Euro Zone Weighs Plan to Speed Fiscal Integration

This seems significant.   Gavyn Davies does some scenario analysis here.

Update: Wolfgang Munchau provides his analysis here

93 replies on “Euro Zone Weighs Plan to Speed Fiscal Integration”

That those in charge in Berlin and Paris have come up with this brilliant idea is not in any way surprising as it has been used not just in the case of Schengen (control of persons at borders) but also for the exchange of information in the area of criminal cooperation (Treaty of Prum). Both arrangements have since been integrated into the treaties. However, they applied to areas which were not linked to the core competences of the EU.

There is a confusion in the linked WSJ report between this idea and the idea of an “enhanced cooperation” by nine member states. It is outside the treaties. Enhanced cooperation is a procedure within them. It can only be adopted as a “last resort” (Article 20 TEU).

The manoeuvre smacks of desperation (and is being half-heartedly denied in Berlin). But if it provides the necessary political cover to do what is actually necessary to restore market confidence, why not?

What I’m hoping for, among the alternatives considered by Gavyn Davies, is the “Route 2b” in which Germany and the Netherlands exit the EZ, allowing the depreciation which most of the remaining states need. I’m not expecting it though.

Re this remark, concerning a disorderly breakup:

…the resulting exchange rate adjustments would be large and completely unexpected, and few economic entities would be hedged against them. This would mean that the wealth and income transfers would be substantial and chaotic. It is likely that the losers would cut their spending by more than the gainers would increase their spending, so aggregate demand could plummet.

It seems to me that modern macroeconomics has a problem, in that commentators like Gavyn Davies can write things like that, but ‘serious’ macro theorists can’t. For those who equate rational expectations with Truth, such things are unthinkable and therefore unthought.

@ Karl Whelan

I see no reason why any such treaty, were it to come into existence, should not be governed by Articles 29.5 & 6 of the Irish Constitution governing international agreements i.e. simple approval by Dáil Éireann.

But it looks like the Spruce Goose to me i.e. far too heavy to take off in the length of runway remaining.


You are probably right. Pat Leahy has a good piece on this in today’s SBP (no link).

It is important we keep things in perspective: The euro zone looks to be at real risk without serious ECB intervention; Germany/ECB seem unwilling to allow this without some significant cover in terms of a new rules regime; everyone — us included — needs to show some maturity.

One interesting thing about enhanced cooperation area is that I understand it, non-members can join.

Any odds on Switzerland?

@John McHale,
Your latest comment epitomizes what I find objectionable in your thinking. To “show some maturity” means to give Germany/ECB what they want, in order to save the eurozone, which was a lousy idea in the first place.

Why not invite Germany to form a new monetary union, with those who actually think like Germans do?

John Michael
Maturity more than the maturity shown in keeping the rotten corpse of Anglo/inbs s going concern to extract billions for the purposes of supporting eurozone (read Dutch/German) banks ? That maturity? More maturity than the preemption of biliosn per annum in tax payments on same? More maturity than the already massive and needed fiscal adjustment?

Article TFEU 125.1, with emphasis added:

1.The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.

Seems pretty unambiguous to me: intra-EZ fiscal transfers are illegal, whether or not they take place under EU auspices or not.


Granted, this conclusion depends on accepting the eurozone is worth saving. Given the revealed fragility of creditworthiness of the eurozone absent a dependable lender of last resort to states — which was not the problem most critics of the euro project focused on — I wish we could wind the clock back. But the unravelling of the euro zone now is likely to be a disaster. Maturity is needed to avoid the massive failure of collective action that would be a euro zone collapse.

Re examining the fiscal council report, it’s a pity they hadn’t the courage to suggest some radical changes in the Anglo promissory notes. Getting that monkey off our backs would have given great fiscal manoeuvrability but I guess that avenue of suggestion was either ruled out or ruled inadvisable. Which was it John?

Italy has the IMF in the House,
if things would continue this way, Spain and Belgium would be under IMF control until XMas. That means that a working final proposal must be there the latest on 9th of December, decision made the latest by XMas, and that means without any referenda, and with or without Ireland. Papandreu and Berlusconin have speeded that up remarkably.

Prom notes? Fiscal implications of same? In context of the need to move to a primary surplus?

@ All

The latest from the front! (Google Translate is OK. Don’t click on the teaser advertisement!)

Italy and Belgium go the markets on Monday, Spain and France on Thursday! For a total of of 19 billion €! With any luck, Merkel and Sarkozy will maintain their agreed vow of silence until Friday and allow their finance ministers to tie up what looks like being a gargantuan package.

P.S. Belgium has now both a budget and agreement on a new government.

@ All

Oops! Wrong link.

