The euro and the EU

Wolfgang Münchau asks whether the only way to save the eurozone is to destroy the EU here.

My guess is that if Europeans had to choose between the EU and the euro, most would opt for the former.

91 replies on “The euro and the EU”

@ Kevin

“My guess is that if Europeans had to choose between the EU and the euro, most would opt for the former.”


Neither Munchau nor Salmon have done their reputations much good with these articles. They simply risk making themselves look ridiculous as the world simply will not behave in the manner that they think it should.

Stephens, on the other hand, gives a balanced and accurate view. He is, however, wrong on one point. There can be no question of excluding the UK from participation in the drafting of legislation in the financial sector. Whether it will have the necessary support to block it where QMV applies is another matter but nothing has changed in this respect.

Van Rompuy put a deal on the table around which the UK could have built some support but Cameron made no effort – on the evidence – to do so. He may well have miscalculated on the basis of misconstruing the support for the Van Rompuy middle road as evidence of a non-existant cohesion between the non-EZ countries.

cf. from other thread.

Unfortunately, I have to agree with Münchau. I support the EU and will be sad to see it go, but its far too democratic an organisation to suit the newly treatified euro as it moves towards greater totalitarianism. The fiscal firewalls touted as a move forward and hailed by our negotiators will be used to sackcloth and further disempower peripherals such as ourselves.

Those who think there is no danger to our own financial services industry should note the following; by the way, I’m in favour of reforms but deeply suspect the Merkozy reforms!

Cameron insisted on a protocol to exempt the City from a raft of future and past directives. Both men have made long speeches calling for a rebalancing of the UK economy less reliant on the City bankers, possibly the least popular set of people in the UK apart from the inmates of Wormwood Scrubs.

The first signals are that Clegg will back the Cameron negotiating strategy. William Hague, the foreign secretary, insisted that Clegg had been consulted throughout the night and had agreed the British negotiating stance in advance. Menzies Campbell, the former Liberal Democrat leader and staunch pro-European, also said Cameron had no option but to resist the French President Nicholas Sarkozy’s demands to bring the City under closer EU control. The coalition looks like it will survive this euro-storm.

Cameron’s position will depend on the extent to which he can win the argument that Sarkozy was seriously trying to erode City independence, and that the price he has paid to protect the City – in terms of loss of influence over the single market – was truly worthwhile.

Hard to understand why we didn’t walk out with the UK on the above exchanges?

Our own financial services industry is obviously for the chop along with CT, sovereignty …

I do not see how the EU can continue without harmonisation across the board. The EZ eliminated ruinous currency wars. Corporate tax rates were next on the agenda along with minimum wages, unemployment supports and a host of other issues.

In the long run a level playing field is better for Ireland than serial one trick ponies. We have proven we can compete around the world it is only close to the parish pump that we are screwing up.


The following actually appears in the same paragraph in Mr Munchau`s article:

“one way or the other, this conflict is bound to lead to an eventual split of the EU. I have no idea when or how this will happen”….”and the mere existence of a divorce procedure is probably sufficient to bring about the eventual outcome”.

So if I predict that the world is eventually (“I have no idea when or how”) going to end then I must also possess excellent foresight and wisdom.

Unfortunately because my 10 year old marriage began when “the mere existence” of divorce was available I must now presume that I will eventually be a divorcee.

Perhaps I should keep a watchful eye on my expanding waist line and start brushing up on my (inevitable)”newly single resume”. Maybe the following would be a good intro :

“Potential singleton (“I have no idea when or how”), verging on middle age, albeit with tremendous foresight and wisdom may or may not be seeking similar in the near, or distant, future.”

I wonder how beneficial that initiative would be in maintaining trust and excellent relationships ,despite the usual and regular marital challenges, with the better half of the Livonian parenting experiment? 🙂

@Mickey Hickey

In the long run a level playing field is better for Ireland than serial one trick ponies.

An EU running on German CDU rules will chiefly benefit the constituency of the CDU. What kind of fool thinks that imposing rules favorable to Germany’s most conservative elements on parts of Europe geographically distant and structurally different from it will work, unless by working you mean making us compete for call centres with Mumbai?

Rhetorical question Micky


“Hard to understand why we didn’t walk out with the UK on the above exchanges?”

IMHO by not “walking out” Ireland can (and probably will) act as mediator for the UK thus increasing the chances of a slightly better compromise on financial services.

