McManus: Germany will inevitably face final choice on euro zone cure

John McManus gives one of the best treatments I have seen of the (tragic) choices at the heart of the euro zone crisis: see here.

87 replies on “McManus: Germany will inevitably face final choice on euro zone cure”

“From the perspective of such countries, Europe is tying itself up in knots and going round with a begging bowl to avoid using its central bank for one of the prime reasons countries have central banks. There is something of the kid who keeps Matchbox cars in unopened boxes but demands to be allowed play with everyone else’s about this scenario.”


I was just wondering on another thread if what we are witnessing (in Greece and Italy) is ‘regime change by other means’.

Similar to PR Guy, I commented on another thread that Chancellor Merkel, regardless of her uncertainty about her voters’ acquiesence, may now have no option but to sanction the use of the ‘big bazooka’ of the ECB’s balance sheet. If so, it has been long, long overdue.

Its use would provide an ample basis for enforcing the fiscal adjustments and structural reforms that her voters fear would not be implemented. So, yes, perhaps ‘regime change by other means’.

It is very unlikely that there will be any significant transfer of wealth from Germany to anywhere, nor should there be. Germany is being ascribed an economic omnipitence that is not justfied by performance. We are approaching the 10th anniversary of the euro. These are the figures for economic growth in the original 12 eurozone countries in that time:

changes in REAL GDP between Q4 2001 and Q2 2011:

[01] Luxembourg +26.8%
[02]>IRELAND +23.1%
[03] Finland +20.8%
[04] Austria +18.5%
[05] Spain +18.0%
[06] Belgium +16.8%
[07] Greece +15.1%
[08] Neth’lands +14.1%
[09] France +11.6%
[10] Germany +10.6%
[11] Portugal +2.6%
[12] Italy +1.6%

[ ] EZ12 +11.2%

So, even with a deep recession towards the end of the period, Ireland’s real GDP growth was twice that of Germany in the euro’s first decade, and, after an interlude of approximately 3 years, Ireland’s growth is now moving ahead of Germany’s again (see recent GDP and PMI figures). In the last 30 years, there has been approximately one 18-month period when Germany’s growth was good relative to the rest of the developed world – the period from end of 2009 to middle of 2011. This period now appears to be ending. The rest of the time, Germany has lagged behind. It has gone from being one of the wealthiest countries in the EU in the 1970s to just about the EU average in 2011. In the 1970s Germany was twice as wealthy as Ireland, now it is poorer. Germany’s demographics are horrendous, and its long-term growth prospects are much worse than in countries like Ireland that have excellent demographics. It is extremely likely that, over the next couple of decades, Germany will languish in the same position in the growth league table as in the table shown above.

Germans know this, even if others (including Michael Noonan) don’t. Hence the perfectly justifiable reluctance to transfer wealth to other countries. Germany will need it for itself in the coming decades when its demographics collapse completely and its proportion of population aged 65 plus hits 35 per cent, compared with about 15 per cent for Ireland.

The issue of what the ECB should do in relation to buying bonds is totally separate. John McManus’s little joke shows that he doesn’t really understand it. It has nothing to do with Germany transferring wealth to other countries, but has to do with whether or not the EU should adopt the same lax policies as the US and UK in relation to printing money and generating inflation so as to lessen the debt burden. There are arguments for and against this, but the argument has nothing to do with whether or not Germany should/will transfer wealth to other countries. One doesn’t say that London is transferring wealth to Scotland, Wales or N. Ireland, just because the Bank of England is buying up UK government bonds, or that Washington is is transferring wealth to Texas, Kansas or Missouri just because the Fed is pumping money into the US economy as a whole.

@ All

There is, however, another aspect that cannot be overlooked and that is the actions that have given rise to the trade imbalances which lie at the core of the crisis. It is these that have to be corrected for a lasting solution. (Indeed, a German dissenting voice on the policy followed for the last decade can also be found in today’s IT at the Kilkenomics jamboree. There is evidence of change as the governing coalition has now agreed on tax reductions, an agreement, irony of ironies, that is being challenged by the SPD before the constitutional court because it breaches, in their view, the debt limit brake inserted some years ago).

Martin Wolf did an excellent piece on this some weeks ago.

To quote to quote his conclusion:

“A currency union with structural mercantilists in the core now threatens a permanent slump in the periphery. Solving that is the true cure. Can it be done? I wonder”.

On the role of the ECB, attached a link to the CESIfo papers of De Grauwe.

His treatment of the legal objections advanced by opponents of the purchases of bonds in the secondary market by the ECB is of particular note. See page 12 of paper 3569 (the most recent). There is no real legal objection to the ECB stating that it has a big bazooka. The problem is political. And its use would not solve the crisis overnight because its roots lie in the past decade and it will require the next decade – as Merkel has correctly pointed out – to fix it, if it can be fixed at all.