@ Anonym

That is not what is being proposed. If anything, the very opposite i.e. the countries signing up will bind themselves to a form of budgetary discipline that precludes bailing out. In short, the countries “not in a programme” are being invited to get themselves measured for the thumbscrews. As these are already being applied to Ireland, a new treaty would make little difference.

The question is; will the thumbscrews be applied with an even hand to all participating countries? And what form could the sanctions have?

However, the discussion is a political sideshow as far as the markets are concerned. Their eyes will be glued on what the finance ministers are deciding.

An excellent and easily digestible piece by Gavyn Davies.
A very indigestible idea in the WSJ for many reasons.

Again Merkozy want to present a fait accompli to the assorted 17 EZ members.

European authorities would gain tough new powers to enforce fiscal discipline in the 17 countries that make up the euro zone, the people said.

So we are back to European authorities again. We know all about those.

Ireland knows all about tough measures. Are we now to give plenipotentiary powers to the very institutions that insisted we pay bank bondholders thereby sending the State into insolvency?

I no longer trust these people.
France has already got agreement that the whole of the EZ will pay for their banks through the EFSF.
So we will have to take our share of all EZ bank losses but pay all of ‘our’ banks losses.
This is not egalité. Sorry.

And as for the independence of the ECB, the WSJ puts it politely below.

A green light from Berlin for a bigger ECB role is seen by many euro-zone policy makers as a political necessity if the ECB is to act. Although the bank is politically independent, it has also paid close attention to the debate in Germany, where the government has so far rejected a bigger role for the central bank.

So the ECB is doing what Germany tells it to do! If it deviates one inch, we get Board resignations and huffs etc. First Weber, then Stark..

We hear that Germany wants PSI. Who in their right minds doesn’t.
But why did a Germany that obviously controlled the ECB insist that Ireland not apply PSI to the ‘Irish’ banks.

The only logic in the new fiscal powers and sanctions proposal, it that it is necessary to protect Germany from a Euro breakup.

Ireland should not be sucked into or driven into this colonial agreement.
A Euro breakup is now in Ireland’s interest.


“….everyone — us included — needs to show some maturity.”

IMHO it would not surprise me if many Irish people reading this statement would find it to be highly objectionable and condescending.

It takes a lot of “maturity” to implement the measures we have while still maintaining democracy.

There is a need to “show more maturity” in Europe but not by Ireland.

Due to the Imperative of Time in unleashing the ECB, a series of inter-governmental bi-laterals (which would not require referenda imho) with agreed ‘declarations of intent’ on the ‘fiscal’ provide a “procedurally doable” route to such unleashing of the ECB on sovereign bonds; more importantly it would be ‘saleable’ by Dr Merkel to her ill informed citizenry -hence de-hoisting her from her own ill-judged political petard and possibly providing some more time to Sarkozy’s increasingly feeble banks.

It provides short term respite by simply hanging out the fiscal to dry; with a few ECB ExecBoard members on shotgun security duty – while the MatrixsQuid cotinues to filfer its coffers and the pockets of the EU citizen-serfs through the untended back doors ….

It does nothing about the Big Black Hole in the EZ financial system (inc Germany, France et al) … it does nothing to write off the 50%GDP odious banking system debt saddled on Irish citizenry with an unsustainbable load; it does nothing to reform EZ banking/financial system;

It will buy some more time – but reach no definitive on drawing a line under the crisis – which will explode again in 2012.

A dumb and patronising comment from John, who has become, it’s sad to see, ever more the insider. Maturity me eye

re last sentence in last post should have been:

….”show some maturity”…

If one feels compelled (ie provoked ) in to commenting on a use of words it probably would be a good idea to quote the exact words. 🙂

My use of the word “maturity” has clearly caused offense. That was certainly not my intention. My point is simply is that if everyone digs their heels in and pushes for maximum national/institutional advantage we could we could move easily enough beyond the point of no return. Call it something else if you want — flexibility? — but the stakes are high.

It strikes readers John as insouciant insider ‘we must all step down a step’ wittering. It’s astonishing that the leader of the fiscal council isn’t aware of the amazing forbearance and maturity Ireland has shown.
Munchau has a deeply gloomy end point that we have until 9december


The question is; will the thumbscrews be applied with an even hand to all participating countries? And what form could the sanctions have?

Perceptive questions.
Based on the evidence of the last years and your own in depth knowledge of European politics would you venture your opinion.

Just read Wolfgang

He notes how the Commission’s intervention changed the ‘nature of the debate’. Chancellor Merkel may have her cherished germanic ‘fiscal union’ – and the quid pro quo – ‘EuroBonds’.

Of course we have been rambling on about these two devilishly intractable twins for three years now — and as Monchau notes: If both ‘can be agreed’, then the problem is solved’ – well, imho, at least well on the way to a solution.

