The Devil is in the Principles

Intelligent article but it explains the Machiavellian nature of this long term process – manoeuvring these countries into a Euro killing zone.

Look the post 1987 world has been devastating to these physical economies – ok … they were on the receiving end of credit – but credit for what end ?
Less and less rational economic acticity took place in these countries over time.
Spain had the misfortune to enter this convention of Eunachs in just 1986 but the damage to its people ,landscape , character has been catostrophic.

The dynamics of these interactions is pretty simple on one level – each of the political classes in these countries gets paid in Euros.
Therefore they have a incentive to wipe out all rational domestic activity to sustain interest on overvalued lets say Italian bonds as in the late 1990s.

This transfers economic activity to Germany ,low wage Eastern Europe and Asia…… the remaining Italians become customers for ultra long distance commerce (slave / energy arbitrage trade) supplied with bank credit.
The country dies inside.
Why would you want to sustain such a arrangement unless you are one of the few who gets /got paid in a large amount of Euros over the years.

We are not asking the most simple of questions
Who benefits ?

The trade patterns both withen and outside the Eurozone is now quite clearly absurd as a result of massive capital export /wage deflation since the early 1980s.
We are all with the exception of the top maybe 5% better off outside this Colosseum.
Even if you were a man of honour in the top 5 % you would want out of this banking circus.

I posted this link on the KOR Munchau thread. The Google Translate version is comprehensible apart from the fact that it could not cope with use of ‘coal’ as a colloquial term for money.

The “Sun King without money” has his work cut out. Until there is a clear indication of intent, the ECB will not play ball. (It took Mitterand two years to reverse engines).

http://www.welt.de/debatte/kommentare/article107701495/Francois-Hollande-der-Sonnenkoenig-ohne-Kohle.html

Bearing in mind that Germany and France account for half the economic bulk of the EA, what Hollande intends to do about the state of the French economy has been the key question from the beginning.

An extract from the article, courtesy Google Translate.

“Clever tactical games

However, it is questionable how long will a European Union still believes in a key partner to be able to compensate for lack of willingness to reform through clever tactical games. If Hollande his country – and Europe – wants to keep from falling, he will very soon have to make clear how he intends to reform it.

With an increase in property tax because it would be hardly done. Even a tax increase, which has always Hollande rejected during the election campaign and now – surprise – would come anyway, will not be enough to plug the huge holes.

Hollande is no option but to make huge cuts in overstretched public sector. This means, ultimately reducing the number of officials as well as the amount of benefits. From both in France there are too many who get too little.

France has the second highest public expenditure in the EU with a state share of almost 60 percent.”

The jury is out.

The devil, indeed, is in the principles, if the asserted principles are ill-founded. In this case I’m not so sure they are. The summit sought to limit and reduce the exposure of selected sovereigns to the cost of resolving banking messes they had largely created, or allowed to happen, themselves. But it’s pretty clear that the creditor nations are making damn sure that fiscal incontinence – and the steps are required to become continent – are primarily the responsibility of the fiscally incontinent. The quid quo pro for finally, finally acknowledging the bank resolution elements of fiscal pressure on selected countries – and beginning to address them – is a clear application of individual sovereign responsibility for purely fiscal incontinence.

@DOCM
Watch out for Italian GDP figures in the second quarter.

http://www.tradingeconomics.com/italy/gdp-growth

My prediction is that it will shock most people and if this continues – France & Germany will account for 2 thirds of declining economic activity .

Once France loses its Diesel ration because of its non sovereignty its quite clearing better off out….its playing for time me thinks……it has used the resourses of the periphery these past 4 years now wisely ,Germany not so much.

Coincidentally, a report in the Indo which confirms in real time the accuracy of the analysis in this CMc contribution.

http://www.independent.ie/business/european/finnish-and-dutch-governments-cast-doubt-on-latest-eurozone-deal-3155512.html

One could also reference Krugman in today’s IT but there is nothing new there.

“There is no silver bullet,” as Jörg Asmussen said on Monday and given Colm’s outline of the limitations of the ESM and the apparent lack of impact of the ECB’s own bond buying programme, the best that can be expected is that the fire brigade would be around teh corner in teh even of a blaze.

The Big 2 also have limited readies to assist.

France is heading for a debt/GDP level of 90% and the German level will dip from 81% to 79% in 2012.