I had not read your contribution when I wrote mine but there is a coincidental overlapping of several important points. I agree with the distinction that you draw.

The phenomenon of the low overall German growth rate is also well recognised but the question that has to be answered by German policymakers is; why?

Not sure what to say about this article:

“That is not to say it will not happen, as it’s the solution the market wants.”, is a sentence I don’t like. The market doesn’t want anything but market participants want something. Sellers want high prices, buyers want low prices.

“Why should Brazilian taxpayers take such risk when the Germans will not?” is another sentence I don’t like. Why has investors been removed? Shouldn’t the sentence start with: Why should taxpayers take such risk when private (sophisticated?) investors will not?

“If the US treasury lends to the US government it has reason to believe the government will do its best to pay it back, as both entities pursue a common goal of a peaceful and prosperous US.” isn’t very clear & is it correct?

“This is the approach adopted by the US government, which stopped the rot in that country by throwing money at the problem. ” implies that the rot has stopped. I’m not convinced.

That being said: “The deployment of the ECB balance sheet without some sort of credible fiscal union and governance infrastructure to make sure such does not happen would be an act of folly.” is a very good qualifier & something that hasn’t been explored too much.

What governance infrastructure would be required to have a fiscal union? What could the beneficiaries accept in exchange for funding of their government & public service? What would the funders require in exchange for funding of other governments & public services?

@John McHale

One of the best? – anyone on this blog will have been reading/writing similar over the past 24 months or so ……..

Italy over 6.5 this morning – unreal and unnecessary … do we have to wait untill France reaches similar before an isolated Germany changes direction rapidly? Or the house of cards will fall down ………

Rest of the sane world looking on with incredulity …


I very much like the pithiness of Martin Wolf’s ‘structural mercantilists’. It sums up perfectly what I have been saying in the past about Germany (and its core associates), but I’ve being using far too many words. (I expect JtO is a fully signed up member of the Irish affiliate.)

And, yes, it will take a decade of institutional and structural reform and of the enhancement of democratic legitimacy. But first, the big bazooka must be deployed. Simply revealing it might be sufficient; there might be no need to use it in anger. The current sporadic and patchy interventions by the ECB in the secondary market simply invite attacks to test the limits of intervention.

The problem is that its understandably delayed deployment (primarily for political reasons) – and it’s still not sure it will be deployed – has caused so much damage that the repair job will take much longer and be more costly than it would have been if voters in the core had not been gulled for so long and had become aware sooner of the extent to which they had been gulled.

@PR Guy

Sideshows! Nikki next?

Can you confirm that members of so called ‘Frankfurt Group’ really did strut around with Frankfurt Group name tags at Cannes last week?

“The restaurants are full, the planes are fully booked and the hotel resorts are fully booked as well” has a very strong whiff of “we are fully funded until next summer”

What does John McManus mean that the ECB has a €3tn balance sheet?

Surely it has an infinite balance sheet only constrained by the amount of paper that exists to print new money!

@DOCM [I posted this last week – I now repeat myself ………..


Annals of Genghis Khan, Vol 2087, No 10, October 27. Paul de Grauwe, European Summits in Ivory Towers. Special Issue on the theme ‘Only a fool goes into a battle s/he knows s/he cannot win.

‘Imagine an army going to war. It has overwhelming firepower. The generals, however, announce that they actually hate the whole thing and that they will limit the shooting as much as possible. Some of the generals are so upset by the prospect of going to war that they resign from the army. The remaining generals then tell the enemy that the shooting will only be temporary, and that the army will go home as soon as possible. What is the likely outcome of this war? You guessed it. Utter defeat by the enemy.The ECB has been behaving like the generals. When it announced its programme of government bond buying it made it known to the financial markets (the enemy) that it thoroughly dislikes it and that it will discontinue it as soon as possible. Some members of the Governing Council of the ECB resigned in disgust at the prospect of having to buy bad bonds. Like the army, the ECB has overwhelming (in fact unlimited) firepower but it made it clear that it is not prepared to use the full strength of its money-creating capacity. What is the likely outcome of such a programme? You guessed it. Defeat by the financial markets.

Who really loses?

There has been a huge wealth transfer from Western to Eastern Germany to build or rebuild infrastructure, housing etc. . Germany is sinking a lot of money in non-competitive industries like its steel industry ,its coal and lignite mines etc. A lot of regulations are not conducive to productivity ,like its regulations in retail ,the number of holydays etc. But ultimately the main problem is the hourly productivity of the German workforce compared to the French ,the Northern countries or the Irish ,which is largely due to an education system that is not performing very well and an aging population.