Probably not the ‘first’, as Wolfgang implies, but certainly an ‘intelligent official proposal’. From an Irish perspective, there remains some significant local housekeeping on upper-echelon and vested interests before one could sign up – but from an EU democratic perspective, it ain’t half bad.

IMHO, MerKozy will go for a the half-way house. I ain’t interested in half-way houses.

@ All

On the “maturity” issue, there is a clear and present danger that the euro may break up with incalculable consequences not just for Ireland and Europe but for the entire global economy. Even it were not to break up, the ad hoc measures adopted (i.e. the EFSF) may not be sufficient to keep Ireland “out of the markets” (which is another way of saying that other countries are raising on the markets on our behalf the money that we are unable to raise ourselves).

We have been given a breathing space. I think that it the mature option to draw maximum benefit from it and to do everything possible to ensure that it continues to exist.

On the general, and immature, flight from reality evident in the pre-budget debate, Stephen Collins has a good article in the IT.

On the specific issue of the banking debt, any responses to the effect that it was the banks that borrowed the money and not the Irish people (although they spent most of it) are accepted. However, on the general problem of PSI, it seems best to await the outcome of next week’s discussions.

@ Joseph Ryan

I would quote by way of answer the comment of a German bank economist; “are they going to put all the Spaniards in gaol?”. And that of another on RTE at midday that it all boils down to a question of trust. In short, nothing on paper with regard to sanctions has any real meaning.

What the markets do, on the other hand, does.

In fact, I do not think what Merkel and Sarkozy get up to has any force any longer with the markets. What their ministers for finance agree next week just might. One example, would, of course, be to bring forward the adoption of the ESM and the associated capital contributions. The very announcement of the agreement would have a significant impact as it would imply that “doing whatver it takes” actually means something i.e. a first tentative step in the restoration of trust.

I’m just wondering what the reaction of the rest of the 27 countries non-EZ like the UK is going to be to these ideas.

I’ve worked on the fringe of a number of deals that have gone down to the wire, required all-nighters, etc. and there’s a saying (don’t know if it’s used outside of PR): if it wasn’t for the last minute, a lot of things wouldn’t get done.

We are certainly at the last minute by the looks of things.

UBS thinks it’s moving faster than politicians can:

“Financial markets continue to move faster than politicians,” Mansoor Mohi-uddin, head of foreign exchange strategy for UBS, said. “Fixed income investors are betting that either Germany moves towards a fiscal union with its eurozone partners or that, without the ECB willing to buy unlimited amounts of sovereign bonds in the secondary markets, the eurozone will break apart.”

Should further integration of eurozone countries occur, then Germany’s finances will get worse, he said. “If [a closer union] involves fiscal transfers to shore up the single currency area then Germany’s fiscal position itself will deteriorate,” Mr Mohi-uddin said.

HT Telegraph

Thing is Germany can’t move to a fiscal union with others unilateral . It needs to , ykniw, negotiate, compromise, that sort of stuff . And a lot of trust has been eroded. So, what will Germany give up in exchange for our independence? Or Italy?

Am I missing something here ? Ireland aside, the Eurocrisis cause was insufficient risk premium being attached to sovereign debt from certain Eurozone countries. Surely the remedy would be:
1) Make the sellers (i.e. countries) give a lot more information (in standard format)
2a) Improve the secondary markets for said bonds, greater transparency etc…furthermore even consider requiring say 10pc of each issue be withheld(as ‘treasury stock’) and released onto secondary market at set intervals (to ensure liquidity). Also consider attaching warrants to each issue, which would become active if debt to GDP ratio went over a certain limit.
2b) Mark to ff’in market…situation where banks don’t seem to have to mark tier 1 capital to market is mad…ditto the whole repo/collateral world

After the .com bubble we didn’t suddenly think there was a need to force mergers and introduce more corporate governance ? Similarily the Ez debt crisis should be seen as a market failure, and treated accordingly

Conventional wisdom asserts that the impending Euronext breakup will be a disaster. I recall similar forecasts of a permanent economic nuclear winter if we were to devalue, 20 odd years ago. I recall Gavyn Davis forecasting the next, most brutal, leg of the late 1990s emerging market crisis would occur if and when Brazil were to devalue.
All these forecasts couldn’t have been more wrong. Brazil’s deval marked,precisely, the end of the great emerging market crisis, for example.
Apart from the 100 pecnt nationalisation of the euro zone banking system and a hugely expanded role for the IMF, I can’t see any big disaster. Actually, lots of pluses for this countries that pursue rational and self interested policies. Here a forecast: the value of the punt wil, 6 months after its restoration, be higher against sterling and the dollar than its current implied value.

The solution is the same no matter what happens – start storing excess rain water in giant cisterns and trade it for oil.
You never know – it might just work.


Peter Bofinger musta gone to Frankfurt School. Might even have read a bit of Adorno, Horkheimer, Habermas, Marx, Hegel, and Kant. He certainly read Keynes …

Wise man. In the midst of fools.