Hollande has to switch from campaign poetry to governing prose pronto and likely in a few months national strikes will be called.

An Elmer Gantry will always find a ready cast of suckers in these stricken times and it seems a bit distant when there was a clamour for the Irish referendum to be postponed to await the growth provisions to be added to the Fiscal Treaty.

People of course seldom learn and just move on to new fairytales.

“There will be tax increases; there will be spending cuts,” said the finance minister, Pierre Moscovici, last week. “But I reject any talk of austerity. We must avoid a budget policy that hurts economic activity.”

Indeed!

Live horse and you’ll get grass!

Finland and Holland say they will block any bond buying program. According the the ESM contribution key they contribute less than 15% of the pot (7.5%)hence they cannot block this move – 85% majority required for actions.

However, the contributions of Spain, Portugal, Italy, ireland, Greece, Germany and France are just under the 85% mark (84.268). In principle if all the others were against bond buying, the policy could fail. However, assuming that Belgium doesn’t want to be caught in the headlights the policy would go through.

Not being an economist, I don’t favour bond buying as it removes investment risk, pushes all the downside onto the taxpaying entities and creates a win-win situation for bondholders. Some other method including amend and extend deals would seem preferable in a market system. Just my two cents.

I think it is market nature to get excited over the most recent summit especially since it came at the end of the quarter and the numbers look better now . If the EZ situation is resolved it will be as a process rather than an event but for institutions that trade by the nanosecond patience tends to be shorted.

I agree that in the normal run of things paying interest at 4% or perhaps 4.5% is sustainable but this is by no means the normal run of things.

Bear in mind that money comes from bank loans and is deleted as loans are settled with the banks. For the money supply to expand to repay such bonds we need to collectively organise more loans than we repay. Note that producing more doesn’t increase the money supply.

So far householders have been the main creators of money and mortgages have taken longer and longer to repay. However they’ve reached their natural limit taking two careers to repay and they cannot increase further. Hence this is by me means the normal run of things and even 4% or 4.5% yield on bonds seems unsustainable.

Allowing Governments to create some or all of the digital money supply could end the debt crisis almost overnight and it wouldn’t be different conceptually from their ability to create cash.

@Zhou

No. See Article 20 ESM Treaty which deals with pricing. There is not the spare capacity in the fund for item 3 to be used to deliberately make loss making investments ( plus, can you imagine the politics of that).

I’ not sure I agree with Colm that no one would short assets into a CB that was paying in money. There are two reasons you might. One is if you thought the politics would undermine the policy (in 1992 it was an understanding of Tory backbench attitudes and influence that allowed you to ignore the UK rate hikes, and this time German politics could be the rug-puller). The other is that you can sensibly sell the currency being printed (though that requires you to hold a particular view on the fx reaction) and if the Market joins in the CB can be pressured out.

I think we all agree that the EZ needs a bigger boat than the ESM. Maybe Barroso is the Mayor who just wants to keep the beach open.

@The Alchemist

+1

The one overriding error that is continually made by those supposedly making the rules is that no one must take a loss, particularly the bank bondholders. The Greek write off was the start on the road to recovery except it didn’t go nearly far enough. Investors into bust businesses lose. That’s life. Until we get over the issue that loss making is part and parcel of risk taking the saga continues.

Ask yourself a question do you believe Ireland today would be a better place had Anglo/AIB/IPTSB and BoI been allowed to go bust in a controlled fashion i.e. the ECB committs to standing behind deposit holders (does its job) up to a certain level and bond, equity and deposit holders beyond a designated level simply lose money following an agreed sale to the highest bidder ?

To me there is no doubt had the natural process been allowed to proceed the circus that is the EFSF/ESM/ECB etc etc could have been curtailed at source. In not allowing bad business with bad models to fail we all fail. This is the absolute heart of the problem. Sadly the end result will eventually require the currency to fail to reset the clock and no amount of bluff coming from Brussles or elsewhere can hide the fact that bad business decisions should cost investors regardless of type. The notion as expressed by Karl Whelan that the ELAs agreed for Anglo cannot be renaged upon is simply an extension of this problem – the ECB made a bad call, Anglo was a hopeless case and as a result the PMs should not be paid. Tough titty.

@ DOCM

Apologies for the typo.