David Cameron is stuck between a rock and a hardplace and domestically, in front of many of his party supprters, cannot be seen to “back down” but also knows isolation is not a great place for the UK to be.

@Shay Even if that was true (it’s very exaggerated), why should an EU running on the rules of UK, French, Spanich, or even Greek conservatives be any better?

The big news for me is that Enda and Lucinda are going to try to stick this to us without a referendum. “Paddy likes to know what’s going on”, eh?

@Colm Brazel

“… the EU…. is far too democratic an organisation to suit the newly treatified Euro as it moves towards greater totalitarianism.”

Steady on, Colm. I’m not sure even good ol’ Hannah ( Arendt) would have described the EU, even if it gets to where you say it’s going, as “totalitarian”.

I think totalitarian systems are a lot better at regulating private and public life than the EU has been at regulating its financial services sector, for example!

That aside, it does appear that we’re faced with two possible alternatives: a fracturing of the Euro and the EU or less democracy ( such as it is!) in European policy making.

On another thread, I mentioned a dinner I attended 10 days ago in a big, very successful and very well organised Chinese city with a ‘local’ and his wife who’d spent 10 years working in Britain.

The wife, an engineer, not a financial expert or economist, mentioned ruefully that some members of her family had stayed in Britain. ‘Stuck’ was the word she used.

She also wanted to know why Europe was asking China for financial help before it had solved the problem of putting leaders in charge who know what they’re doing!

The couple had passed over a lovely “taster” plate of dim sum before I could think of an answer!

David Cameron is a (political) simpleton!

Hardly any political leadership experience to deal with the continental cartesian thinking-types. His disadvantage looks more manifest now, after last nights stupid veto (rather than find a compromise!) and all of Europe is more or less singing now….! \

Would Blair have done it? Me thinks not (the guy worked in a Paris pub!).

Even Sweden and Denmark along with last holding party – Hungary – have now joined the fiscal compact proposed by Merkosy.

Irish have nothing to complain at this stage. Nor can they be a *mediator* between Tory leader and Merkosy.

[Although N Ferguson recently (WSJ) envisioned the reuniting of the Old Empire in 2040!]

It won’t work anymore….Cameron is politically in a cul de sac.


IMHO by not “walking out” Ireland can (and probably will) act as mediator for the UK thus increasing the chances of a slightly better compromise on financial services.

You want Ireland’s first class passengers on the Titanic to negotiate on behalf of those who’ve just left on the last lifeboat? ROFL

The FG one’s who rapturously tell us about firewalls built to protect the core EMS from which we’ve been excluded, just in case our economy explodes into default and they want to kick us out.

Actually, I’m not sure we were really at the summit.

We fell asleep as it was all a bit too much to take in 🙂 It’s a good laugh though listening to FG spokespersons talking it up.

ROFL 🙂 O:(

@ Colm Brazil

“Cameron insisted on a protocol to exempt the City from a raft of future and past directives”.

He did not want much then!

The old American saying that “to the person holding only a hammer, everything begins to look like a nail” comes to mind.

Rather than rely on the British press, which is all in a tizzy but suspects that a monumental cock-up has occurred but dare not say it, it is better to read what is actually in the agreement. I can only find the phrase “for the longer term, we will continue to work on how to further deepen fiscal integration so as to better reflect our degree of interdependence”. Exactly what Elmer Brok was saying on Prime Time yesterday evening.

The truly lamentable coverage by the Irish commentariat and media continues as they brandish their two hammers viz. referendum in one hand and corporation tax in the other. Unfortunately, the politicians they are up against are, with a few credible exceptions, not much better. None, for example, has posed the question of why 25 countries are willing to sign up to the new treaty if it were such a threat to everything that one holds holy!

Try not to mention Blair please – I am liable to throw up at any moment.

The man “distinction” was a complete absence of honour.

Anyway me thinks they choose the wrong venue for this farce.
Lindisfarne Castle would have been more appropriate.

Is it falling apart already…

Dec. 9 (Bloomberg) — Finland is ready to withdraw its support from Europe’s permanent rescue mechanism if the Nordic country’s condition of unanimous decision making is ignored, Finance Minister Jutta Urpilainen said.

“As we are strongly committed to unanimous decision making, in practice that means we have two options,” Urpilainen told reporters in Helsinki today. “Either we keep to the original agreement that decisions are taken unanimously on the permanent mechanism, or Finland doesn’t participate in the permanent mechanism.”

@Richard Fedigan

Sounds like you had a good trip to China. However, you misread my post.

