Banking Union; Schauble op-ed Post author By Philip Lane Post date December 13, 2012 FT reports on progress in the banking union talks – here. Wolfgang Schauble has an op-ed in the WSJ – here. Categories In Uncategorized 43 Comments on Banking Union; Schauble op-ed ← Work and Poverty in Ireland → Another box on fiscal multipliers: ECB December Bulletin 43 replies on “Banking Union; Schauble op-ed” Meanwhile at the Fed. ‘US ties interest rate to level of unemployment’ ‘The US Federal Reserve will keep interest rates at close to zero until unemployment falls below 6.5 per cent, in a historic change to monetary policy.’ http://www.irishtimes.com/newspaper/finance/2012/1213/1224327803203.html John McHale coming up soon on RTE 1 to talk about this. @ All FYI http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/134265.pdf The key paragraph would appear to be; The SSM will be composed of the ECB and national competent authorities. The ECB will be responsible for the overall functioning of the SSM. Under the proposals, the ECB will have direct oversight of eurozone banks, although in a differentiated way and in close cooperation with national supervisory authorities. Non-eurozone member states wishing to participate in the SSM will be able to do so by entering into close cooperation arrangements. Rule No 1. First, protect the German Financial Sytem – and a win for Wolfgang as the Landesbanken and small saving banks remain under local deutsche political control. Once again, German interests supercede implementation of the ‘full monty’ in Europe’s interest. This 21st century version of The German Ideology is becoming very very very trying at this stage …. imho the most dangerous impediment to progress in the EU … and potentially its downfall. It is certainly bringing Hibernia down … I’m now thinking the unthinkable but where to find political balls around here is the question ….? Angela: A Portrait of Wolfgang’s boss (worth reading … to complement FT & NYT 12/12/2012 A Cold Heart for Europe Merkel’s Dispassionate Approach to the Euro Crisis By Konstantin von Hammerstein and René Pfister Chancellor Merkel has more power in Europe than any of her postwar predecessors. Yet there is little passion in her relationship with the EU, preferring instead a strategy of what can only be described as pedagogical imperialism. She sees the bloc primarily in terms of euros and cents — and worries that it is rapidly losing relevance. http://www.spiegel.de/international/europe/analysis-of-chancellor-merkel-euro-crisis-approach-a-872195.html Now where did I put Wittgenstein’s Poker? (the one he brandished at Popper! @ All FYI the Presidency compromise proposals on which final agreemnt was based. http://register.consilium.europa.eu/pdf/en/12/st17/st17540.en12.pdf http://register.consilium.europa.eu/pdf/en/12/st17/st17539.en12.pdf The euro is a currency without a country, unless we create a european country then the euro is over. One step is banking union and the final step is political union. @ All FYI http://register.consilium.europa.eu/pdf/en/12/st17/st17538.en12.pdf A Euro banking union will simply mean the banks have official clearance to farm EU fiat rather then nation state fiat……. So therefore less political complications…….. Riche Boy will no longer have to give those tiresome explanations to domestic politicos…… The banks can put 100% of their energy towards extraction rather then the current 99% so therefore they can become more efficient !! Efficiency has got us into this mess remember ? The Euro is a pure bankers currency They love this stuff. No more nation state lads. @John Europe will always be a market state (much like the US infact – which they want even though it has been a massive failure and now a dump ) States must engage in ever more manic drives to export so that they can import the spice melange…..rather then live under the slightly more cohesive nation state system which at least looks at their internal energy /trade systems through the prism of real borders. There is a reason why the political geography course changed in the 80s Why Germany has given up nuclear power Why we live in such a mess today…….. They want a wider Hapsburg of little city states trading with other city states………… Germany for example gets credit notes from the city…………thinks it can continue to produce cars forever because the bank credit note production suggests real demand………… Why produce national credit in those circumstances ? Credit that increases redundancy ? Why indeed ……….. Eventually Germany will run out of customers as the free banks become even more efficient. They are simply running down the capital base lads. Without borders /national credit one never really knows the inputs & outputs until it is far too late. @ Dork I recommend you listen to the great mane Professor Paul De Grauwe of the London School of Economics and Political Science in the excellent link below speaking at the LSE on 22nd November this year on the subjuct of “The Eurozone’s Design Failures;Can they be corrected?” All is revealed; Enjoy http://www2.lse.ac.uk/newsAndMedia/videoAndAudio/channels/publicLecturesAndEvents/player.aspx?id=1675 @John I don’t buy it now. He wants the market state to work. He seems to think CBs print money. Maybe even in Euroland they need a Treasury …….. And a Euroland treasury would be a even greater nightmare. Europe has destroyed Ireland and other countries internal redundancy. Its