To take stock of where we are:

1. We have a currency union.
2. We have a no bailout clause in the treaties which is not being observed because of systemic risk.
3. We have an anti inflation agenda at the ECB which is being observed.
4. We have no fiscal union.
5. We have an incoherent EU and it is arguable that countries are approaching the problem as a zero-sum game.
6. We do not have the capacity to create a sufficent rescue fund.
7. Italy is approaching meltdown.
8. The IMF is tryingt o ready itself for Italy.

It seems to me that the problem is that we are trying to bring incompatible mechanisms to bear at the one time, viz:

(a) The EU rescue funds are supposed to bring certainty, but there is grave uncertaintly as to their future funding, and
(b) We are spending vast amounts of money to avoid default (as one might do in a genuine fiscal union), but
(c) We will not risk substantial inflationary monetary expansion (as would do in a genuine fiscal union), and
(d) We are reluctant to allow wealth transfer/subsidy of weaker sections (as would do in a genuine fiscal union), and

The binary choice seems to be either:

(a) the ECB creates a wall of cash, or

(b) (i) individual nations protect themselves and their banks against the default of other nations and other systemic risks as best they can, and (ii) the EU co-ordinates the implementation of mechanisms to mitigate against systemis risk in the banking secotr and (iii) the EU implements a bank resolution mechanism and a national support/co-operation mechanism for countries that do default.

‘(a)’ (ECB Intervention) is the easier and more eloquent solution, but ‘(b)’ (Default and Resolution) is that the citizens of Europe signed up for. It looks to me that we are headed for (b) if events in Italy don’t overtake us. If events in Italy do overtake us then the ECB may have to intervene becasue to fail to intervene could threaten all it is supposed to protect.

However, one suspects that, whatever else Merkozy failed to obtain at the G20, the IMF stand ready and able to intervene in Italy. Therefore ‘(b)’ still looks like a strong possibility.

I recall Colm McCarthy saying that we would be far better off if we could been rescued by the IMF alone when our crisis hit rescue point. I think he has been proved right on this. Maybe the rest of the world has noticed and is pressing for Italy to be detached from the uncertainty attached to the European rescue funds.

If you adjust for the 17% increase in Ireland’s population over the decade, compared with fall of 0.4% in Germany’s, the contrast evaporates.

The one good thing about not having an edit function is that one does not have to take the time to correct one’s multiple typographical errors.


Observing post 1989 incorporation of East Germany into a United Germany [I’ve seen estimates of €3 trillion+ :and the process is ongoing] -I can only admire. No other EU economy could have managed, imho, an adjustment on such a scale. We’ve had this conversation before on this blog …

@ Overseas commentator

You identify the problem in your contribution. The efficient sectors of the German economy compensate for its overall inefficiencies, notably through low wages outside those sectors, absence of a minimum wage etc. The consumer everywhere, except in Germany, is expected to pay the price! The dispute between left and right in relation to the proposed reduction in taxes lies in the fact that the left, correctly, sees the proposal as benefiting those that are already the major beneficiaries of this skewed policy mix.

Continuing with these policies is incompatible with the balancing functioning of an internal market and impossible within a monetary union. My own feeling is that there is an increasing recognition of this. But it will take the ten years that Merkel is referring to. It will also, however, take a politician with greater capacities for inspiring confidence than Merkel seems to possess. Indeed, she seems to have the opposite quality.

These comments are not in any way intended as a criticism of German entrepreneurship, or the quality of German products, both admirable. It is the failure to recognise the need for a level playing field at a European level which is at issue. This will require a level of social integration at a European level which politicians across Europe – and not just in Germany – have failed to face up to. All one has to do is look at the equally miserable growth rates for France!

Apparently, there’s no need to worry any more. We are now in the capable hands of a new GdF (Groupe de Francfort or Frankfurt Group) – Merkel, Sarkozy, Juncker, Draghi, Barroso, van Rompuy, Rehn and Lagarde.

I’m overwhelmed with confidence. The relief is simply immense.

@David O’Donnell

“Can you confirm that members of so called ‘Frankfurt Group’ really did strut around with Frankfurt Group name tags at Cannes last week?”

They were issued for one specific meeting – the one held with Obama and Geithner. The actual wording was: ‘Groupe de Frankfurt’

I see Silvio has denied he’s going to resign on his Facebook page. Facebook? That must be gospel then (or maybe that’s how it will be perceived by anyone under 25 anyway).

Silvio is probably negotiating immunity from prosecution.

I wonder are his TV channels as bad at reporting the ongoing developments as RTE were back in November last year.


Your statistics, impressive and informative are somewhat irrelevant to the resolution of present crisis of State funding in Europe

The position is simlar that of a fleet of ships many of whom are heading straight for the rocks with the largest and possibly the best provisioned sailing comfortably off shore, capable of pulling the other ships to safety but unwilling to accept that it has a responsibility to do so. Unwilling also to allow the other large ship lying offshore to throw a line to the rest of the fleet to pull them to safety.
It chooses instead to lecture them on the mistake they made in being so stupid to sail where they did and advises them to row like ***k because they have severely neglected their rowing skills and it will make men of them if they survive the ordeal.