I’m talking to the Münchau distinction between an emerging Treaty designed to save the euro, that’s the totalitarian part.

The ‘former’ EU with its regard for sovereign democracies is far different to the EUMerkozy structures being built now.

Von Rompuy statement is very short. Is it ambiguous ….
“A new Fiscal Rule to be transposed in national legislation”
Is this a watered down version?

@ Ceterisparibus

I suggest that you read paragraph 4 of the Euro Area Statement. It will suitably enlighten you as to what “Fiscal Rule” refers to.


Let me enlighten you 🙂

I can only find the phrase “for the longer term, we will continue to work on how to further deepen fiscal integration so as to better reflect our degree of interdependence”. Exactly what Elmer Brok was saying on Prime Time yesterday evening.

I saw the piece with Elmer. I don’t buy the argument the fact it wasn’t even discussed, rapturously highlighted by Creighton, means its not on the cards and implicit in those lines above.

I’ve also pointed out the fact that no binding or non binding directive were included to preserve and enshrine Ireland’s right to determine its own tax harmonisation needs and CT and especially proposed changes re regulation of financial services. Cameron walked on that one, we didn’t.

Hey, didn’t Enda oppose these before the summit???

I’m as huge critic of the financial services industry FIRE economy, but I suggest Cameron was concerned re the possible future exposure of ‘the city’ concerned re 2 things:


Qualified majority rules in 6

“15 We clearly reaffirm that the decisions taken on 21 July and 26/27
October concerning Greek debt are unique and exceptional; standardised and identical Collective Action Clauses will be included, in such a way as to preserve market liquidity, in the terms and conditions of all new euro government bonds.”

Maybe Cameron is worried about those CAC’s and how much they will burn the UK banks.

Opting out of protocol for financial services on points eg new Tobin tax for financial services.

But I also believe the financial services issue is just a cloak for Cameron to conceal his lack of belief in the financial rescue packages being mounted in the ESM.

He doesn’t want to lose control over the regulatory power he has over the banks in the UK. The rescue packages are dodgy and have yet to be ratified and are insufficient.

Bond spreads are widening still re Italy and Spain.

LONDON (AP) — After the deed was done, some leaders didn’t want to shake his hand. French President Nicolas Sarkozy walked right by him, as if he wasn’t there.

David Cameron, the British prime minister, had become Europe’s outcast.

His sin? Rejecting an invitation to join 26 European partners in a tighter financial alliance to save the euro, making Britain odd man out at a time of deep financial peril, and raising doubts about whether Britain can realistically remain a member of the European Union. ……

@ Ceterisparibus

What is getting up the Finns’ nose is the fact that the Big Three retain their veto in the ESM but the smaller countries do not.

You will note the comment about the IMF. It holds equally true for any small country, Ireland included.

The general message from the summit is that the time for bluffing and hostage taking is over. I doubt if the Finns have missed it.

Here’s how this can play out.
Financial warfare waged on the Eurozone from the City of London. Easy to do. Next week start dumping Spanish bonds. What does Europe do then?
You might think impose austerity and print money but the citizens are getting tired of austerity. In the war between the Brits and the contient there has always ever been only one winner.

BTW – just thinking about the Louisana Mississipi bubble thing of the 18th Century. In many ways a similar crisis – a blind belief in returns. The parallels are startling and frightening. It was a catalyst for revolution – what will this crisis bring?

@Gray, Germany

Even if that was true (it’s very exaggerated), why should an EU running on the rules of UK, French, Spanich, or even Greek conservatives be any better?

If you want me to say Germany’s conservatives are less odious in their national policies than the UK’s I will let you have the point.

Ireland’s particular problem is that German conservatism not only has no solution for the European component of the global financial crisis, it refuses to acknowledge it really exists, the domestic consequences of doing so would be unacceptable to the CDU base. Schauble is deep in that particular wonderland – the GFC was caused by a simultaneous lack of national discipline in countries not bordering Germany. Not a very plausible answer.

So the solution of Germany’s conservatives is a solution to their desire for an economically more German Europe (something that is impractical and undesirable) and not a solution to a broken international finance system and a Eurozone whose rules are a threat to any kind of progressive politics.


The general message from the summit is that the time for bluffing and hostage taking is over. I doubt if the Finns have missed it.

Words fail me. Almost.

The general message from the summit is that the driver of EU policy is German domestic politics, protecting the Eurozone financial sector and a blind adherence to Bundesbank/ECB monetarism.