Agree that connventional wisdom is usually some powerbrokers spin.
But Nein to an punt nua at the mo. More pressing to tidy up dysfunctional [take your pick] locally. If tidy up – doesn’t really matter what one calls it – we can globally play and live reasonably locally. Greatest impediments to progress remain internal …

As I said above, the proposed German solutions at best partially address part of the cause of the problem….for this, they are will to unleash _a_ solution. However they want things that are not particularly relevant, and are horsetrading.

This does not bode well for the numerous amount of reforms needed to the global financial system – and I think an orderly partial PIIGS default, backstopped by the IMF, needs to be considered.

It would be a grave mistake to cave to Germany, as fixing global financial stability problems will not require an EU fiscal authority…rather instead a global body focused on fin stab/market reform. Germany has acted neurotically, and now is the best time to relieve them of their role.

The will is there within the EU and the EZ to come to grips with reality. The German, French and Italian export machines are cranking out the goods and bringing in the foreign currency which is propping up the Euro. The business community in those countries are overwhelmingly behind the Euro. It follows that Merkel, Sarkozy and Monti will strive to stabilise the Euro. The main value of the Euro to the big European trading countries is that it has mass which leads to stable exchange rates. Every one of those countries has been jerked around by the likes of George Soros resulting in damage to the real economy as opposed to mere financial speculation. GB is a good example of a country that is vulnerable to speculators. The small countries or at least the well governed small countries benefit enormously by being in the EZ.

As for Ireland and its quaint ideas about sovereignty which somehow ties into its distrust of the Irish Gov’t and a need for referendums to protect itself from the selfsame Irish Gov’t. We need a crisis that is not mollified by the ECB or other EU institutions to bring us to our senses. It is quite possible that will come to pass in the coming year.

Steady on!

At the risk of appearing immature :-)…

The focus on agreeing almost anything in order to maybe get the Germans / ECB to hose down the bond markets with money, is fascinating. If your not careful, you will wake up a few years later and start to think of that fascination as a bit like the way a magician distracts his audience into being interested in only one of his hands.

The stability and growth pack was, for a time, known as “the Stupidity Pact”. It limited Keynesian responses to a recession. For the smaller, high beta, economies where cycles would likely be faster both down and up, the pact placed them at even greater likelyhood of being disallowed deficit spending – even when the funds could be raised and the market agreed it was appropriate.

What exactly is potentially being signed up for?

I should stick to “interesting” for a while.

If countries are going to sign up emasse to a debt brake system then the other parts of fiscal integration should also be put firmly on the agenda.
In fact Merkel said that the controls are the start of fiscal integration as the controls in themselves ala the stability and growth pact are not in fact fiscal integration.
Fiscal integration implies
1. A common treasury with taxing and bond issuing powers.
2. Fiscal transfers.
Controls may the the first step, the other steps need to be moved onto fairly quickly. A firm commitment and plan to move onto these steps in the near future, say in 2012 and certainly before German elections in 2013, is needed for Ireland to sign up. Perhipheral countries should make a strategic group and even have a meeting and press conference demanding same.
Top global economists such as Krugman should be invited to put in their input on the debt-brakes. Their points on how debt-brakes can be harmful in certain situations are valid.

@ Simpleton,

“Here a forecast: the value of the punt wil, 6 months after its restoration, be higher against sterling and the dollar than its current implied value.”

I’m inclined to agree with you. How trashing an economy in the name of a currency is considered sound policy is beyond me. It’s putting the cart before the horse and expecting it to move somewhere. Where’s the value in that?

Also, in the Great Depression, those who came off the gold standard first suffered least. There might be a lesson there.

@ DO/Simpleton
Is that based on the Merrill lynch forecast.
I find it bizarre that they believe we will appreciate the dollar, with a debt GDP ratio approaching that of Italy. So the lira will appreciate also?

The disaster that everybody fears, namely a deep recession and a failed euro zone banking system, is already here, and the euro still exists. The euro is the cause of the problems, not the solution. The euro is a political construct. The disaster will be the political failure, not an economic one.

An earlier comment on this topic on an older thread

The Stability Union proposals give the “EMF” explicit powers to intervene in national budgets and raise taxes, and thus could be used to raise CT in Ireland. I do not see how Enda Kenny can agree to this on Dec 9, and any agreement (whether as a treaty change or intergovernmental) of this nature would require a referendum. Hence the suggestions that there will be a core EZ and a non-core EZ following the next Summit.