The fact that the ships heading for the rocks may be well provisioned and that some on board have dined on very fines wines should be extraneous and irrelevant to the ‘mother ship’.

A month ship that looked like this in 1945 and that benefitted enormously from the lifeline of the Marshall Plan thrown to it and others in 1948.

From the article:

“The events of the last week in Greece and Italy would only make you more convinced that domestic imperatives will trump the obligation to repay the ECB in some countries, leaving the better-off countries to cover their liabilities. For better-off countries, read German taxpayers.”

What obligation to cover ECB liabilities? McManus talks much about US Fed/Treasury operations in the article but fails to notice that the US has virtually never repaid any of its public (Treasury) ‘debt’. Nor, like any properly functioning central bank does it need to. It’s the +issuer+ of currency, not a +user+.

McManus also says:

“Economics tells us this behaviour (a CB issuing currency) will ultimately lead to inflation…”

What ‘Economics’ is that Mr McManus? Would that be the same economics that spoke of the ‘great moderation’, ‘end to boom & bust’? The one that failed utterly to take any notice of the gargantuan rise of the global financialised casino that gutted the real economy & remains the systemic threat to a default by even the otherwise paltry sums of a tiny country like Greece? The economics that set up an utterly flawed monetary union? The economics that continues to prescribe precisely the opposite policies that would resolve the crisis & offer a speedy recover for the real economy of ordinary citizens?

Of course that is indeed the mainstream view, but maybe if you & others had taken a bit more notice of those few economists who demonstrably actually +do+ properly understand macroeconomics we wouldn’t be in this mess? Try here:

It may interest you to know that for the last 3 years or so, MMT economics proponents have been explaining that the ECB (by its ability to +issue+ debt free money) is essential to solving the financial sector losses-become sovereign debt problem. Also its core other contributing problem (not to mention social costs) of austerity>unemployment>lack of aggregate demand>no growth>repeat again.

And by the way, in such conditions of deep recession, no, this does +not+ cause excess inflation, above such ‘cost push’ externally driven elements as energy prices & other commodity speculation. Such distinction being near universally ignored, naturally, in McManus & co’s ‘economics’. Want proof? Take a look at what China +in effect, monetary/fiscal terms+ has done these last 3 years. Massive (not particularly well designed) CB spending, high growth & employment maintained, minimal inflation.

McManus again:

“The deployment of the ECB balance sheet without some sort of credible fiscal union and governance infrastructure to make sure such does not happen would be an act of folly.”

No, in a deep recession & systemic crisis, not ‘folly’ at all. But once we’re climbing out of this mother-of-all-holes (which your ‘economics’ insists on digging further) these are important issues to settle. As well as returning the rogue & extractive financial sector to a utility function to the benefit of society, not the other way round. And how about not using unemployment as a policy tool to benefit the 1% ?

@Paul Hunt

I’d pick Juncker – and release the rest on loan to whomsoever would be foolish enough to take them on. I’d toss in our own ‘precious’ poltroon of eight roight field generals as a sweetener.

p.s. Time you wrote that book.

@PR Guy

Ta for clarification – was wondering why Geithner was smiling so much on leaving Cannes. Hedgies Protected United are de_ligh_Re …

changes in REAL GDP between Q4 2001 and Q2 2011:

[01] Luxembourg +26.8%
[02]>IRELAND +23.1%
[03] Finland +20.8%
[04] Austria +18.5%
[05] Spain +18.0%
[06] Belgium +16.8%
[07] Greece +15.1%
[08] Neth’lands +14.1%
[09] France +11.6%
[10] Germany +10.6%
[11] Portugal +2.6%
[12] Italy +1.6%
[ ] EZ12 +11.2%

So, even with a deep recession towards the end of the period, Ireland’s real GDP growth was twice that of Germany in the euro’s first decade, and, after an interlude of approximately 3 years, Ireland’s growth is now moving ahead of Germany’s again (see recent GDP and PMI figures).

Who are you? Are you just some kind of gleeful troll, throwing out bait to get a rise out of everyone else. Or are you someone paid to post up ridiculous propaganda like the above? You talk about Real GDP growth in a country with over 400,000 people with no jobs and no prospect of any jobs for them for half a decade at least.

Do you just enjoy kicking people while they’re down, or are you getting commission for these outrageous posts? Are you even one person? Or does the 32 country republican FF Orangeman persona covereth a multitude of slip-up contingencies?

But please, at the very least spare us these endless appeals to auguries from the census figures.


Your basic problem is that you don’t understand figures.

Memorise the following shapes {0,1,2,3,4,5,6,7,8,9} and ignore any posts in future that contain them, as they are beyond your comprehension level.