This is not a positive development, unless you are a banker or hold a lot of Euro. Or represent people who do.

@ George R. Baumann

Money borrowed indirectly on, now, favourable terms from the other countries of the Euro Area is paying this man’s salary (and that of a lot of contributors, I suspect, to this blog).

@ Shay Begorrah

The CDU/FDP are not the British Conservatives they are slightly to the right of centre in the same way that the SPD are slightly to the left of centre. In Ireland our thinking is affected by all things British. For example class plays a major role in British politics and sorry to say in Irish politics as well. Germany is not riddled with class distinction which simplifies its politics. The concept of ruling for the greater good is alive and well in Germany. The CDU is not Germany in the way that Ireland was FF, hereditary voting is considered to be simple minded in Germany. In 2013 the slightly left of centre SPD are likely to be back in a coalition government.

I have relatives in Germany and have spoken to Irish people from both N and S Ireland in Germany and they are satisfied with their acceptance by the German people and are particularly grateful for the competent government.

To find great differences between German and Irish people one would have to resort to gross exaggeration of minor differences. Admittedly we are good at that but in time we will improve.

Like the Irish, the Germans were not born with silver spoons in their mouth nor are they well endowed with natural resources. In both countries the major resource is what people have between their ears and how they utilise it.

It boils down to what is good for the Germans, French, Italians and others is equeally good for Ireland.

Could we get off our, we are special, we are different, hobby horse.


Favorable terms is your description, not mine.

He who pays the piper, calls the tune?


Money borrowed indirectly on, now, favourable terms from the other countries of the Euro Area is paying this man’s salary (and that of a lot of contributors, I suspect, to this blog).

Money that would not need to have been borrowed if certain sectional interest groups had not pushed so hard for the state to pay for the greed and short sightedness of the financial sector and the monetarist dogma underlying the inaction of the ECB.

As for wages, mine are paid for by the unbailed out part of private sector and always have been.

I believe the Cameron noise is a storm in a tea cup. It’s a long way from here to March and I would be extremely surprised if at least a couple of other countries don’t drop out if this agreement before then.

All that has really been agreed is that representatives from 26 governments will go home, float this agreement past their parliaments and try hard to get something in writing by March. Finland had already cracked, I’d imagine there are angry talk radio debates on this issue happening in every EU country as I type and Cameron won’t be the only leader held to account by his voters. 


“Money borrowed indirectly on, now, favourable terms from the other countries of the Euro Area is paying this man’s salary (and that of a lot of contributors, I suspect, to this blog).”

Dear me – well certainly yours as you have previously stated. I had you down as a ball not (wo)man chap. I hadn’t realised that this made your contributions invalid.

Here’s another chap whose income might come from the state (though I know nothing about his finances).

“Ditch mantra of austerity and challenge conventions”

@ George R. Baumann

Guarantees have a value and can be charged for e.g. as in the case of the Irish bank guarantee. That is largely no longer the case with regard to EFSF loans and the situation should further improve under the revised arrangements. That meets the description ‘favourable’ in my opinion.

@ Gavin Kostick

The point related to the twaddle being advanced by the esteemed TD about fiscal sovereignty, and nothing else. I never take positions on personal situations other than on the issue of the continued borrowing by Ireland to pay for current expenditure, including a level of salaries and pensions – including my own – which the country cannot afford.

Nothing validates or invalidates an argument other than the facts. The latter are often in short supply on this blog.

From a Monetary perspective the Euro Club has given us no way out which I believe is a long term objective.
We have no choice but to rejoin the Anglo world – its sad that we are boxed in like this but there you go.
If we don’t have a referendum about this with the main parties campaigning to reject this deal It will be my last bad trip on this wild euro boat journey.

PS – had a Good laugh off the Lithuanians President Brit Bash award thingy in front of the cameras and all.
You would never think her country was Gutted by Swedish & Continental banks would you ?…….Go Euro Go Euro Go you good thing you.
Jesus they are a strange bunch – they like pain more then we do but not in a Catholic way.


no, it is of no interest to me at all. It was obvious from the start that this ridiculous proposal of voluntary PSU was doomed to fail.

Have you noticed EU Bank’s CDS sales on EU sovereign debt? They continue to sell outrageous amounts of CDS on their own countries.

This is much more interesting and essentially the nail in Europe’s, and probably not only Europe’s coffin, we will all be drowned in the avalanche of risk fraud that still is being created.

This is something the right winger policy makers have a deliberately developed blind spot for as the history since 2008 gives evidence about.