As to whether it will make any difference – given the SGP, the EDP, the Euro Plus Pact, the Six Pack, the Ten Measures etc. somehow I’m not convinced that the markets are thinking “You know, if only we had one or two more Germanic rules in place then everything would really be all right…”

“Under the proposed plan, national governments would seal bilateral agreements that wouldn’t take as long as a cumbersome change to European Union treaties…”

So how many bilateral agreement are required? Each EZ member with each EZ member? That’s 272. Perhaps it would move faster if each member was to sign a bilateral agreement solely with the leader of Fourth Re…. pardon…. Germany. And wouldn’t an agreement with another country designed to give away fiscal sovereignty require national referendums in some countries?

Whatever happens, it’s hard to believe that things won’t have changed fairly radically by this time next year. I must start putting my forecast together. Three more countries in ‘programmes’, two speed EZ, three countries left EZ, etc.

According to German press, IMF and ECB are preparing a joint defense of Italian bonds with some E600 Billion. IMF has officially refuted the printed commentary in Germany. But it must be true because Monti can’t mount a fight against the spreads unless he gets Italian Parliament to pass his interim budget – when?

“Here a forecast: the value of the punt wil, 6 months after its restoration, be higher against sterling and the dollar than its current implied value.”
So within six months the ‘benefits’ of a devaluation will be lost?

Seems a rather pointless upheaval, then, doesn’t it?

Madness contd. Or how to destroy the European Project with a Thousand Nationalistic Turns of a deeply flawed Franco-German Dictatorship …

The German government is considering the possibility of issuing joint bonds with five fellow triple A euro zone countries that are being referred to as “elite bonds” or “AAA bonds”, newspaper Die Welt reported today.

Chancellor Angela Merkel and her centre-right government have repeated ruled out collectivising debt and the introduction of common euro zone bonds.

The conservative daily cited “high European Union diplomats” involved in fighting the sovereign debt crisis saying the Berlin government was nevertheless considering issuing bonds jointly with France, Finland, Netherlands, Luxembourg and Austria.

@Herr Kohl

The Lady is out of control!

@ Hoganmahew,

It’s possible to rise against the dollar and sterling and fall against the new mark, guilder and co.

Also, it’s not solely about the value of the currency but the ability to fund investment and get out of the austerity trap. We’re getting royally shafted at the moment.

The wildebeest herd is being harried and attacked by market lions at will on a weekly basis and EMU one after the other are being taken down…..we are witnessing its death knells.

Funny that the ‘immature’ were those who forecasted this and the ‘mature’ its opposite. Perhaps the mature in the above scenario should now re relabeled ‘immature’ but add in gubu if you want.

Re “Under the proposed plan, national governments would seal bilateral agreements that wouldn’t take as long as a cumbersome change to European Union treaties, according to people familiar with the matter.”

This is more Orwellian bellyfeel good soundbite nonsense emanating from the eurocrats who’ve lost the plot.

There is no proposed plan. Let me repeat that: there is no proposed plan! This once again is a tentative plan to HAVE a plan:)

We’re being threatened with eviction from the EMU, the proposed EMS cuts us off from the decision making process. The EFSF has austeritised us for the next 20 years. The Government here are telling of our successful return to the markets next year and ‘growth’ and the success of its austerity policies.

We’re both legless and leaderless with one of the most politically immature and talentless governments ever to walk any state in Europe. Best we can hope for in the coming address the nation speech by Enda, is something compared to that tale told by Joyce in ‘The Dead’; he’ll have an epiphany and recognise we need, not Dublin, but leave the Euro asap.

Hopefully by 2016 we may have some vestige of a sovereign economy left. Either that or we declare ourselves a protectorate colony of Germany, IrlandStein:)

Show us the PLAN:)

Habermas gets it right:

“He sees EU leaders seizing the euro zone crisis as a way of transforming the European project into the opposite of what he thinks it was supposed to be. “The first attempt at a democratic, judicial supranational community would become an arrangement for the exercise of post-democratic-bureaucratic authority.”

That democratic project is now dead hijacked by banks, the markets and who knows what witches brew ‘political integration’ is now melting in the pot.

@ All

As there are more kites being flown than you could shake a stick at, it may be useful to have a link to what the Commission is actually proposing. The two fundamental measures are based on the adoption of Regulations which come into force on the date agreed and become a part of the domestic law of the member states, no transposition measures being required. Simples!

One can compare this with the cacophony of inter-governmental fixes emerging from every corner and rightly condemned by Habermas. The main culprit in this respect is not Germany and Merkel but France and Sarkozy.

The best coverage I have come across is by Bloomberg in its reporting of what Schaeuble has had to say.

It will be noted that he failed to answer directly the question with regard to whether a Schengen style “solution” was under consideration by Merkel and Sarkozy. He does make clear, however, that he does not see the proposals by the Commission as going far enough and that a change to Article 136 TFEU (another one!) and Protocol 14 will be necessary. (The main handicap of the protocol is that it stipulates – on UK insistence from a different era – that the Eurogroup meet informally).