@ All

Leaving aside the debate as to how we got ourselves into the hole, for the moment, and turning to the more pressing question of how to get out of it, the FT has the inside story.

FT Deutschland has additional detail.

A number of interesting questions are raised, the first being; who is in charge of Germany’s involvement in the euro, the Bundesbank or the Federal Government of Germany?

The second is; even if there had been agreement to bump up the resources of the EFSF in the manner suggested, would this have made any difference to the situation of Italy?

The third is; can there be continued discussion about which fire brigade to call while the house risks being entirely consumed, especially when the in-house sprinkler system – the unlimited capacity of the ECB to purchase bonds in the secondary market – remains largely unused?

The argument contained in this excellent article has been circulating the literature on comparative political economy for years. Political economists (i.e. dont assume or take for granted the assumptions underpinning theories of the market) highlight the relationship between insitutions and market outcomes. Neoclassical economists assume there is no such thing as institutions or corporative-associations. In the German case, it was not just the relationship between the central bank and fiscal federalism that underpinned the political coordination of their economy, but the relationship to a highly coordinated wage bargaining system (which is now being deconstructed). The ECB and the EMU is designed on the basis of neo-classical monetarist assumptions (i.e wages are coordinated by individual-small firms). The micro-foundations assumed to underpinn the Eurozone dont exist. It is the ideological refusal to engage with the empirical reality of the Eurozone economy (fiscal, monetary, wage and social) that is blocking change. But, then again, why bother when you can just advocate vague and simplistic ‘structural reforms’ (i.e. make the hypothetical market) as the public policy solution.


Nominally its good that the ECB has ramped it up a bit (highest since start of Sept, and compares to between 2-4bn for the last 6 weeks). However, its particularly worrying that despite a reasonable show of firepower (they should of course be doing much much more), Italian yields still went through the roof.

@ Peter Stapleton

All the countries of the former Eastern Europe, with the exception of Romania and Bulgaria, enjoyed full free movement as far as Ireland was concerned from day one of Enlargement and many chose to emigrate to Ireland and, especially, in large numbers, to the UK. Germany, with Austria, maintained a strict embargo, while allowing controlled immigration, until 1 May of this year, availing of the full seven year derogation period negotiated in the context of Enlargement.

Did this policy make any sense against the background of the worst demographics of any advanced economy in the case of Germany? And did it make any sense to allow a so-called “big bang” Enlargement when the countries of the EU were not in agreement as to its implications for them individually of free movement, one of the four freedoms underpinning the EU?

It really is a mess out there today. Nicky increased his corporation by 5% and vat by 7% on a range of goods. Meanwhile Portugal is trying to get the troika to ease its austerity. Fat chance. Is this the next pressure point?
As for Greece…it is becoming apparent that the new government will not be capable of governing…
“”I’m afraid the new government will very soon turn out to be problematic,» said Stefanos Manos, a former finance minister with New Democracy told Reuters.

“The new prime minister will be under guardianship and will not give the impression that he is in charge. Everyone will be looking to the two party leaders who will be running things behind the scenes,» he added. «The civil service wont implement any decision and everyone will be waiting for the election.”

Down the road things are even murkier. With polls showing no party winning an outright majority, an election would most likely plunge Greece into more Byzantine negotiations, further risking its financial survival and euro membership.”

And then we have Silvio…such a mess.

@Bond Eoin Bond
I see the IT reporting (at 14.27) that they have less than 3b of EFSF orders.
Is this accurate?

@ CP

what we’re hearing is that its bang on three billion, but took a lot of work to get there. And they wanna issue a trillion you say??


“Nicky increased his corporation by 5%”

I probably won’t need to make too many wild guesses (is that a pleonasm?) which country he might soon ask – again – to raise theirs.

Perhaps Min. Noonan could make a suitable response framed around ‘interfering with an island’ as Sarko seems to have an issue with islands (i.e. PM Cameron) interfering via comments about the way he/the EZ runs things.

There are so many mixed messages coming out of both Greece and Italy this afternoon it’s hard to make sense of things at the moment. I’m amazed the markets are moving anywhere let alone up.


You’re back with another anti-Merkel rant.

The position of German federal chancellor was designed to be more collegial than for example that of a British PM running a one-party government.

Germany’s biggest firms are global companies; are you suggesting that politicians should decides their strategies?

It’s always easy to pick holes; Germany reformed in the first half of the last decade when unemployment hit 5m. In 2008/2009, mass layoffs were avoided because of flexible labour contracts and the short-time working scheme.

People like you glibly talk about convergence but after 21 years, GDP of the former GDR is about 68% of the ex-Federal republic.
There are also disparities in other regions.

Economic convergence moves at a snail’s pace, at best. Even if the weakest regions were to grow a steady 4 percentage points faster than the strongest regions, it would them take more than 45 years to catch up.