@ George R. Baumann

Well, if you have been following any of my contributions you will know that we are in agreement on that point.


hmmm, you’ve been fielding a lot of this by yourself today. My apologies, have been travelling. The “let’s leave the EU/Euro” seems to be the new rallying call for a lot of agitated commentary. As I asked before, and which few, if any, were willing to take up the challenge on, has anyone actually read into the legal, social and financial implications of leaving the Euro? Or is “it’s better than serfdom” about as much as anyone can muster, and let’s hope it works out ok in the end? This isn’t simply a case of people shooting first and asking questions later, it’s people shooting first, unaware of who or what they are shooting at, or whether its a bazooka or a slingshot, unsure if they actually want to shoot in the first place, and probably unaware that they may actually be shooting themselves in the foot. Or maybe even the head.

We made a decision in the 1990s to join the Euro area, we are somewhat stuck with that. We should try to work and fix the euros problems from within, protecting our national interests, of which euro membership is a key one.

The legal stuffs a mess.
Scenario 1: We leave and the Euro remains – we still owe everything at an agreed exchange rate – prolly the same as on joining
Scenario 2: We leave and join sterling – same as above but with less currency drift
Scenario 3: We leave and a few others follow – awkward and all to play for
Scenario 4: We leave and default which is all good
Scenario 5: We stay and endure grinding poverty and emigration all to pay off banksters and bondsters

You are in that Boat again sailing down De Nile.
The Euro structurally cannot work like this and this country wether they know it or not yet will reject it when the reality of fiscal centralisation bites.
Fiscal union means total cultural destruction.
Anyhow its been a epic disaster movie for 20 years – enough already

Its time to cut our losses before it gets even worse.
A new currency is not Inconceivable.


“I’d imagine there are angry talk radio debates on this issue happening in every EU country as I type ”

The Dutch aren’t buying it.

I had a horrible flashback on the way home tonight as I considered where things might eventually end up.

I was working in Luxembourg about ten years ago and after a couple of weeks, I mentioned to a colleague that there was something wierd about the place that wasn’t quite like any other European country I had been to. His reply was very interesting:

“It’s like France would have been if Germany had won the war.”

I see bland on the horizon. Run. Run for your lives!


It’s probably not such a bad placed to be selling CDS on your own sovereign if the sovereign has told you to do whatever it takes to plug the holes and get as much income coming in as possible…. and don’t worry if it goes titsup lads as we’ll bail you out if it does.

@Bond Eoin Bond

I already graciously admitted defeat on another thread 🙁

In case it is of interest, there’s an online poll at showing 51% no, 34% yes and 13% don’t know in the event of the deal being put to a referendum.

Not a representative sample, but a straw in the wind, at least.

@ Eureka

And also rather core to the problems – we leave the euro, we gotta leave the EU. Assuming we default, we can assume large trade barriers are erected, meaning a devaluation will (a) not help our exports and (b) make our imports twice as expensive overnight.

I agree – if the policey is to leave then we pay all our debts in the new currency – if not then it is best to remain in the euro and die a slower debt.
(You never know we might get a few more years before we are scraping limpets off the seashore)

However when you go to war you go to war – no point in phony stuff.
Wheres that Bomber Harris bloke when you need him ? break open the F£$king Casket.

There were so many drawbacks to leaving the Titanic. The water was cold. The lifeboats were crowded. Why would anyone do it?

@Kevin OR

“My guess is that if Europeans had to choose between the EU and the euro, most would opt for the former.”

It is interesting that the Irish media and to some extent blogosphere is so comfortable with the implied starting point that lies behind phraseology like that. Rather like paragraph 1.28 of the Croke Park Agreement (to be ignored at all costs), the existence of all those millions and millions of EU country citizens and subjects who have in effect already made that choice, is swept under the carpet in Ireland. Who wants to look like a fool after all? – and having ‘no option’ can be very convenient when it comes to making (or rather not making) awkward decisions.

Some of this discussion has a bit too much of the RTE football pundit tendency to spend a bit too much energy and enthusiasm enjoying the shortcomings of the English team. Its a post-colonial trauma thing, and sometimes it is not helpful.

I don’t think the politicians present understand global macroeconomics sufficiently to make it a good idea to rule out flexibility of policy in the future. It is overly simplistic – thats why they will go for it and thats why they thing they will be able to sell it. There may, be a short term expediency in signing up – but it isn’t the short term that is being signed up for.

