FT on Euro Crisis

The FT has an extended editorial on the euro crisis today – it advocates turning the EFSF into an ECB-funded bank.

73 replies on “FT on Euro Crisis”

It may be useful to have to hand the CEPS paper by Daniel Gros and Thomas Mayer (chief economist of Deutsche Bank) which advocates, and explains, the concept of giving the EFSF the ability to act as a bank.


And the attached article from the English language edition of Der Spiegel setting out the view from Germany being discussed on another thread.


There is a great quotation from Weber.

“Here in Europe, we spent a year and a half talking about irrelevant alternatives,” says former Bundesbank President Axel Weber, who is currently teaching at the University of Chicago and is in a position to express inconvenient truths. “All previous ideas follow the principle: How can I use other people’s money to help myself?”

“Here in Europe, we spent a year and a half talking about irrelevant alternatives,” says former Bundesbank President Axel Weber, who is currently teaching at the University of Chicago and is in a position to express inconvenient truths. “All previous ideas follow the principle: How can I use other people’s money to help myself?”

Axel Savonarola

JK Galbraith once wrote

The conventional wisdom” gives way not so much to new ideas as to “the massive onslaught of circumstances with which it cannot contend”.

The debt crisis is revealing the (political) inadequacy of Merkosy leadership and their collective political perspective: from total neglect to bailout Greece (two years ago with E40B!) – they have now gone to the extreme (kosta was es wil).

The core institutional problems have not been resolved or even put on paper inspite of successive Summits. If you finally wish to make *political union* the core of EZ, to reinforce EMU, then the logic demands political action by Council.

Bottom line, this is not a Euro Crisis.

It’s fundamentally the intellectual inability of Merkosy to come to grips with Weidmann’s legal framework argument (FT) of what constitutes in language of Bundesbank *financing governments*.

ECB is the problem because there is no *lender of last resort* (Fed/BOE/BOJ) under EZ – in case of financial meltdown.

Weber is an economic jihadi.

I agree with Pictet

1. Ceterisparibus Says:
November 14th, 2011 at 11:24 pm
“The Swiss bank Pictet said Europe is sliding into a catastrophic slump with its policy mix of fiscal austerity, a credit crunch, and the lack of any lender of last resort. “The German recipe for solving the crisis is geared towards deleveraging all economic agents simultaneously. This is utopian. This policy will brutally depress aggregated demand. It is the route that led towards the Depression of the 1930s,” it said.

and the FT as above


Richard Portes


From the Portes piece:
“for now, their focus has to be on Italy and its spiralling financial woes. ”
Rome is already toast. All through the crisis the EU has been fighting yesterday’s wars and somehow still managing to lose them. They can’t even get hindsight right, what chance of foresight?

@ hari naidu

The paper by Daniel Gros takes for granted that the ECB is the lender of last resort in the most widely understood sense of the description viz. providing unlimited liquidity to the financial system when the situation requires it (which is what the ECB is doing, if my understanding of the situation is correct). But the ECB also took the fatal decision to start buying government bonds.

What is at issue is the view one takes of the wider concept that this implies, mainly touted by the Anglo-Saxon financial world viz. quantitative easing. “wall of money” or whatever name one wishes to give it. The view that Germany takes and, in my opinion, in normal circumstances, correctly, is a dim one and unshakeable.

One of the elements of the Gros/Mayer proposal, which is high-lighted in the introduction, and which may recommend it to German policy-makers, is the fact that “Moreover, the ECB could then stop its purchases of peripheral government bonds immediately”.

Unfortunately, the political athmosphere is now so charged that the “circuit breaker” being sought by the markets may be activated when it is already too late.

@ hogan

In fairness that was from the 11th.
Things are moving so fast . The cancer will soon be terminal.