The French PM is addressing the National Assembly at the moment (in a rowdy athmosphere). Allowing for the usual rhetoric, the central message seems to be that “everything is on the table”. It needs to be.

Shamelessly off topic but: http://ftalphaville.ft.com/blog/2012/07/03/1069611/and-with-an-inflexion-of-the-eyebrows-bob-was-gone/

For those who don’t get it, governance via a network of “forbidding eyebrows” was part of pre-big bang culture.

@docm

You have started typing to yourself – just like PR Guy did a couple of weeks ago. He got banished to France to writhe pornography.

@seafoid

Spotted that, and was wondering the same thing.

CARTOON OF THE DAY

http://www.presseurop.eu/en/content/cartoon/2289071-mr-no

++++ Yields

The currency was written off the moment they bailed out the truely massive Ruropean bank bond market.
Its now a question of a catostrophic deflationary failure or a hyperinflation event.
They could have taxed people with little private debt , but you can’t tax people with a world of debt Atlas could not shoulder.

In truth these criminals don’t see the Euro as a currency but as a Yield instrument for parasites.
This was proven in their lack of care for malinvestment during the boom that a baby could see and then for people who are real slow by their efforts to save their bum chums at all costs.

I hope the F$£ers go down in flames.
Nothing less then the production of pure Treasuary fiat will take the leverage power away from these bastards.

Row Over Euro Policy
German Party Leader Threatens To Axe Coalition

Chancellor Angela Merkel faces growing resistance to her European policy from within her own coalition. Horst Seehofer, the leader of the powerful CSU party, sharply criticized the outcome of last week’s EU summit, and threatened to let the coalition government collapse if Berlin makes any more concessions to ailing euro members.

Seehofer also criticized a suggestion by Finance Minister Wolfgang Schäuble that Germany should hold a referendum on a new constitution that could relinquish national powers to Brussels. “Hands off our constitution! We have this constitution to thank for the most stable state and the most stable democracy there has ever been in German history. We don’t want a different constitution,” said Seehofer.

http://www.spiegel.de/international/europe/german-csu-leader-horst-seehofer-attacks-angela-merkel-over-euro-policy-a-842380.html

Der Split in Der Bundestag – General Election anyone? I’m sick of waiting for the Deutsche version of the PeeDees to implode.

@ CMcC,

What one tends to understand increasingly, as one looks at the relationship between member states and the ‘core’ in European borrowing and taxation terms – is that what is occurring today – is not unlike, that which occurred in Ireland shortly after it had gained independence. Namely, a comprehensive loss in faith and confidence in the ability of local regions, within the island of Ireland, to finance and organise their own affairs.

So what we witness in Ireland (fiscal deficits and all of that ignored for a moment), is the creation of a strong central executive – in which ‘programs’ are constantly being invented, and re-invented – to find ways in which local funding that can spread back over across the whole island, and released from the centralised holding depot.

In fact, what we do not have in Ireland is government. What we have is a central distribution for funding, which tries to invent ways in which to re-distribute local monies back to local levels. There is very little ‘representation’ as such that happens at national level in our houses of parliament, and even less that happens as European parliamentary levels.

What we also see on the island of Ireland, is that a part of the island (the northern part), is managed and maintained as a region, rather than as part of the giant central bureaucracy. The funny thing is, Northern Ireland never seems to see this as a handicap. Imagine, if in the morning, we were to tell Munster, Leinster or Connaught to go and establish their own system for administration, governance and financing.

What we see at a European level though, is not unlike, what we saw in Ireland following after independence. What we see in Europe, is increasingly the irrelevance of regions, and the promotion of centrality. More Europe, not less Europe.

What we seem to be getting in Europe, more and more, are the creation of lots of new quango’s to carry out this and that – like we saw in Ireland during the boom years. Would we not have been better off, in Ireland during those years, instead of creating central quango organisations, to strengthen institutions, which would operate in themselves at regional level, on the island of Ireland?

Would we be in a better situation now, if regions within the island of Ireland were better able to respond locally, to their own regions, and define their own needs in terms of policy and strategy to best weather this European scale crisis? Northern Ireland for instance, may be implementing its own set of policies of austerity or whatever, which suits at its level. But there is no central bureaucracy in Dublin, which is relaying to northern Ireland, instructions that it only receives from Europe. BOH.