@Bond Eoin Bond
“and also rather core to the problems – we leave the euro, we gotta leave the EU”

Where does it say that?

Great Cartoon.

” I don’t think the politicians present understand global macroeconomics sufficiently to make it a good idea to rule out flexibility of policy in the future. It is overly simplistic – thats why they will go for it and thats why they thing they will be able to sell it”

Every complex problem has a simple solution….and it’s wrong. (smiley)

@Bond. Eoin Bond

“And also rather core to the problems – we leave the euro, we gotta leave the EU. ”

Why? Don’t see the necessity for that.

The European country that is attracting the most Chinese direct investment, in the technology area, is the UK. In fact a number of companies are moving their Euro HQ from France and the Netherlands, to the UK, now that more local R&D is being carried out. Sufficient numbers of skilled people, preferably that can speak English, is far more important than the currency in which sales are denominated.

I think there are a lot of issues surrounding leaving the Euro, but also a lot of issues staying in a currency union where nobody is even talking at official level about the causes of the underlying problems, and where the solution seems to be that everybody just exports to everybody else and the problem is solved.

I just don’t buy the leave the Euro ==> leave the EU ==> end of FDI ==> back to poverty argument.

Would Poland be in a better or worse position than it is now if it had been a member of the Euro for the last 5 years?

i read this a lot on this blog can somebody please explain or is this a load of hogwash?

if you leave the Euro
you have to leave the EU ?

Will the euro crisis bring down another government? Telegraph reporting tonight…
“EU treaty: party in turmoil as Clegg warns of a ‘two-speed’ Europe
David Cameron’s unprecedented use of the veto in Brussels threatens to create a “two-speed” Europe in which Britain will be “marginalised”, Nick Clegg warned on Friday night……..”

@ Bryan/Clint/CP

Like i said, probably about time some vocal anti euro proponents actually read up on this. I took the time, you should too. Specifically on this point, there is NO provision to leave the Euro, only to leave the broader EU. Further, membership of the European Union now obliges membership of the euro for those countries that signed up to it, the Maastricht Treaty forming part of the European constitutional treaties. Basically if we left the Euro, we’d have to first leave the EU, and then negotiate a new treaty to rejoin the EU outside of the euro. Reckon that’d be easy, given the fall out that would occur for everyone else and the fact that we’d probably be defaulting against most of them? Suggestions about us just leaving the euro are not based on any legal facts, economic reality, or societal sanity.'euro.pdf

@Bond Eoin Bond

thanks for that

but i`m not sure on the part that were we to leave EU
my understanding is that 1. we are a member of the EU first and foremost
and secondly we are a member of the EZ its not a chicken or egg question

@ Clint

Did you read the link attachment, or is that the chicken and egg theorem we gotta solve?

@ Bond
Might be missing something here but does leaving Euro mean leaving EU?
Not sure about this one. Britain isn’t part of the Euro.
What’s the mechanism for this one?

my view is that it would better for Ireland to be a member of the EU but outside of the EZ as they don`t see the real problems that are out there and their responce at every stag has been poor if they can they will not face up to the reality that many indebted countries face in the peripherery of the EZ

@ eureka

In simple terms, our membership of the EU is different to the UK’s, in that it is now intertwined with or requiring membership of the Euro. They have opted out of the single currency convergence element of the Maastricht Treaty, but we obviously did not.

The 17 EZ members agree, 26 of 27 EU members agree.

Disaster averted again, commodity and bank shares up in North America.

Britain opts to protect the casino on the Thames, ’tis a shame and a pity. Conservatives are known to put ideology ahead of ruling for the greater good.

Mixed feelings in Ireland, some people waiting for the collapse followed by Dubai buying the Glassworks and turning Dublin into the trans shipment hub for Europe. NAMA is delighted, the gov’t promises to subsidise the necessary infrastructure. Noonan enrolling in Arabic language courses. Ireland opens up to the world as it becomes a world port. Negotiations ongoing on the wearing of the veil and niqab.

Bond does have a point – just looked at the energy flow input charts into Ireland again………………… and they are not pretty.

My God, we blew the Boom in the most spectacular fashion imaginable.
You’ve got to love that neoliberalism , fueled on investment defered until the 4 horsemen Arrive.
I need a big Bosom to ………………


“European Banks close to collapse”

There is a certain amount of logic to this statement but much of what we need to know is kept a closely guarded secret.

