Charles Goodhart and Sony Kapoor have a really good article here.
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26 Responses to “It is EMU that is broken, not individual member states”
I don’t understand why countries leave any of these international organisations into their country.
They are not sovergin.
The IMF and the English Labour goverment destroyed the UK after its $ devaluation “making adjustments” which destroyed its advanced technological boffin base to save a hypothetical money construct.
It never recovered from that period.
Countries simply need more interest free treasury fiat , it does not need to transfer countries money into shadowy organisations who can subsequently make claims on their capital to prop up bank “investments” without democratic consent.
Why do we need commercial banks to sustain the money supply ? , its been proven without a shodow of a doubt that almost all of their investments are extractive.
Yes it’s a good article, but it’s just one more plea for sanity in a lunatic asylum run by the inmates. Can it make any difference? History suggest that people only pull back from projects as crazy as EMU when disaster is staring them in the face. Merely hearing it foretold is not enough. Maybe bank runs will drive the point home.
Greece is not the only broken one. Have we forgotten about the borrowing we do every week to keep the show on the road. What’s it now…only 16 billion a year. Didn’t the times report a record high borrowing of 173 b yesterday. And Enda says we won’t need 6 b of cuts/ revenue.
As for Greece ..it looks like it is going to get more broken if the pollsters are right…
“A new poll confirmed what other surveys have shown: that radical leftists who reject a bailout agreed with the European Union and International Monetary Fund are poised for victory, and the two establishment parties that agreed the rescue are sinking further after an historic wipeout 10 days ago.” from IT.
I think the threat against the Greek people are becoming increasingly counterproductive.
Quote of the day: “somewhere between catastrophic and Armageddon”
18.04 More from Charles Dallara now, the head of the IIF, who spent months negotiating the largest ever sovereign debt restructuring (Greek bond haircut, to you and I). He says the damage to Europe from Greece leaving the euro would be “somewhere between catastrophic and Armageddon”: telegraph.
I heard that interview. He was quite alarmist. One of the bigger issues of concern to him was loss of ECB capital.
This to me is nonsense. The ECB is after all a central bank. Despite BUBU pressure, I think even the ECB would stop short of asking countries to replenish ECB capital in the present environment.
I have seen it argued her (poss KW?) that loss of Central Bank capital is a bit of an accounting nonsense, which it is.
The far bigger issue is the protection of deposits. If deposit protection in euros is not assured in Greece after exit then the European banking system will implode, with bank runs from Finland to Frankfurt.
And it fully deserves to implode in that event. An ECB that has bankrupted countries and helped changed governments to protects big bondholders will surely not let the small depositors lose? Or will it.
Europeans will know the answer soon it seems. If the answer is that small Greek depositors are cut loose, mayhem will ensue throughout Europe.
Fascinating interview but he is neither a Democrat nor a Christian.
Although I liked his mojo to go up there and tell lies with a straight face.
What is competitiveness ? if competitiveness destroys wealth why be competitive.
Its a sad state of affairs really ….. we talk and talk and talk about these problems for what 5 years now and don’t challenge these usurious bastards.
We need 12 year old girls to go on stage and talk sense.
This countries “elite” should be ashamed of themselves.
I agree, the deposits are vital. In the event of a default will deposits in Greek banks get converted back to drachma? If so, will the foreign banks operating in Greece be affected? If so will the euros of Greek citizens in banks resident in other euro zone countries be affected?
Could all debt be converted, while deposits are left untouched? That’d be nice for those with mortgages and savings. Who knows what’ll happen. There’s so much politics rapped up in the economics these days.
“It is EMU that is broken, not individual member states”.
The Euro currency will end up eventually being dropped eventually by a majority of European Union member states, I predict. Instead, the Euro currency will end up being used very like the dollar is used at the moment, as a ‘global’ currency – but within the confines of the European union itself. I believe the architects of the European single currency mis-diagnosed all along what it was, that they were trying to do. They should not have been trying to create a single trade-able system of notes and coins, but instead should have been in the practice of establishing a reserve currency for the European Union nations to use between each other, and to the outside.
In other words, countries such as Britain with its Pound, or Greece with its Drachma would use their own paper and coins to trade within its borders and finance investment and development – but use the Euro system – rather like the dollar is used at a global scale at the moment, as a reserve currency.
The simple proof of this concept is quite apparent to me, and if I may illustrate by means of a straightforward explanation. Okay, Greek is going to be outside of the Euro currency system fairly soon. The markets already seem to have made that decision. But so darn what? So Greece gets it’s new Drachma currency unit, and we go back to buying Drachma when we take our holidays on the Med. Big deal. But guess what? Greece will be surrounded by so many countries and markets in which Euro paper and coins will be acceptable trading tender, that it will hardly matter whether or not Greece is inside or outside of the Euro. I don’t think it will make hardly any difference at all.
The Euro was never really needed as a means of buying/selling inside the borders of a European Union member state – to the degree to which the architects of the Euro seemed to think – but the Euro as a reserve currency for the European Union (which operates like the global system in miniature), does make more sense. European according to observers such as Martin Wolf, operates much like the global system, with the grasshoppers and ants, and locusts, and all of the rest of it.
The problem with the Euro as conceived by the architects of the project however, is that it was terrible from a point of view of internal investment and banking within the European member states themselves. I refer again to Martin Wolf and his excellent Grasshoppers, Ants and Locusts. Wolf noted that it was astonishing, that the global financial system itself did not break as Keynes would have predicted – but it was the financial intermediation system, inside of the country which issued the global reserve currency, which broke instead. This is what has occurred in Europe also. And when the history books look back upon this, years from now, it will be written that it was the German and Dutch banks that broke in 2008, and not those of Irish, Portugal, Greece, Spain and Italy. BOH.
In summary, I think you are making the same mistake that Keynes made in the 1940s, when envisioning a failure mechanism for the global financial system. It is not the EMU that is broken, but the financial intermediation system of the issuer of the Euro reserve currency – Germany. BOH.
The ECB will not come to the rescue of banks that are known to be under water. Pouring good money after bad is not a Frankfurt trait. One or two Greek banks that are deemed to be prudently managed will be back stopped. There is no need whatsoever for the IMF to intervene. Greek deposits are flowing out to Germany and a few other stable countries. The ECB should be capable of recycling the funds back to banks that have a hope of surviving in Greece.
The FT has been eagerly looking forward to the collapse of the EuroZone since before it was founded. The Wall St. Journal takes a similar stance. The EZ is quite capable of providing Greece with a graceful exit and it is not necessary to involve the IMF. Indeed it is in the self interest of Germany in particular and the EZ as a whole to manage the disentanglement intelligently and reduce the knock on effects for the other troubled countries.