According to other reports, technical agreement has been reached on the leveraging mechanisms for the EFSF. This will, at least, clear that item from the table and allow ministers to raise their gaze and contemplate the destruction all around them and the looming credit crunch in Europe and not just the EZ.


“According to other reports, technical agreement has been reached on the leveraging mechanisms for the EFSF.”

So, where’s the money. Last report I heard was Klaus Regling was turned down by China’s Liu Jintao who declined support for EFSF. There there’s the contradictory AAA rating for these bonds that will be provided by some EMU members whose own rating has dropped beneath the AAA radar.

Scheuble is asking for veto powers on budgets, …from your Bloomberg

“Schaeuble again ruled out joint euro-area bonds or deploying the European Central Bank to fight the crisis, saying such a debate is conducted in “those countries that have to sort out their budget problems and chose to misunderstand that they have to make more efforts.”
“We must together set up institutions that secure trust in the euro,” he said. “Everything that detracts from that is damaging.”

Look, Germany wants its money back. It wants punitive and penal powers over debtor states such as Ireland. This is nothing else but simple Sheriff of Nottingham stuff. No relief for Ireland is contemplated via euro-bonds or ECB.

We pay up and their only concern is to make 100% sure we do pay up!

Time we used whatever is left of democracy in this country to take our finger out of the dyke and demand they pay up, 50:50, or we’re out. Simples.

As for the ‘No money in the ATM’s’ , that particular exocet works very well with the highly paid who are still milking it. So, I expect my arguments above to fall on deaf ears!

@disgruntled observer
“It’s possible to rise against the dollar and sterling and fall against the new mark, guilder and co.”
Well, there are two memes at play in the “leave the euro” posts –
1. The new punt will be stronger than sterling and the dollar within six months
2. Our largest export markets are the UK and the US so a weaker new punt will help exports.

My cursory examination of the two memes suggest they are incompatible.

“Also, it’s not solely about the value of the currency but the ability to fund investment and get out of the austerity trap. We’re getting royally shafted at the moment.”
The value of the currency is the key point for funding investment. Either it is strong enough to issue debt in or it is not and debt must be issued in foreign currencies. If debt must be issued in foreign currencies, then we are no better off and probably worse off as we will end up paying a premium for inability to pay and local interest rates will have to be at the higher end to support the currency – look at the prevailing ISK interest rates and imaginate them in Ireland in two years time.

Without an internationalised banking system, we would be dependent on either domestic resources for funding for the new bonds, on foreign underwriters, or on gifted funding. See Iceland and Latvia –

The requirement to cut the public sector borrowing requirement would remain. While bonds issued before the bailout are issued under Irish law so may be redenominatable, are the troika issued bonds (which will amount to 50% of the debt we have) the same?

@ Colm Brazil

I referred to “technical agreement” on the “mechanisms”. I said nothing about the broader issue of whether they would be availed of. I doubt if they will be unless the broader issues affecting confidence are resolved.

I agree that Schaeuble’s position is not acceptable. But he is, at least, trying to play Germany’s hand within the scope of the EU institutions, a hand that could easily be taken away from him if past experience of the dysfunctioning German policy apparatus is any guide. It is clear that he is under enormous political pressure to spell out maximum German demands before a sceptical national audience. Whether they are met or not is another matter. One must hope that the other member states have the collective good sense to call a halt to the Merkozy gallop.

On your last point, I have no doubt that many in Germany would be delighted if the ultimatum that you suggest was given. The answer would be; “there’s the door!”.


I may have technical agreement with the bank manager on what sort of mortgage I will use to purchase a house.

But if I can’t raise enough money to purchase it?

On your last point, I agree.

Within Merkel’s Christian Democratic Union Party there’s already been plenty of talk on the framework for a voluntary exit that would include a country such as ours retaining membership of the EU.

If I’m not mistaken there have already been broad hints that we should consider our position and go. It appears no one wants to be the first one to pull the plug?

In the denials re ECB involvement or eurobonds or debt writedown, the future being mapped out for us within the eurozone is not one seeking to covet our presence anymore!

It’s wiser to leave now rather than face humiliation by rejection followed by ejection.

@Colm Brazel

“So, where’s the money. Last report I heard was Klaus Regling was turned down by China’s Liu Jintao who declined support for EFSF”

Replace ‘China’ with the name of more willing assistance (IMF)?
Maybe that’s where the ‘anticipated’ €600bn is going and not direct to Italy and/or Spain? Funny enough, that would make it over a trillion.

There are so many kites being flown this morning it’s starting to look like that novel set in Afghanistan. Hard to know what reality is today. Too many competing PR Guys with their fingers in various pies trying to promote the self-interests of various governments and institutions (or even competing individuals within). Muddy water and all that.

The tide will eventually go out. I don’t think the ratings agencies have finished yet and there are a number of bond auctions (€17bn worth?) to be had over the next few days. Should be an interesting week.