From the David O’Donnell provided link above.

“Seehofer said several euro countries needed to drop their debt mentality.”

“The fact that others want to get at our money without asking too much of themselves is deeply human,” he said. “But it won’t solve the problem.”

I find myself in full agreement with Herr Seefofer and am even tempted to write to the German’s shortly as the changes I desire and my country needs, are being retarded by Angela “caving in” to our begging bowl.

Ireland has asked a miniscule amount of itself, by way of structural reforms. We have sought to blame others for our own stupid mistakes and have raised our debts levels to suicidal levels to protect those in their 40’s 50,s and 60’s, especially those in their 50’s and 60’s who are undoubtedly were the decision makers responsible for the mess.

Herr Seehofer should know that the amount of the ill gotten gains that have been given up are in the proverbial “farthing” of ‘pfennig’ category. I have learnt a lesson in parenthood from this crisis, that parents, are more than willing to sacrifice the future of their off spring to protect their acquired taste for the finer things in life. Especially, since they had convinced themselves that they were smarter than everyone else, a class apart and entitled to help themselves to largesse from an exchequer swollen by Celtic Tiger, temporary windfall taxes.

The government and unions, I hate to be a party pooper, seek to maintain unjustifiable benefits” thinking that the same level of taxes can be extracted from a shrunk private sector economy decimated by MOU’s FC’s and Six Packs etc, all of which seek to deflate and shrinking the real economy. Won’t work.

We need careful laser or keyhole surgery directed at the tumors not a tonic of more debt which various elites simply tap into for some more intravenous relief.

Two sentences in a statement, and we are being told that we are “redeemed” that soon, we will have manna from heaven. Why do I think that it will not take too long for the touted “game changer” results of summit No. 19 to end up in the trash can of history? We are only shifting debt around and constructing false partitions. The only real game changer will be if the ECB is given the nod to print money and monetise debt and I still don’t see that happening. Selling off equity in banks for fractions of what we have put into them is not a solution to celebrate and the ESM is debarred from paying for losses incurred on what were insolvent banks.

@Brian OH

I suppose, the question I am asking, is why is it that Ireland always seems to appear like it has a bureaucracy and mechanisms of state, which would be more suitable to a nation many times its size in terms of population and physical scale?

Cargo cult thinking is a reasonable explanation for much of it. The rest divides between cronyism and public purse gouging.

Questions for you: how many are supported from the public purse in Ireland? How many are actually required by a population of four million?

Substitute MPs, local authorities, enterprise boards, hospitals, etc. where appropriate.

@ The Alchemist,

What never happened I would say, after independence in Ireland and that movement towards a very centralised administration of public resources – was that the local authority system should have been reformed in some manner. What happens in Ireland maybe, is that there is too much of a gap between the national executive representation, and the local authority.

Clearly, I think that a better solution for all going forward would be to hand some of the decision making and administration back to a small number of regions, down from the national level. Clearly, trying to administer programs of investment or austerity from a national level in Ireland is not working. You end up with too large a size of central bureaucracy, to administer the said programs to re-distribute the purse nationally, to the four million inhabitants.

There is a clear collapse in accountability also, when a national representative from a place like Limerick or Clare or Cork, travels to Dublin, to bargain for something back home. Maybe it harks back to the days, when Irish MP’s had the travel to London?

What I am asking is, would it be easier or more difficult, for a province, or a region such as Connaught to implement its own austerity program? Would it be easier or more difficult for a region such as Munster, to implement its own infrastructure development agenda?

There seems to be so much unnecessary nonsense that goes on, in trying to centralise all of this administration in Ireland.

Why don’t we hear as much about northern Ireland finding itself in fiscal dire straits, or its banking system collapsing, or whatever? Maybe the answer is, because there is more accountability and administration carried out, at a more local/regional level?

By the time we ever seem to write up any policy or design any program in Ireland – to me, with all of the chatter – the only folk who really seem to gain out of it, is RTE broadcasting and a few independent media stations, who can make current affairs programs out of it. BOH.

Also,

The real lost opportunity was in de-centralisation, where they were not brave.

What de-centralisation should have meant, was the creation of powerful administrations at regional level – and to slightly dilute all of that legacy multitude of local authorities – which are too expensive and ineffective to run.