@ hari naidu

The critique by Bertram is devastating and accurate, notably his reference to a “politicised constitutional court”. But he is talking about the failure of the present entire political generation in Germany, who “have missed a lesson in history”, not just Merkel. However, it should be mentioned that Bertram, born 1937, was a long-time collaborator of Helmut Schmidt, co-publisher of Die Zeit, and from a generation which no longer seems to have much of an audience.

He may also be mis-reading the intentions of his government with regard to proposed treaty changes. Making actions subject to the purview of the European Court of Justice, for example, can hardly be viewed as undermining the EU, quite the contrary in fact, but one in the eye for the constitutional court. Likewise with regard to the toying by Merkel with the idea of changing the German constitution which, to my mind, is simply another example of the incoherent and dysfunctional policy path that she has followed but, at least, puts the spotlight back on the central point in the article by Bertram viz. that Germany risks being the biggest loser if it drops the European Union as its anchor.

” Nov 16 (Reuters) – Italy will not issue preliminary data for third quarter gross domestic product, so the performance of the economy for the period will only be known when final GDP data is issued on December 21, national statistics institute ISTAT said.”

Delaying good news no doubt.

There has to be a mechanism to wind down the banks that cannot be saved.

It’s called bankruptcy. It’s a normal part of capitalism.

The only trouble would be that depositors in Europe would have to line up beside bondholders and both of those behind the ECB when it came to getting their money back. In the US depositors come first. So, nigh 4 years into the crisis and no EU government has yet guaranteed ordinary bank depositors in the event of a bank becoming bankrupt.

Which brings us back to bank wind-downs. The EU does not believe in bank wind downs. It is now an article of dogmatic faith across the continent that banks cannot be allowed to fail under any circumstance, no matter how profligate, how corrupt, or how insolvent they have become. Democratically elected governments can be toppled no problem, but closing a dried up husk like Anglo Irish Bank? Not a chance.

Instead we have sovereign states bankrupting themselves one by one in order to save a crazed casino banking system from the consequences of its own actions. We have the entire European project tearing itself apart rather than call time on the mad markets and their bond-baiting. We’re willing to risk peace in Europe for the sake of a few “cauld pound” in people’s pension funds.

So that’s it. The bank’s cannot be allowed to fail, taxes cannot be increased, the ECB cannot be permitted to print currency, the existing market system cannot be interfered with, and sovereigns cannot even be allowed to hold democratic referendums any more, let alone leave the euro without permission. Europe has become the continent of “No”. Though I wonder when the public will get around to giving a few “No”‘s of its own.

@ All

The Entente Cordiale is under considerable strain following the remarks of Osborne comparing the credit status of Greece and France in the same sentence.


What the Le Monde leader overlooks are two essential considerations (i) that the UK can hardly take lightly a proposal – the financial transactions tax – clearly aimed at the City of London and (ii) the fact thet the UK may have negotiated an opt-out from the adopting the euro but is otherwise a fully-paid up member of both EMU and the EU in general.

The last argument is the one which Cameron seems to be very foolishly abandoning to appease the Tory right-wing.

Merkel and official Germany are deep in denial….admitting to the problem is the first step. Showing them ever more solutions is ineffective, and potentially counter-productive.

I think it would be helpful for a HUGE number of economists and finance professionals to sign: “Europe has a problem , muddling on won’t fix it, diasaster is weeks away” style letter. And countries such as ourselves need to take up the same chant, with ruthless and incessant repetition.

A confession has to be part of your new life . Ludwig Wittgenstein

“londres doit choisir ou se taire”

Quelle bande de blaireaux eurosceptiques , quelles charognards , quelles compacteurs de merde . Putain de bordel de l’Euro !

Good article by Porter

“If Germany effectively says it is politically impossible for the ECB to act as lender of land resort [a position strongly taken by the ECB itself], then I regret to say that the euro is toast. That was not my feeling even a few months ago. I think the political leaders have just taken us down a very bad track.”

Germany is blocking all roads to a rsolution of this crisis.
Its time for people to wake up.
Germany must get off the pot and leave the Euro.