MatrixsQuid facilitates a toss of two thirds of a Trillion on the Italian serfs …. [h/t naked capitalism] … socialization of homo-x-sapiens rambles on …

According to Austrian daily Der Standard, Italy is to receive a 600 billion euro bailout courtesy of the IMF. Note: the article has what I assume to be a typo, referring to 600 million euros instead of 600 billion. I have fixed that in the translation below. Also note that the ultimate source of this information is La Stampa, an Italian daily newspaper.

@ Colm Brazil

On the issue of Ireland leaving the euro, you are monumentally missing the point. Were any country to decide to quit the euro – for which there is no legal provision – it would simply absolve Germany of all responsibility and place all the consequences – almost totally negative – with the departing member country.

We may have shot ourselves in the foot by joining in the euro in the first place but why should we accept an invitation to shoot ourselves in the other?


Any idea of specifics (name/position) on the IMF spokesperson? A lower minion/PR Guy/source with no name is not an official denial. When the fragrant Christine officially denies it…. then we will know it’s actually true!

Rather pessimistic but realistic view under The Euro Area Is Coming to an End: Peter Boone and Simon Johnston on Bloomberg Europe news. This seriously undermines the efficacy of an ECB bazooka to stem the ongoing crisis. In the authors view the cure of printing money by the ECB wouldbe worse than the disease

With reference to my previous post to quote from Boone and Johnson with regard to Ireland ” Michael Noonan is at odds with reality when he claims that Ireland should return to the markets in 2013.This is a country with 133 percent of gap in public debt and about 100 percent GNP in additional contingent liabilities in the banking system (We use GNP because GDP is artifically raised by the offshore profits of non-Irish multinational corporations,most of which Ireland doesn’t tax)When large amounts of money are printed in response to dep structural flaws,its hard to trust that money” Pretty damning eh

Christine has now denied (from Lima) that Spain/Italy has ‘asked for’ IMF help. That either means someone else has asked on their behalf or they are being told what to do.

All good fun.

@PR Guy

Bit o form on andean denials from all those corporate lawyers … as we know too well considering the day dats innit!

Course – U do do this stuff (-;

@ All

An absolutely first class analysis of the current situation from Welt Online . At least, Merkel does not have to say anything until Friday. As the song has it; “you say it best when you say nothing at all!”.


Berlin denies the split – lot of denial goin on at the mo

Closing the AAA Ranks?
Berlin Denies Rumors of Plans for Joint ‘Elite Bond’

The move would divide Europe — according to a press report, Germany and the five other strongest euro member nations are considering the issue of so-called “elite bonds.” A German government official has denied the report, but there is mounting speculation that the six nations plan to spearhead closer fiscal coordination.,1518,800332,00.html#ref=nlint

Rumour that Kohl and Habermas forming a joint militia of angry old men – bout time …. this is getting really dangerous … MerKozy deserves a P45


You are right about unilaterally leaving the euro now. If as is likely “this sucker goes down” as per GBII pithy phrase, there will be a hell of a lot of blame and pain to go around. As an SOE, we want to be seen as an innocent party as much as possible.

It also strikes me that Simpleton is spot on. Shortly after the 8 or 10 AAA row off and leave the survivors in the water, they will be beset by banking collapse, decline in net exports, and severe deterioration in BOP as some of the speccy outflows reverse to go back to the now cheaper periphery which will by then have much reduced debt durdens courtesy of default.

In our case, we should be comfortably in surplus on the BOP , have the cleanest banking system with conservative regulation. We still have the best demographics and of course we will have burned every bondholder that we can lay our hands on…the ECB SMP, unguarantteed seniors, the pro note etc. Hopefully we shall call the Brits and the Scandis into a room and make them whole.

It also strikes me that the Germans now do not know what their negotiating position is. Logically it should be a willingness to trade eurobonds or ECB buying for a binding commitment to austerity. However, like 1944-45, they seem determined to plough on without any hope or willingness to bargain. Like the previous episode, that is going to end in a world of pain for everyone including themselves.

contd Der Spiegel International

Euro Zone on the Brink
A Continent Stares into the Abyss

Fear is spreading through the financial markets as investors pull their money out of the crisis-stricken euro-zone countries. With Chancellor Angela Merkel opposed to using the ECB’s firepower to solve the crisis, the monetary union appears increasingly in danger of breaking apart. Some economists are even arguing for Germany to reintroduce the deutsche mark. By SPIEGEL Staff,1518,800285,00.html#ref=nlint

@John McHale

Wouldn’t it be lovely to see some MATURITY in the actions of Angela Merkel and Nicolas Sarkozy? They are acting like the ‘terrible twos’ after losing their ‘rattles’ ….


Sinn and Issing up to their usual tricks … quelle surprise!