But that did not happen. The central administration ensured that de-centralisation would be crippled from its birth. BOH.

@DOCM

re ECB ‘change of heart’: Irish Times article.

You may disagree, but the veiled threat of an ECJ action by Colm MCarthy (in a recent article) may have had an influence.
It would have forced all documents on to the table. Not something the ECB would relish.

Other than that, it is apparent that the ECB policy of ‘no bondholder left behind’ is now effectively finished. The ESM will not write cheques willy nillly to banks without burden sharing. Firstly because it cannot afford to and secondly if it did the ESM would merely become a conduit for bank debts being routed back to states, the very issue the summit agreed to avoid.

@ Joseph Ryan

Apropos! The budget measures announced by the French Minister for Finance suggest that the Socialists recognise the precariousness of France’s situation – the most important subject for “control” – and intend doing something about it from the get-go, to use the modern term.

http://www.lepoint.fr/economie/collectif-budgetaire-la-rigueur-c-est-maintenant-04-07-2012-1480711_28.php

Unfortunately, most of the up-front effort is on the receipts i.e. taxation side.

It appears Merkel is taking a roasting in Germany over her capitulation.

Spain ‘s justice system, unlike Ireland’s, can send ministers to trial without showing any deference for reputations. Rodrigo Rato Spain’s Economic Minister from 1996 through to 2004 has been arrested for banking fraud.

http://www.telegraph.co.uk/finance/financialcrisis/9376938/Fraud-trial-for-Rodrigo-Rato-over-Bankia-collapse.html

Anglo, has put Bankia in the shade. I was astounded and sickened when our own governor of the Irish Central Bank told us that he was not interested in naming names, he was interested in process, in systems theory and the like. We have a long way to go have we not? Perhaps, we think the untended rotten waste will turn into some sort of marvelous financial compost from which will sprout two banking “pillars” on which we can construct our recovery?

@ Joseph Ryan

Your logic is far too good, however, instead of higher taxes what we are likely to have is a stagnated economy with unemployment above 20%, a poorer society with everything below a certain level, left to wither on the vine, eventually this will give way to civil unrest with people voting SF not because of their wunderkind economic politics but out of their need to inflict serious damage on the others. Same reason why the present government were voted in.

@ All

The latest from Martin Wolf! That the key is a return to growth in Europe’s economies is a truism in one sense but no less relevant for all that.

http://www.ft.com/intl/cms/s/0/284c3146-c430-11e1-850c-00144feabdc0.html#axzz1zh2XxI8Y

The several very positive references to Ireland may be noted.

The Classic

The Plank – Eric Sykes & Tommy Cooper – 1of5.wmv

And then there is this view

http://facta.junis.ni.ac.rs/pas/pas2005/pas2005-05.pdf

I tried to go through the discussion but it is too large for me. But if I can comment on the article, I do agree with you. As from my point of view (I am a Canadian), you named what is plaguing the current EU. Even it does not look so, but our countries have many things in common. Our is currently being plagued by RE (I recommend to check Most Risky Real Estate Market in Canada? ), while yours is already plundered by it (and by the debts you have taken).

The current bond market under the ECB is really bad strategy, because it can (and probably will) take many victims in the foreseeable future. Italy and Spain are depend, Ireland is also highly in debt and who the hell cares about the Greek.
With the ultimate reveal of the plans of the UK prime minister about the Greek immigrants, I´m asking how long can hold this fragile confidence between other European nations?

They believe that an elite intellectual clique which includes themselves will provide for the masses a social construction that will keep them fed ( for the most part) and out of too much trouble.

The myopia of this smug statement is great-taking. So, Milton Friedman, Hayek etc. are neither intellectuals nor planners, so?

smug?

Look get real guys. Friedman was the leading theorist of the Monetarist movement. The current leading exponent is Ben Bernanke. I rest my case.

As for Hayak, read his “Road to Serfdom” for his perspective on planning.

If you think the Germans are bailing out the rest and that this is likely to become the new norm, forget it.

Germans “feckless”? What are you talking about?

It might be a good idea for people to try and understand the Austrian position before slagging it off. See http://www.mises.org.

Professor Paul De Grauwe of the LSE outlines the solution to euro crisis in the link below;

http://blogs.lse.ac.uk/europpblog/2012/06/07/eurozone-ec-ecb-action/