From that link you posted earlier….
“The markets urgently need “the explicit assurance” that the central bank will set a ceiling on Italian and, if necessary, Spanish government bond interest rates, “in recognition of the fact both are solvent. They have a lot of work to do still, but they are solvent. I would not suggest that the ECB should say that about Ireland, Portugal and certainly not Greece, obviously.”

Greece is already heading toward certain default, with Ireland and Portugal following, he says.”

As Enda is feted (with full military honors) in Berlin for being the star austerity
pupil, is it time to look at history? Will he arrive back like Chaimberlain….
Euros in our time.
No. I think I will take the lessons from the Swiss bankers. They got through a couple of world wars and numerous other crisis unscathed.
And they sold 6 month bonds yesterday at -0.3%. That is some trick and shows what the really wealthy think.

“LONDON—Government bonds issued by core euro-zone countries again came under pressure Wednesday, with the yield premium demanded by investors to hold French bonds briefly hitting its highest level since the inception of the euro.

The 10-year French/German yield spread widened to a euro-era record of 195 basis points, or nearly two percentage points, before recovering to 184 basis points, according to Tradeweb data. Dutch and Finnish bond yields also climbed in a sign that the debt crisis was spreading …from the WSJ

Reuters reporting that Unicredit are meeting the ECB today to try and get them to change their collateral rules…in other words Italians are trying to fill the ECB coffers with toxic crap.
I’ve asked before…is this the one to watch?

@Our German Partners

‘Warm welcome at the Chancellery’ … appreciated.

An Chancellor: “We are of the opinion that … member states should be able to be taken before the European Court for not adhering to the terms of the stability and growth pact,” “This is possible for all other EU legislation but not for the stability and growth pact.”

An Taoiseach: “Ireland has always complied with the conditions of (euro zone) membership, we’ve never broken the stability pact rules. If it wasn’t for the prerequisite to recapitalise banks we would have a lower than average debt to GDP ratio.”


This afternoon, Mr Kenny will hold talks with German finance minister Wolfgang Schäuble and give a keynote address to the Konrad Adenauer Foundation, a major political think-thank.

“The chilly press conference was in stark contrast to the warm welcome for the Taoiseach, with full military honours at the Chancellery. After a working lunch, the temperature dropped visibly between the two leaders.”

Must have been sourkrout.


I’m happy you’re able to read Bertram’s savage commentary on current policy-makers surrounding Merkel; that he’s vintage 1937; and, what would you say if I revealed my 1938 vintage!

I suspect national politics is affecting how policy-makers work inside the Council under Rumpoy. This is a crisis which has no comparison to any previous EEC/EU catastrophe-in-the-making.

It is normal, in these circumstances, to turn to Community Method and get the non-political machinery working in Berlamont. I know Council became an official institution under Lisbon Treaty and Merkosy don’t like to be lead by Commission macroeconomists (eg. Maastricht Treaty). However, the outcome is such that Council may be forced to admit its own political failure (!) and revert to old Community Method (if they dare!)….

Monti will get the markets calm but not before France gets entangled in rating reversal – Italy is by comaprison a vibrant economy and should come out of this with some useful education of its current political elite, me thinks.

Apparently, Monti, Papademos and Draghi are all ex the Squid..according to an article mentioned in the telegraph.
Do we have any conspiracy theorists in the house?

@ hari naidu

The Die Zeit article will certainly not have improved Merkel’s humour. Another analysis, however, points out that she is completely in control of the CDU-CSU or, more accurately, that there is no credible challenger which is a different thing.

@ All

FYI the take of the WSJ.


The need for a clear distinction to be drawn between LOLR as understood by Gros and the proponents of a role for the ECB comparable to that of the FED could now not be greater.

One must also have great sympathy for the opinion expressed by Desmond Brennan above. There are too many notes in this particular symphony. But that struck by Gros and Mayer is nearest to finding possible harmony because it preserves the role of the ECB as established under the Maastricht Treaty, puts the political responsibility where it belongs (with the ministers for finance), makes any funding subject to strict conditionality and is subject to a German veto. What more could one ask for!