@all Irish ecomists who are anyway pragmatic and numberate

Figure out a way of Defaulting on Vichy_banking system debt; we will pay the genuine sovereigns in whatever ….. I’m getting rather tired of all this nonsense ….

@ tullmcadoo

In the scenario that you outline, there would be no incentive to maintain the internal market, all the transaction cost benefits associated with a common currency would be lost and the EU would almost certainly break up.

Not, however, if Greece, Ireland and Portugal were stupid enough to unlilaterally leave the euro.

I do not know about the populations of Greece and Portugal, but there is more than enough native cunning in Ireland to avoid falling into this trap.

@John McHale

Why would any sane person in this country vote ‘yes’ to another european treaty. Get real.

Well, there are more than your opinions in the country.

I for one am thankful for that.


Got it in one. The collapse of the Euro would almost certainly lead to the collapse of the internal market and the rise of protectionism and extreme nationalism in the EU. We know where this will end up.

As an export nation, I am surprised that the Germans have not copped on that this is not good for them.

It is not good for us either and demands that we become super competitive very quickly. Further downward adjustments to pay and transfers are required.

@john mchale
I hope you and your fiscal committee colleagues are hard at work. While our imminent departure from the euro zone wii of course be accompanied by default and eventual recovery, that default will require us to run a budget balance, immediately. Any suggestions for how we might do this in an optimal fashion?
I hasten to add: our departure will not be an event of our choosing. The game, the wider game, is well and truly over.

@tull mcadoo

there is ‘much’ more to ‘competitiveness’ than ‘pay’ – which I’m pretty sure you well know …. surely you are not descending to the moor_een mcdowell simplistic wing of the ayn_eenrandite society?


Your scenario does need to be seriously addressed – (I doubt that it is being so addressed) – whether it does or does not come to pass remains open at the mo …


Of course there is much more than pay in the calc of unit labour costs. However, our current levels of public sector pay are relatively speaking too high and productivity is too low. The same applies in some sheltered sectors. Pay will be addressed in the short term by the need to balance the budget in Simpleton’s time frame. Productivity will be dealt with in the medium term. Croke PArk will revert to baing a stadium and not an agreement.

However, the current govt are fundamentally mistaken and going down the same road as 1982-87. The permo govt is also too trusting in european institutions acting in our interest. Our lads so much enjoy jaw jawing in Brussles. I am afraid the future is going to be in bilateral meetings with the UK in Belfast, Cardiff and GLasgow.

Strange, isn’t it. Italy, the largest EU country that requires a bailout of its debt, can still sell its bonds, but Germany, which requires no bailout and which is expected to bear a disproportionate cost of Italy’s, Greece’s and Spain’s bailout, could not sell its bonds.

In my opinion, the failed German bond auction was orchestrated by the US Treasury, by the European Central Bank and EU authorities, and by the private banks that own the troubled sovereign debt.

My opinion is based on the following facts. Goldman Sachs and US banks have guaranteed perhaps one trillion dollars or more of European sovereign debt by selling swaps or insurance against which they have not reserved. The fees the US banks received for guaranteeing the values of European sovereign debt instruments simply went into profits and executive bonuses. This, of course, is what ruined the American insurance giant, AIG, leading to the TARP bailout at US taxpayers’ expense and Goldman Sachs’ enormous profits.

If any of the European sovereign debt fails, US financial institutions that issued swaps or unfunded guarantees against the debt are on the hook for large sums that they do not have. The reputation of the US financial system probably could not survive its default on the swaps it has issued. Therefore, the failure of European sovereign debt would renew the financial crisis in the US, requiring a new round of bailouts and/or a new round of Federal Reserve “quantitative easing,” that is, the printing of money in order to make good on irresponsible financial instruments, the issue of which enriched a tiny number of executives.

Who will rule the New Europe? Obviously, the private European banks and Goldman Sachs.

h/tips Blind Biddy Hedge Fund and Naked Capitalism


knew you were not that dim – I agree on Croke Park; Heineken Cup semifinal one of the great days (course it could have been greater!)

Belfast and Cardiff and Glasgow are friendly options – and way things are roight now we do need to look seriously at all options … pragmatists of all shades of green beyond ideology … and ruthless.

Don’t suppose you know how to trigger a Big CDS? – that smirk on the smile of the face of dat treasury sec is really beginning to p1ss me off …


Logically it should be a willingness to trade eurobonds or ECB buying for a binding commitment to austerity.

But we had a binding commitment to austerity in the existing Stability and Growth Pact. We also had binding commitments to no monetary financing and no fiscal transfers. If those commitments don’t bind anyone then the only conclusion is that there are no binding commitments in the EU, at any rate until someone gets serious either about being willing to accept imminent defaults (not threatened future defaults three years down the road) or about using force.

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