If you are getting rid of assets at the same time as you are facing a credit crunch, you have a smaller stash to put up as collateral. It is also obvious that there has been a gradual erosion in the the quality of what is now acceptable as collateral (and that this was done for a reason i.e. I’m running out of the necessary quality so can you lower the bar please or I’m going to threaten you with being the first domino that sets off a collapse of the European banking system – and those kind of conversations really do take place behind closed doors).

There is plenty of evidence out there to suggest that there is a problem in the banking sector ranging from the need for various CB’s to step in to provide dollar liquidity recently thru the amount of money being parked with the ECB to the fact that EBA tests keep coming up with a bigger figure each time … and Merv the swerve King has been banging on about the danger for ages.

You only have to speak to people in the SMT at any European bank over a pint to know that there’s a strong belief that at least a couple of big names have come within a working day of catastrophe recently and that the danger is far from over. I could name some names but would be opening myself up to a libel suit even on this humble blog if I did and apart from that, my ‘evidence’ is only based on what trusted sources have told me. My guess is you could guess those names.

I’m expecting to see a couple of governments having to step in to recap one or two of their banks. I’m amazed it hasn’t happened already (OK maybe you don’t need that happening while you’re trying to railroad people in a Euro crisis so put it on the back burner for now) and I will be in total awe of how they can keep pulling off great conjuring tricks if it hasn’t happened by Christmas….. but they do seem to be able to hide these problems well so maybe Q1 2012 is more realistic.

@ PR Guy

On the subject of Sir Merve ‘the swerve’ King, from the Willem Buiter piece posted by Mickey Hickey:

“Helicopter money is, however, politically infeasible in the EA, Japan and the US. In the UK Mervyn King might have a go.”

If creating confidence is a core aim of being a Central Banker then he’s highest on my scorecard for now.

That looks like a pretty dodgy piece of analysis to me, in that it ignores the route out of the euro that I would see as being most likely.

A country running a primary deficit acts in way that persuades the Troika to cut off funding. Maybe it burns some senior bondholders unilaterally. Maybe it intentionally fails to meet deficit reduction targets. Maybe it forcibly extends the maturity of some of its bonds. Maybe it fails to ratify or implement the changes agreed at the summit.

The country may then have no option but to introduce a new currency because stopping paying its day-to-day bills would cause the economy to seize up, and its financial system would immediately collapse from capital flight if it continued to operate in euros and the ECB cut off support.

It probably doesn’t withdraw formally from the euro, if only because there is no mechanism for it to do so. If other countries try to kick it out of the EU, it refuses to consent.

@PR_Guy Nope. German banks prepared for the haircut and the government stands ready to bail those out who get into trouble. No, from the negotiations, it’s obvious that it’s the French banks (and prolly some others, too) who are seriously in danger if half of the Greek debts would vanish in thin air.

@ BeeCeeTee

Introduction of a new currency? Reckon that might be a breach of some treaties and enough to force us to exit the EU altogether?

At that point, you get into a whole bunch of complex issues that I have not seen properly addressed in anything resembling an objective analysis. That’s despite the fact that the route I have outlined having been suggested widely as a possible end game for Greece and for Italy at times over the last few months.

My main point is that the piece of research you are quoting is seriously deficient because it conspicuously ignores a widely canvassed and plausible scenario for effective euro exit. Not that we can be sure the scenario will work out well for the departing country.

@ BeeCeeTee

My point was that the introduction of a new currency WOULD be a massive breach of our existing treaties, and would therefore either be illegal and a probable cause of us being turfed out of the EU. Just because the media has suggested Greece reintroduce the Drachma does not make it possible. I’m not sure you can call a very thorough, well referenced, and fact filled research piece “seriously deficient” just because a different, less fact filled and less referenced body of thought has suggested otherwise. The UBS piece for me needs to be countered with fact-based analysis if it is to be considered wrong, not simply “well everyone else has been saying…”.

The main thing wrong with the UBS piece is that it says there are just two possible ways to exit the euro – choosing to leave and being expelled, while it is plainly obvious that there is a third possibility – de facto exit due to force of events.

No matter how thorough and well referenced it is otherwise, there’s a gaping hole.

The analysis of the two options it considers looks generally rational enough to me, though the suggestion that vast tariffs would most likely be introduced, in likely breach of WTO rules, makes me suspicious of the objectivity of the analysis as a whole.

Your argument makes sense.
Interesting to see the kind of tactics that will be used by the yes side in a referendum though.