time we got out of this construct don’t you think ? Before it does even more damage to the tiny bits of capital (both human & physical) we have remaining. This is a welcome development. It is good that the number of banks to be regulated from Frankfurt has been limited to 15O-200 with a remit to extend that in a country where external supervision is considered necessary. It would have been ridiculous to have the ECB supervise 6,000 banks. Just in case the FDIC is mentioned, I do know how it works. It is neat how they can send in a rescue squad on a Friday afternoon and reopen on Monday morning under a new name. The parameters were chosen to ensure the 3 largest banks in each country will be regulated by the ECB, so I presume that includes BOI and AIB here. Given the government’s strategy of having only two big banks that doesn’t leave much of a role for an Irish regulator? (probably a good thing – sad to say – given how badly we botched that job in the past). But why is the cost of capital / oil so high ? Is it because the free banks burned through a epic amount of real physical capital with their “investments”. Is it the attack on labour which means Europe now has very few Industrial & agricultural skills that are now useful. Or both ? These banks have control of the spice melange…….. To increase their profits they use oil to bypass local labour. So they must destroy capital so as to increase their profits. Global trade is extracting a heavy price so that people can play with their toys. First they came for the small farmers & fishermen………. Can yee lads make this very simple connection. The EU is a expression of pure evil. And yet yee guys seem happy giving them even more power !!! @John PS I have begun to listen to the man again, He wants to give all executive power to the now Maoist commission !! He is from Belgium yes ? The low lands have a very different culture……. They were the areas which sucked in real wealth from the rest of the world during the age of exploration . They have no concept of a nation state and what it means. The more nation state (French model) you are – the more dependent you are on your own internal capital base. This is the banking republic model destroying the nation state model bit by bit. He also states wage costs in Ireland increased ? Not per person in the high energy sector……….. Thats why the banks created more credit – there was a demand hole which was filled with credit rather then money /wages. Instead of more pints which just went around in circles in Ireland , people bought houses & cars…… The real pub trade was nothing like the 1970s boom. Mr Wolfgang Schauble, Not only does this man have a vision of where we are, but also where we ought to be in the future. Several points which I wholeheartedly agree on.. 1) “We must be ambitious. But we also need to be realistic in our priorities, meticulous in our work, and to follow a clear sequential order, beginning with the completion and implementation of the reforms we have already started” +1 2) “Flush with cheap money and the illusory wealth brought by speculative bubbles, many governments raised spending in the upturn and neglected competitiveness. Consumers, surprised by falling interest rates and seemingly ever-rising salaries, piled in on debt. In the downturn, a toothless stability pact failed to prevent an explosion of budget deficits and public debt. So as we repair the edifice, we need to be careful about restoring and maintaining balanced incentives” +1 3) “By suggesting that uncompetitive economic structures can endure, we would buoy the populists, scapegoat-seekers and illusion-peddlers who lurk at the fringes of our political landscapes. By discouraging reform, we would not solve Europe’s imbalances but make them permanent.” + 10 4) “If we want to maintain such a level of protection in a rapidly changing world, we must ask ourselves where the wealth to sustain it will come from.” +1, unfortunately the Marxist Socialist Mob of begrudgers will never understand this. One cannot have wealth transfers if all the wealthy people have been driven off the island. There are several other points which are very well made, but too many to list here. However for Ireland and it’s citizens, big changes are going to take time, but they are coming non the less. One change which surprised me is the right of a Revenue official to gain entry to your private home, so as to calculate a value for property tax. It will be interesting to see if the rights of the citizen will be balanced with the new laws and regulations coming down the tracks. This I fear is something which could be overlooked. @Dork It is possible you are correct but at the moment more people believe Professor De Grauwe. Keep up the good work. What a load of rubbish. These guys bring the idea of a Fudge to a whole new level. So we have 5800 banks outside the remit of the EZ regulator, but the ECB can intervene in “reasonable” circumstances that are unspecified. Is this joke? In any case, the centralized regulation is useless because there is absolutely no agreement on who pays for the wind-up of a bank. Neither the EZ taxpayer will pay via the ESM (or similar) nor will the banking system pay through a deposit insurance scheme. Is this what the Finance ministers mean by disentangling banks and sovereigns? @Michael Hennigan “Just in case the FDIC is mentioned, I do know how it works. It is neat how they can send in a rescue squad on