It’s so easy to pontificate from some sheltered workshop.

Germany had 5m unemployed – – a post 1945 high — soon after the EU enlargement in 2004.

FYI … Greece

New government – but no respite for Greeks
7 November 2011 Eleftherotypia Athens

A deal has finally been struck. Under asphyxiating pressure from the country’s European creditors, Greece’s two main political parties have been forced to seek common ground. Their two leaders [Prime Minister George Papandreou and Antonis Samaras, who heads the main right-wing opposition party, New Democracy] have set aside their personal ambitions, at least temporarily, to approve an agreement for the formation of a government that will benefit from their combined support.

Faced with multiple political and personal pressures, George Papandreou will be forced to step down from his post as Prime Minister right in the middle of his mandate [he was elected in October 2009] – a choice that will be deplored by many of the members of his government and his party. There is no denying that this decision amounts to a major political and personal “sacrifice”.

Jean-Claude Juncker will no doubt be chairing a lively EZ Finance Min. meeting this evening. I wonder what’s on the agenda? I wonder what’s on the menu? Burnt offerings? Silvio’s head on a silver platter? Georgios testicalitus? Pita bread and double dips? Chick appease? What a meze it’s turned into? Sour grapes leaves? Greek yogurt dressing down? What a meatballs up? Vino collapsico? Disaster is gnocching on the door? Pasta their sell by date?

This is far more fun than any pleonasm.

@PR Guy

If a position existed at the mo for a sane centre right erudite pragmatic and realist politician, with plenipotentary powers for 12 months over the EZ, I’d place Jean-Claude Juncker on a very short list.

@Michael Hennigan

I do not qualify the contributions of others in the manner that you do and I would normally not even reply to a retort couched in the terms of your opening paragraph.

However, I would invite you stick to the points made by me and others and if they are incorrect, to advance the reasons why. Otherwise, you are not participating in debate but indulging in what you accuse others of.

@Joseph Ryan


Good one 🙂

@David O’Donnell

Unfortunately, he comes with his ‘mates’ (the rest of the Frankfurt Group) as part of the package.


Seriously though, where do Italian bond yields go tomorrow?


The price guidance was set at 1.04 percentage points over midswaps, a benchmark for bond pricing, reflecting the sharp rise in the fund’s borrowing costs since it last sold bonds in June. At that time, the EFSF issued 10-year debt for 0.17 percentage points over midswaps.

Demand was modest, with just over €2.5 billion in orders, and was nowhere near the blockbuster turnout for the first bond it issued in January, when orders totaled €44.5 billion for a €5 billion, five-year bond.

This reminded me of all the greek bailouts

Slash-and-burn forest clearing along the Rio Xingu (Xingu river) in the state of Mato Grosso, Brazil. This process has typically been achieved by clearing the forest using fire followed by planting of crops. The generally infertile soils of this rainforest – the largest such forest on Earth – make sustainable farming difficult. This drives people to convert more forest into farmland.

what a mess

Der Spiegel discussing LOLR …,1518,796280,00.html#ref=nlint

The Italians are also getting nervous. Figures compiled by the German Bundesbank and the Banca d’Italia, Italy’s central bank, suggest that more than €80 billion in capital was moved out of Italy in August and September by Italians concerned about the growing risk of a government insolvency.

Switzerland is a popular safe haven. The Greeks have reportedly deposited about €280 billion in Swiss banks. At the airport in Athens, passengers are often caught leaving the country with upwards of €100,000 in cash, well in excess of the €10,000 limit.

…. worth a read.

Amazing – 6.5% – with ECB buying supporting it

Where would it would be without the ECB?

On the other hand, ECB buying, that is not based an open ended commitment, may have no or very limited effect on the price. The marginal consumer and all that.

That a very interesting article. It would make you wonder about all the opinions out there. It seems to put paid to some arguments around here about our current strategy.

On a different note I see Bloomberg reporting the Dow up 85 point on the basis that Jurgen Stark says the woes will be over in the Eurozone in two years.????
Will it last that long…Italy finished with their 10 yr @ 6.63 versus Swiss at 0.8 and Swedish at 1.7%.
Guess where all the money is going

@ CP

Those rates are going to crucify Switz and Sweden. The Swiss housing bubble is a clear and present danger. All the insurers are loaded up with property because bonds returns are useless. This time is different , gell?

This is grim…
“Goldman Sachs warned that Italy might start to take “unilateral decisions” such as seizing banks or clamping down on the bond market (effectively holding investors captive) if the political climate deteriorates further and authorities feel boxed in. It said the crisis has set off a “self-fulfilling dynamic” that may ultimately make it impossible for Italy to roll over debt.
The EU’s bail-out fund (EFSF) does not yet have the firepower to halt the crisis by purchasing Italy’s bonds. The fund itself struggled to raise money in a €3bn auction on Monday, paying 177 points over Bunds — up from 51 in June.
“The EFSF is basically doomed to be worthless,” said professor Giuseppe

Ragusa from Rome’s Luiss Guido Carli University. Investors are wary of its
shifting mandate. There is suspicion for EU plans to leverage the fund to €1
trillion as a “first loss” insurer of bonds, which concentrates risk.”