@ BeeCeeTee

Of course the course of events could cause us to leave – but that would still necessitate leaving the EU. UBS may have left out the reasoning, but the end game would still be the same. Not sure it matters all that much whether we decide to leave, whether we are pushed, or whether it just ‘happens’, same end result.

@ Bond
I think you’re wrong on this one. The default state is no tariffs. There would have to be an act whereby tariffs are put in place again. That would only arise in the context of extreme protectionism which is not politically feasible.
World trade has moved on hugely since Maastricht. Regional trading blocks are th rule now rather than the exception.
To be honest this smacks to me of a bond market desperate to be repaid in a currency of value. Same old tactics as before with the default debate.

I don’t believe that is true.

The circumstances certainly matter in terms of how things would play out politically and diplomatically, which may be more important than the legalities.

Circumstances also typically matter legally, although it would take much more expertise than you, I, or (I believe) the UBS team have to work through the implications. I find it hard to imagine that EU law would allow the duty to prevent economic and social collapse, required to uphold fundamental values of the EU, to be trumped by the duty to avoid technical violations of single currency rules.

I do not see the logic in Ireland leaving the EZ/EU. For a people reputed for remembering everything and forgetting nothing we should also be known as the people who do not put our memories to good use.

From 1922 to 1973 we took in each others washing and traded potatoes, cabbage, milk, butter, oats, turf, pigs heads, crubeens and mutton. Money from the diaspora alleviated some of the most glaring poverty. We exported people and little else of value particularly value added. Entry to the EU opened up a new world for us, a level playing field which was of the utmost importance, subsidies, financing for useful projects. We prospered mightily and prospered even more when we were given access to easy money under the EMU.

Then we entered the era of greed, arrogance, stupidity and appalling levels of fraud and corruption (all considered normal and acceptable by the overwhelming majority of the population). Inevitably the credit fueled boom collapsed and our gov’t in desperation rolled the dice by backstopping the banks/bondholders in a futile move to keep the gravy train rolling.

We are now in a stew of our own making quite unwilling to accept responsibility but more than willing to blame all and sundry for our failings.

Do we want a repeat of the Sinn Fein (ourselves alone) act, is the evidence not overwhelming enough that with a reasonably competent gov’t we can prosper and compete with the best. We do not have to resort to one trick ponies or alms we are intelligent, hard working and proud. Put that in the model and smoke it.


Ultimately the politics will trump the legal framework. For example Sweden does not have a legal opt-out for the Euro, but is not in the Euro, and is thus in violation of the treaties since it easily meets the economic conditions. Yet nobody seems too bothered by this or is calling for Sweden to be expelled from the EU. It probably helps that they are, in Central European eyes, the “right type” of non-Germans, but the fact remains they are in violation of the treaties without sanction. Also from a legal point of view it is impossible to expel a country from the EU. This requires unanimity, so the country in question would have to agree to its own expulsion. If it was the clear wish of the Irish people to leave the Euro, but stay in the EU, a political agreement would have to be found if there was to be any semblance of democratic legitimacy retained by the EU institutions.

I agree with BeeCeeTee on his view of the UBS report. For example there have been dual currency proposals, e.g. with the government spending and taxing in a new national currency, but without forced redenomination of Euro accounts. I do not know whether these MMT-based proposals would work or not, but the fact that all dual currency proposals are simply ignored is clear evidence that the UBS report is not telling the whole story.

Also the report suggests that the violence surrounding Irish independence was as a result of the breakup of a monetary union, showing a lack of understanding of both history and the meanings of the words “cause” and “effect”. Or maybe they were talking about IRA violence in 1979 when the link with sterling was broken. It is totally unclear, and in either case amounts to scaremongering.

There is also the strange situation that the punt never ceased to be a currency. It just ceased being legal tender for transactions outside of the CB. In fact the CB still swaps punts for Euros.
But none of this is easy. The financial system has already collapsed.

This, IMO, is the key sentence from Herr Muchau’s piece:
“All they did in the early hours of Friday morning was to create a new crisis without resolving the existing one.”
I think this is true, but I’m not sure that the two crises are necessarily in conflict. In a best case scenario, the butterfly watchers get distracted by a butterfly they haven’t seen in a good number of years – “oh look, a common thatcherite”…

In the worst, of course, Herr Munchau is right and they will destroy both the EU an the eurozone (frankly, I am not sure it is possible to destroy the eurozone without destroying the EU – the scale of default (even if only implicit default through currency redenomination and relative devaluation) is so large that the tensions it creates will lead to capital seizure).

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