a Friday afternoon and reopen on Monday morning under a new name.” Are you claiming that there is something fundamentally wrong with Deposit Insurance or that the proposed EZ regulation is superior to the US system? Please explain. @Philip Lane Is this what you meant by a banking union that was part of a “sequencing of reforms” that was all lined up and ready to go once we passed the Fiscal Compact Treaty? If so, could you please explain what Ireland is going to get out of such a union, because from where I’m sitting we are just giving up a little more sovereignty without anything in return. @John I am afraid all of evidence is in ? You really can’t dispute why they wish to squeeze labour……the banks want surplus value even if it kills the host. Its the role of treasuries to print the money – if not all life on Earth will be destroyed. And that is not a Exaggeration ( I think…………) The Euro is pure evil. @ Sporthog Schauble is able, but he is a puppet of the bankers and a proponent of the market state. His analysis is partial at best, and very seriously misleading. ‘One of the euro zone’s original design flaws was the lopsided incentives it introduced. Its launch heralded a sharp fall in the financing costs of even its weakest members. Flush with cheap money and the illusory wealth brought by speculative bubbles, many governments raised spending in the upturn and neglected competitiveness. Consumers, surprised by falling interest rates and seemingly ever-rising salaries, piled in on debt. In the downturn, a toothless stability pact failed to prevent an explosion of budget deficits and public debt. So as we repair the edifice, we need to be careful about restoring and maintaining balanced incentives’ Fiscal management matters, but the primary driver of the crisis is the unprecedented explosion of private bank credit, with the corrosive real economy and real society consequences, to which Dork continually refers. It was not governments who gave us our banking bust, it was bankers who suborned our government. The process has occurred many times in history, but never on this scale and depth. As always, however, it will continue until it can’t. http://www.irisheconomy.ie/index.php/2012/12/07/coase-versus-pigou-and-eurozone-bank-resolution-policy/#comments Comments Dec 8th 11.53 @ Sporthog The following issue on wealth/job creation rarely gets attention as the credible answers cannot be easily distilled into soundbites: In their generosity, European welfare systems are unparalleled, both in the world and in history. If we want to maintain such a level of protection in a rapidly changing world, we must ask ourselves where the wealth to sustain it will come from. Not from a eurozone budget, the printing press or eurobonds. All of our economies, not just a few, will have to generate this wealth, and they can only do so if they adapt to the rigors of a hyper-competitive world economy. Prosperity is not a God-granted right—it must be earned. @ bazza I was thinking in terms of the routine of the FDIC swiftly transferring ownership of banks and sending in rescue teams and thinking that the ECB doing that in a member state even though using local agents, may not be welcome e.g. regioanl cajas in Spain. Anyway in terms of logistics and the lack of experience, it’s likely wise for the ECB to begin with the big banks. ‘Solidarity always goes hand and hand with solidity. Because solidarity on its own can also be an empty promise. In their generosity, European welfare systems are unparalleled, both in the world and in history. If we want to maintain such a level of protection in a rapidly changing world, we must ask ourselves where the wealth to sustain it will come from. Not from a euro-zone budget, the printing press or eurobonds. All of our economies, not just a few, will have to generate this wealth, and they can only do so if they adapt to the rigors of a hyper-competitive world economy. Prosperity is not a God-granted right—it must be earned’ Unless you are a well connected banker, or an associate of same, in which case you have an entitlement. http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10610 @ paul quigley ‘In their generosity’ Right there is a total misunderstanding of what the welfare state is. And, for another day, what’s your thing with Prudent Bear? He makes me antsy. Austerian? I personally find MH’s comments about the recent article by “Stephen Kinsella presents a schizophrenic take on the economy in an article in ‘Foreign Affairs,’ for a mainly American audience” borderline obnoxious. How ya get outta bed with that chip on r shoulder..beyond me. Anyway,when I lived in Georgetown DC it was a must read and widely discussed mag..less so in NY but still fair play Stephen for getting published there.I have renew my sub to read it but I will. finally…MH are you familiar with the EU trustee at Anglo/IRBC do you require a page number or doc ref. or do you know not what you pontificating bout… @ Gavin Doug Noland aka Prudent Bear is one of the the people who clearly idenitfies the problem which Herr Schauble and his like wish to avoid talking about. Finance is out of control. ‘I believe the vast majority of the modern financial apparatus over the years gravitated to speculative spread trading and various leveraged risk arbitrage strategies – especially at the expense of funding sound investment in the U.S. and other advanced economies. The system’s focus turned to