Aber! To quote the Die Zeit article.

“Erst in den letzten Monaten blickte die deutsche Politik in den Abgrund und erschrak. Seither wird die Kanzlerin nicht müde, drinnen und draußen zu erklären: “Scheitert der Euro, scheitert auch Europa.” Aber jetzt ist sie Gefangene der eigenen Festlegungen. Eine mittelfristig überzeugende, die Finanzmärkte beruhigende Lösung bleibt vom deutschen Nein blockiert”.

Only in recent months have German politicians looked into the abyss and were shocked. Since then, the Chancellor has not tired of explaining both inside and outside: “If the euro fails, Europe will fail also.” But now she is the prisoner of her own commitments. An interim market-convincing solution remains blocked by a German ‘Nein’.


Le Monde: Our Friends in ….

Serious and competent, they weigh up the pros and cons and study all of the documents before giving an opinion. They have a fondness for economics, but these luminaries who enter into the temple only after a long and meticulous recruitment process prefer to remain discreet.

Collectively they form an entity that is part pressure group, part fraternal association for the collection of information, and part mutual aid network. They are the craftsmen, masters and grandmasters whose mission is “to spread the truth acquired in the lodge to the rest of the world.”

According to its detractors, the European network of influence woven by American bank Goldman Sachs (GS) functions like a freemasonry. To diverse degrees, the new European Central Bank President, Mario Draghi, the newly designated Prime Minister of Italy, Mario Monti, and the freshly appointed Greek Prime Minister Lucas Papademos are totemic figures in this carefully constructed web.


No Comment: other than not forgetting one of our own ‘precious’ figure of eight …


I’m shocked. Enda must have taken a testosterone shot (instead of a flu shot) as he headed for Berlin. To take on Dr. Merkel and Herr Schauble in the one day. Wow.

Where was the Gaelic Pravda in all of this ?

I am rereading “twenty years a growing” – maybe its time I moved to a smaller island.

… contd.

Two other heavyweight members of Goldman’s European network have also figured large in the euro crisis: Otmar Issing, a former member of the Bundesbank board of directors and a one-time chief economist of the European Central Bank, and Ireland’s Peter Sutherland, an administrator for Goldman Sachs International, who played a behind the scenes role in the Irish bailout.

I was just about to post that bit. question. What’s an administrator. Is it a role like a nightclub bouncer?


C’mon! Fess up! Where’s the Goldman connection? Declare your interests.

(apologies desmond – where_of you cannot speak; there_of you must keep silent)

Anyone find a link to An Taoiseach’s Adenauer address?


If you read the Leipzig CDU Party Congress decision-making, there is no q’ Merkel is dumping her FDP (Liberal) partners in current coalition. In Berlin today SPD-CDU coaltion state government was installed. Merkel is moving the scale back to SPD – grossercoalition – next election.

She dropped Weidmann, as her economic advisor on Grrece bailout, and *promoted* him to replace Weber, at Bundesbank. But Weidmann, at 43, is demonstrating he’s pupil of Prof Weber and will go down fighting for ECB independence (from politicians).

Draghi has really not shown his hand, by any public statement, other than his goal to carry on with financial stability policy in EZ. But I am sure the Italians will now talk informally and get Italy out of the quagmire before it’s too late.

If you try to place Merkel and Schauble on current EZ debate, Schauble seems increasingly on left of Merkel….She is inevitably following advise of her FM to transfer more sovereignty to Brussels…and closer economic policy integration.

Think US Treasury at least for now – these appointments are very bearish for Europe.
The other Republic recognizes the threat immediately but perhaps its too late now.
The Euro will depreciate against the dollar rather then Gold if these guys get their way – with a transfer of wealth to New York.
Beginning to buy FRNs now – one has to survive.