“The ECB was undoubtely a buyer yesterday but held back from overwhelming action, risking a deadly metastasis of the crisis. Board member José Manuel González-Páramo issued a blunt warning that Italy can expect no white knight. “The ECB is not a lender of last resort. It does not have a magic wand.”

This is the second Board member to say this recently.
So we have no lender of last resort….


Who has the ‘magic wand’? Does a magic want exist? If not, how does one create one? If one is created will the ECB (i) accept it (ii) know how to use it? or (iii) wish to use it?

This is turning into a Laurel and Hardy sketch … where the EZ producer has totally lost the plot.

Whilst Germany is fully entitled to decide not to subsidize profligate neighbors, they are NOT entitled to try to cause runs. Via their proxy (ECB), they triggered/ amplified bank runs in Ireland, in order that the troika could take over. Yet the troika had no solution better than our own, and we are locked out of bondmarkets.

Germany again is needling and causing a death spiral in Italy, as they hope to precipitate a change in government. http://

Now it is one thing for the Germans to be inflation obsessed and ignore Financial Stability…it is another entirely when they cause Financial Instability.

German has gone beyond reckless, and is now full rogue. It is time to recognise the enemy, and plan accordingly. The UK,US and China are well aware what the Germans are at….and we need to consider if we wish to stand with Germany…or with the rest of the world.

An exit mechanism is to repudiate all our ELA debt, and rejoin Sterling.

The offical reason China and others are not buying EFSF is because they believe it is subject to political control by certain EU countries. That is an indictment of Merkels and Sarkozies policies which have clearly been politically biased to protect their own countries interests. Of course this is in their job description. So the others will invest in Europe through the IMF which is ‘fairer’. E.G. the IMF themselves were pushing for haircuts on Irish bank debt when our EU ‘parners’ weren’t. They emerging economies are right and Mr. Noonan should be strongly using this point in his negotiations over the promissory notes.
Of course Mr. Geither may have something to answer about the fairness of the IMF in Irelands case.

This highlights the necessity for a common Eurozone treasury which can in some way control spending by states and of course collect taxes. Then it can issue bonds.

“The EFSF is basically doomed to be worthless,” said professor Giuseppe

It’s looking like this guy is right. Back to the drawing board….if there is enough time left.

@ Desmond Brennan
Irish Banks were bust.All of them had negative equities.Nothing could save them.Now it’s Germany’s fault!

If you wanted to ‘manipulate’ Italy’s bond yields short term (e.g. make them go up just before a crucial vote in the Italian parliament at 3pm today) how would you do it?

I know next to nothing about this area but I’m curious as to whether it would be possible to organise a coterie to effectively ‘short’ Italian bonds (or whatever it is you do to force the yield up) or whether you could do it as the ECB simply by not stepping in to buy them in sufficient quantity to keep the yield below 6.5% (or whatever the ‘red line’ is these days – it seems to have moved to 7% in the past 24 hours).

Is a ‘small coterie’ a pleonasm? I’ve often seen it used.

@PR Guy Finally someone here sees the obvious.

It looks like we are at war….

A kinder analogy would be a house is on fire and while the firemen are arriving, setting out the hoses etc, some of those on the inside (who are being rescued) and plenty of those on the outside are busy selling the hoses and diverting the water etc…

@ PR Guy

Jefferies is a Yank investment bank that got hammered last week because of its EZ exposure . They explained to the market that their long Eurozone bonds were hedged by short positions. Super. I have a tenner on horse number 4 in the 3.45 at Plumpton but have also taken a shotgun along to shoot the f**** if he doesn’t win. The American banks seem to have have pulled out of EZ debt entirely. there must be some manipulation going on.

And the FT returns to a favourite theme – WTF in the markets.
Political risk and how to assess it .

The role playing must be a laugh

It sounds very like the market’s understanding of nuclear risk back in March

you couldn’t make it up

Please consider that freedom and choice are simply mirages on the Neoauthoritarian Desert of the Real.

God being omniscient, looked down the corridor of time, and planned and is orchestrating all things 2 Corinthians 5:18. The Book of Daniel, specifically chapter two, contains God’s divine appointment of kings and kingdoms to govern mankind from the sixth century BC. until the 1,000 year rule and reign of Christ in His kingdom known as the Millennium.