financing the securities and asset markets, an extremely lucrative business that so dwarfed opportunities available from financing capital investment. The intense focus on Credit market spread/arbitrage “profits” – as our central banking incentivized leveraged speculation – made real economic returns virtually irrelevant to the broader economy’s development (home mortgages were much preferred over business investment loans as fodder for risk intermediation and financial arbitrage). Never before had the possibilities for Credit creation – and resulting fees and speculative profits – been so unfettered and incentivized. That is, as long as asset prices continue to inflate. Over time, this resulted in “money” and Credit becoming dangerously and increasingly detached from real economic wealth and wealth-producing capacity’ Unless and until that tendency is checked we are all fubared. @ paul quigley Eaten bread is soon forgotten! This is the 40th year for Irish farmers to be in receipt of European welfare. Germany with its declining population is moving towards a pension age of 67. The OECD has cited France where a male can enter the workforce at 24, retire at 59 and live to 81 — 35 years of work and 46 of some dependency on the state. The LIBOR scandal like so many more are illustrations of old fashioned dishonesty and fraud with related incentives and a low risk of penalties. It’s easy to see how states can get manipulated. The level of MNC tax avoidance with Ireland as a base has grown enormously in the past decade. When there is no red line we get to the current situation where the amounts involved become big issues in countries where there are big consumer markets for the MNC products. @ John Gallaher You don’t query any facts but head off on some whataboutery on Anglo. You find robust argument on the issues ‘obnoxious’ but then engage in petty personal sniping. The term ‘schizophrenic’ was used in a non-medical context; I explained to a Serbian in the past that ‘balkanised’ wasn’t used as a racial slur on his region. Despite the bust, there is still a market for fairytales – – official and otherwise. One month after the outbreak of the credit crunch in 2007, an economist at a stockbroker firm wrote in The Irish Times that he was “sick to death” of critics of the Irish economy. He is still alive and has a job; others have been victims of what he and others were peddling. So like Bertie, I must have a chip on my shoulder because I don’t fall for the received wisdom. There are plenty other places for you if you can’t handle the truth. fyi European Council: No federal Europe this winter 13 December 2012 Libération Paris The last EU summit of the year will not take the path of economic and monetary union closer. The fault lies with Berlin and Paris, who have agreed to bury the roadmap which was presented to them by Herman Van Rompuy. The debate on the future of the Union has been kicked into the long grass to return in 2014, after the German and European elections. […] Angela Merkel is entering an election period and wants to avoid the slightest risk, while François Hollande fears nothing more than reopening old wounds in his majority government. End of story. But this petty politics is based on risky assumptions – as if the crisis were finally behind us, and that the peoples of Europe would settle for a short-sighted austerity. http://www.presseurop.eu/en/content/article/3159131-no-federal-europe-winter test @MH apologies for tardy response bit of a hectic day. Anyway,I find linking and commenting on an article that I can’t read w/o subscribing too a little “obnoxious”. The comment that “upset” me was this ….but I am heading out now to my local newsstand to buy FA read the article and respond. Again,well done Stephen for getting published there. “Stephen Kinsella presents a schizophrenic take on the economy in an article in ‘Foreign Affairs,’ for a mainly American audience” @MH I’m sure you have better things to do with your time. Regarding this comment and my meandering off course on Anglo. It was this comment by you that provoked it. “I was thinking in terms of the routine of the FDIC swiftly transferring ownership of banks and sending in rescue teams and thinking that the ECB doing that in a member state even though using local agents, may not be welcome e.g. regioanl cajas in Spain” If you get a chance pg 46 etc. “The Monitoring Trustee shall be one or several natural or legal person(s) independent of the merged entity who will be approved by the Commission and appointed by the merged entity, and will have the duty to monitor whether the merged entity complies with its obligations towards the Commission and implements the restructuring and work-out plan.” It already exists….MBL again apologies for brevity and delay in response. http://ec.europa.eu/competition/state_aid/cases/239466/239466_1251121_21_3.pdf The current edition of foreign affairs on newsstands in NY is Nov/Dec the “schizophrenic” article is not in it,so i put my money where my mouth is and signed up,actually after ‘registering’ the article is free…so far so good! I found the article well written,balanced and cautionary.At no point did it appear ‘schizophrenic” quite the contrary,good read and witty in parts.Not sure if its ‘free’ to overseas readers but was here in NY,intended to pay the 30 bucks for a annual sub. but did not have too…the ending is worth a read,nice work Stephen. “Ireland may seem to