PS Heard Enda has instructed the goverment Jet to fly -100 feet until it reaches the other side of the Ardennes

@Frank Galton
“And as with World War I, despite the number of big players snarling at each other, the final blow could bubble up from a neglected corner of the Austro-Hungarian Empire.”

I’m watching Milano

I’m at the stage where I’d almost accept any workable solution….some even consider this and wonder is Merkel’s ploy to wear people down, play chicken…and then get her way. But

a) I don’t think she’s that organised
b) she genuinely doesn’t seem to appreciate the financial (in)stability caused by lots of bodies thinking their PIIGS bonds were risk free

Had I a big Satellite dish and antenna now…I’d be phoning ET and asking him to send the MIMF…that’s the Milkyway Interplanetary Monetary Fund…

@hari naidu

reasonable analysis – but SPD will only do the Grand if the Big Collapse moments away [fdp are history] – SPD looking to easily win next one with GP – for EU and EZ I much prefer the Grand, but with SPD in major position.

Re Enda’s clash of the ash – rumour has it that he togged out for Tooreen vs Ballinrobe in the Mayo srn hurlin championship last sunday – mayo faction-fightin hurlin would toughen up jelly!

I think an administrator is somewhat similar to a behind the scenes kon-sig-o’lee_airy in that other great wall street institution …


ta. but economics shortly becoming history looks like …


Our own Enda is the new Super Hero of Europe….all the media are following his exploits including those bastions of civilization, the WSj, Bloomberg, Reuters ….not to forget our own IT

Der Spiegel Breaking Newz

Winning Merkel’s Praise
Amid Quiet Suffering, Irish Pave Road to Recovery

Ireland, which has received billions in aid from the European Union and the International Monetary Fund, is setting the example for how to make painful cuts to get the country back on track in the debt crisis. But the success of the country’s rescue will also hinge on economic developments in Europe and the United States.



Now that Enda has shown Angela the way I’m shure that she will cop on and unleash the ECB on those dreaded testosterone fueled barrow boys belonging to the evil Squid Empire.

I see today that the really Gigantic Squid has told everyone that investors will force the US government to call a halt to “draconian” regulation…in contrast the former chairman of UBS has called for a separation of investment banking from mainstream banking.
Whose right?

It is nice to see Le Monde come over to the PIIGS side of the pitch.
Enda had nothing to lose holding his ground. Good tidy corner back play. The Germans don’t have the hunger for the ball.

… but note the 24 hour lag on the English edition of Der Spiegel International … looking forward to today’s take tomorrow … bit like the EZ crisis … always in catch up mode … but thankfully those bleed1n bank bonds got a mention … [Enda musta kept the tooreen hurlin tutorial quiet]

“When the ECB offered its safety net to Ireland a year ago, it required that the country service debt for all holders of bank bonds — including bonds from those banks whose unscrupulous, risky behavior before the crisis made it necessary to nationalize them. Economics professor Brian Lucey calls this monstrous. “We have to come up with more than €3 billion every year to support bondholders of a dead bank,” he explains. Those daring investors, which include many German banks, don’t deserve Ireland’s tax money, Lucey believes, and he considers this a grave problem for Ireland.

Still, Lucey suspects the prime minister won’t say much about that particular topic while in Berlin. “Kenny tries very hard to be the nice guy,” he says.”

Brian misread our Super Hero.

“….helps to reassure a sceptical German public that bailout loans are not just a direct subsidy for the profligate. ……”

The German public here refers to the profligate manner in which the German banks poured cash on cesspits like Anglo?

