase included somewhere. Moreover the EU Commission have already concluded that Greece’s debt is sustainable and needs no restructuring, but this hasn’t, and won’t in the future, stop Germany, Netherlands, Finland & Austria from seeking something more than “voluntary” participation from the private sector. The same arguments, last-minute fudges and can kicking are likely to be repeated at regular intervals, as each major tranch comes due, whether as part of an EFSF or ESM program. Also the way I read it is that this new wording effectively puts the ESM back as a preferred creditor. In the case of restructuring, the old wording required a country to engage in negotiations with its creditors to secure their involvement in restoring debt sustainability. The new wording limits this to “non-official creditors”. So looks like the change is to try and ensure that the ECB and EFSF debt will be off the table for any restructuring discussions. @ Bryan G I agree. However, the ESM is rapidly becoming an irrelevancy. The action is now elsewhere and a denouement, it seems to me, fairly close. Either Berlin continues digging by insisting on resurrecting its unworkable negotiated PSI proposal or there is agreement to (i) double the size of the EFSF (as suggested by the head of the Dutch central bank) and (ii) allow it to intervene in secondary markets and ensure PSI in that way. This will leave a large bill to be settled by the governments of the EZ. But denying that it exists is no solution. As to Ireland! As John McManus points out in today’s IT. “The sight of backbenchers engaging in pointless political theatrics last week over the reform of rural hospitals only serves to raise fears that despite the last three years, the penny has not really dropped for many in the Cabinet and among Government backbenchers – Quinn excepted – as to just how much trouble we are in”. A democracy gets the politicians it deserves. However, the shenanigans in the EZ suggest that this is a general rule, the saving grace being that they may actually result in an outcome that may be beneficial in getting Irish politicians off a hook thye are incapable of getting off themselves. Dear Lorenzo: “Italy is a banana republic that didn’t depend so much on foreign capital in the past, but now it does, and markets are less forgiving,” said Daniel Gros, the director of the Center for European Policy Studies in Brussels. “Italy is in the danger zone; that is quite clear now.” […] But at the end of the day, “If Italy goes, it’s no longer a domino,” said Mr. Gros, … “It’s a brick.” http://www.nytimes.com/2011/07/12/business/global/italy-evolves-into-eus-next-weak-link.html?_r=1&hp I think this economic backfall is pure psycologic. If the media should be quite about this people would have kept spending and money would circulate. So these problems could by partially solved by not talking about it…… Comments are closed.