Nebuchadnezzar’s dream, as authoritatively interpreted by God through Daniel, tells us that history will see the rise of four consecutive Gentile world powers, representing the kingdom of man, and then a seven year period ruled by Satan who gives global powers to the Sovereign and the Seignior which includes the 666 credit system, Revelation 13:15-18. All of which in the end will be crushed by the Lord’s eternal reign. This message was conveyed through the appearance of a giant statue in Nebuchadnezzar’s dream. The head of gold represents Babylon. The breast and arms of silver indicate Medio Persia. While its bronze belly and thighs symbolize Greece. Rome is the final entity that appears in two phases: its legs of iron, the ancient Roman Empire of the first century, and its feet partly of iron and partly of clay, the Revived Roman Empire which will emerge as ten regions of global governance, after a soon coming global financial collapse, Daniel 2:31-35.


Are you saying that gold is on its way up again and that we should take out the calls on Satan and short Babylon?

Buy buy sell sell !! Greed was never so good !!

I’d be happy with a small drop in the Euro by the end of today. Mrs PR Guy has just told me about some furniture she is going to buy this afternoon 🙁


from a book called
‘A coward if I return, a hero if I fall’ [Words from Patrick McGill poem]

Irish officer who survived WW1 liked the horses.

He had four wins on a five horse accumulator with the fifth horse running the following day. He could not lay off the bet. What did he do?

He contacted the owner overnight, bought the horse and withdrew him from the race, paying the necessary withdrawl fee.
Next day he sold the horse back to the owner.

If he was alive today, he would be a bond trader. He would be making a packet right now. Possibly like Golman Sachs et al made on those Anglo bonds paid this week.

At least that officer had the excuse that it was more moral than what he had been asked to do in the war.

We’ve had the vote in Italy. So will Silvio resign today or call a vote of confidence later in the week?

If I were a betting man (!) I think he might go for one last roll of the dice but he looks finished from here.

Given that ‘desperate men do desperate things’ I wonder what he might have up his sleeve? I bet he knows where a lot of the skeletons are.

Is it just coincidence that there will have been major political change in all the PIIGS (with the odd bit of collateral damage in a couple of the smaller EU countries who had to vote twice until they got it right and then call elections) or is there a ‘guiding hand’ behind all this?

I think we should be told.

We live in sinister times.

Greek central bank emergency liquidity assistance to banks at €26.56bn in September versus €6.42bn in August.

@ Desmond Brennan

The dichotomy between the Federal government and the Bundesbank is not new. It leads for Germany at the IMF and, as recently as September, clearly indicated where it stood on the central issue of bond purchases by the ECB.

It can be legitimately argued that the question of the role of the Bundesbank should have been sorted out before Germany joined a monetary union. This latter decision, incidentally, contrary to popular belief, was not a quid pro quo for German unification but a decision pushed through by Kohl in the belief that it would firmly anchor Germany in Europe. The Bundesbank seems to think that adherence to its view of the world dispenses with any requirement of political common sense.

Incidentally, if this statement is a general indication of the accuracy of the rest of Barry Eichengreen’s commentary, I would have my doubts as to his grasp of the situation. He may be right on the first point but he can hardly be right on the second.

“More controversially, the ECB needs to increase its purchases of Italian bonds. Unless yields on those bonds fall to German levels, there is no way that Italy’s debt arithmetic can be made to add up”.

@ PR Guy

On the important point that you raise, the issue is really one of having a credible interlocutor for the negotiation of agreements. Neither Papandreou nor Berlusconi meet this requirement. (And, if some of the iconoclastic suggestions from some contributors to this blog were followed, neither would Ireland). Desperate situations do, indeed, require desperate measures. The unreliable interlocutors in question chose to play hard ball and their opponents have returned the favour.


I have to say that Eichengreen is once again on the mark. He is pointing out what must be done to dissipate the crisis. A boost to growth in the form of zero interest, the purchase of bonds in very large quantities is what is required to stabilise the debt/ speculative problem, and structural changes are needed long term.

All of what he proposes is probably recognised as sensible and essential.
So why not do it?
Because politically the core have been indoctrinated with stories of bailing out the ‘unnutzen essers’. Well that is the fault of the politicians and a rabid right press in many countries. Now the moment of truth must be faced.
‘Do whatever it takes’.
The alternative is a chaotic reversion to individual currencies with massive revaluations of German mark, the Guilder etc.

Maybe after another one hundred years of war, economic devastation and recovery, the cultural memory of the German people may have changed form a irrational fear of massive inflation in a currency to an irrational fear of massive revaluation of a currency.

Fram that perspective the prospect of forcing the yield on Italian bonds to 3% may not seem such a mountain to climb.

@ PR guy

an sinister ar fad

The way Ireland got shafted was a real signpost and last week was confirmation.

I don’t think anyone is in charge. The markets are like the Tin Man. No heart The politicians are the cowardly Lion. No courage. Barroso is the scarecrow. The rating agencies are the munchkins.

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