… contd. An earlier Le Monde

But who are the members of the European arm of the institution which is so powerful in Washington that it is referred to as “government Sachs”? The key figure is Peter Sutherland, chairman of Goldman Sachs International, the bank’s London-based European subsidiary. The former European commissioner for competition and ex-chairman of BP, is an essential link between the investment bank and the 27 EU member states and Russia. In France, Goldman Sachs benefits from the support of Charles de Croisset, a former chairman of Crédit Commercial de France (CCF), who took over from Jacques Mayoux, a government inspector of finances and former chairman of Société Générale. In the United Kingdom, it can count on Lord Griffiths, who advised former prime minister Margaret Thatcher, and in Germany, on Otmar Issing, a one-time board member of the Bundesbank and ex-chief economist of the European Central Bank (ECB).



Italian Democracy Corriere Della Sera

The Full Monti’s Team – Seven Academics, Three Women and No Politicos
Paola Severino is first woman justice minister. Corrado Passera super-minister

MILAN – Seventeen is an unlucky number in Italy but that’s how many ministers there are. The last Berlusconi administration had twenty-three. Five ministries have gone. Twelve have portfolio responsibilities – including the economy, held by Mario Monti as caretaker – and five do not. Three women hold key posts (justice, employment and the interior) whereas there were six with Berlusconi. There are also seven academics, five doctors, a lawyer and a university lawyer. A banker, an ambassador, an admiral and a health law specialist are also on the list but no politicians. Nine ministers come from northern Italy and three from the south, including junior minister Catricalà; six are from Lombardy, ironically enough without Northern League support, and five are from Rome. A Ligurian, a Piedmontese and a Bolognese are also on the list. The oldest is 75-year-old Piero Garda while the youngest is Professor Renato Balduzzi, 55, born at Voghera, in the province of Pavia on 12 February 1955 (health).


Not much chance of a referendum then?


‘… will other EU leaders start to follow Kenny?’

The “Divil” will captain Tooreen and Mayo for the Liam McCarthy Cup.

The ‘separate Investment from Retail Banking’ is a confusing distraction.

Regulators should target actual risks in the firms, and set capital reserves accordingly (and dynamically). In any case client monies are well protected/ring fenced in the present system.

Regulators in the trenches, with rule measures and calculators are what are wanted…not waffly loons like Neary who’d sniff some banker’s bottom to see if Neary thought he was a ‘fit and proper’ fella.


I have been away… you are watching Milan? Perché? Unicredit?

It’s all getting very interesting. Big political tensions rising now.

Remi Kanazi is a poet who has a very good line about people

“Who care more about keeping it Kosher
than moving things forward ”

And that’s where the ECB is now

The reason that China and other nations turned down beefing up the EFSF should be looked at. They said that the EFSF is subject to political control by certain EU countries. That was not really denied.
“The Board of the European Financial Stability Facility comprise high level representatives of the 17 euro area member states, including Deputy Ministers or Secretaries of State or Director Generals of the Treasury.”
More tellingly the German parliament needs to ‘ok’ the ‘bailouts’ according to their constitutional court ruling. So German parliament can veto anything.
If the EFSF was to be administered by the EU Parliament it would be a little better. The fund has no accountability to parliament or the commission.
So the fund could be influenced politically by Germany and France.
Already we have seen them stick in a clause to allow bailout loans specifically for banks by the ESFS without any mention of a MOU or penalising interest rate for the lending government.
Its better to integrate further polically, set up a common treasury (fairly managed) which collects EU wide taxes, controls fiscal transfers, enforces debt brakes and issues Eurobonds.
The ECB could then buy these Eurobonds. The Fed bought 80% of US government debt in 2009.

Of course the ECB should not copy the Fed, the point is in this situation it could purchase Eurobonds.
Actually JCT proposed a common treasury a while ago.

… and today’s update from Der Spiegel International on Kenny Live in Berlin is …

… er …

… er …

… looks like 24 hrs a long time in German public sphere. These Germans, no appreciation of tooreen hurlin, or of rugby, or even of cricket … must be all dat productivity we keep on hearing about … and now they are reading our troika_mail … tut, tut, tut … before we do.

I see the link goes to a pay/register wall.
Try Googling the phrase below.

one professor to another: listen to the people or fail

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