be the latest model for those pushing austerity across Europe, but the continent’s authorities should be wary of applying the lessons of the Irish experience to the next wayward country. Ireland is tiny, its government and populace are unusually pliant, and the scale of its housing boom and bust was unprecedented. The markets perceive Ireland differently than they do other countries and have been more likely to trust it. So the precedent Ireland offers its European neighbors is not exemplary but cautionary. Given Ireland’s treatment by the markets, other countries in Europe may be more circumspect about asking for aid, even if it makes sense for them to accept it. Perhaps, for once, Ireland may save itself by refusing to put on the poor mouth; other European countries ought to think twice before doing the same.” http://www.foreignaffairs.com/articles/138490/stephen-kinsella/how-ireland-got-its-groove-back?page=show The other comment by MH that provoked my ire,is above suggesting that EU/ECB supervision of bailed out of EU/ECB banks would be met with opposition.Not so fast there MH…….. If you review the terms conditions of approval by the EU of the ‘aid’ package one the conditions is that a “Trustee” is appointed-pages 45 onwards. Anyone interested in the PN’s or Anglo etc etc should take a look at the EU decision link above.For the real ‘wonks’ the decision and communications to Michael Martin also worthy of a read. If anyone has a copy of the “Anglo Third Restructuring Plan” do share,its my contention/position the positive arb. enjoyed by “Anglo’ on the PN’s is integral to its rundown scenario…a bit off topic sorry. http://ec.europa.eu/eu_law/state_aids/comp-2010/nn035-10.pdf @ John Gallaher With all due respect to Stephen Kinsella, the idea that Ireland had a choice with regard to “asking for aid” resides in a country widely occupied by Irish academics and know as “Cloud Cuckoo Land”. You may find this article of interest. http://www.independent.ie/opinion/analysis/daniel-mcconnell-time-is-running-out-for-noonan-to-deliver-debt-deal-3327082.html @docm There was a choice, it was just that it was rendered unusable by the untouchable items and sacred cows. From your link: “UCD economics professor Karl Whelan estimates that the upfront cost over the lifetime of the Promissory Note (between now and 2025) could be reduced from €33bn to €6bn – a saving of €27bn, he wrote in a paper last month. However, if a deal is not done, next March’s payment could be €6.2bn, as we have to pay back the one year bond from Bank of Ireland, which enabled the Promissory Note not to be paid last March, Whelan said.” I’d be surprised if that’s actually what Karl said since the pro note repayment the Central Bank last year WAS made, the money to pay it was borrowed from Bank on Ireland for 1 year. @ Grumpy And it has to be paid back to the BOI! By the way, the leader of the party in question repeated the claim that the money had not been paid on RTE today. @ grumpy This must be the Karl Whelan item. http://www.forbes.com/sites/karlwhelan/2012/11/21/why-ireland-would-benefit-replacing-the-promissory-notes-with-a-long-term-bond/ @DOCM thank you,will take a look later,and it’s not behind pay wall nor do I have to register to read it! Everything you ever wanted to know about the PN’s/Anglo “aid” is in the above links. W/O wanting stary too far off topic but if the EU is ‘regulating’ or supervising the runoff at ‘Anglo’ it presents the Irish govt. with interesting choices. They want a trustee or monitor but none the downside risk….anyone know who the EU trustee is or is that a “secret” you guys are paying the Trustee’s bills … @docm If he also said that, and wasn’t laughed out of the studio, I am amazed (note to self: insufficient cynicism employed yet again) that, despite having the thick end of a year to understand this, the press and econo-commentariat are still failing to nail this particular lie! Gamma minuses all-round I think. @docm No, it isn’t in that article. Looks like a mangled quote to a journalist. @DOCM/Grumpy read and commented on the KW article in Forbes. I think/believe that Anglos remaining assets are garbage,possibly overvalued on the balance sheet. They need to be ‘marked’ to recent transactions for Irish and UK loan sales. What are the implications to Anglo’s runoff if the PN’s get kicked down the road ? My opinion they are counting on the positive spread uninteresting rates btw. ELA and the PN to wind it down. Mobile apologies typos etc. Giants are losing too! @ grumpy Marc Coleman, at least, was on the ball (for all the impact it had on the peddlers of this particular pork pie). http://www.independent.ie/opinion/analysis/marc-coleman-forgive-debtors-or-risk-wrath-of-god-3327083.html @DOCM thanks had chance to read it,this is a decent spot to find a bit more technical info on the PN’s a bit dated but some excellent presentations,all in one place. http://www.oireachtas.ie/parliament/ob/committees_list/fper-committee/presentations/ It causes me no end of amusement and amazement that no one has made any serious effort to have the PN’s released into the public domain- I may be incorrect but if anyone has a link appreciate it. A restaurant would not hand its customers a bill without a detailed breakdown,it’s long past time that the “Anglo” run off scenarios and the PN’s are made public,who would pay a bill w/o a breakdown……only an idiot or a gullible fool! Comments are closed.