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När och hur spricker EMU?

Bank run, The beginning of the end

Alla valutaunioner i historien har antingen lett till en stat eller spruckit.
Varför skulle EMU vara så annorlunda?
Anders Lindberg, Hässelby, SvD Synpunkt 14/8 2003


This is old version - New version is here


Juncker: Greece is and will irreversibly remain a member of the euro area
BBC, August 14, 2015


I hate to say it, but I fear that we are in for a new round of euro zone troubles.
The Market Monetarist, Lars Christensen, 11 April 2016

Continued very low level of inflation expectations in the euro zone.
Hence, it is clear that the markets do not expect the ECB to deliver 2% inflation any time soon.

As a consequence, nominal GDP growth also remains very weak across the euro zone.
And with weak nominal GDP growth public finance concerns are again returning to the euro zone.

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Germany should leave the euro zone in order to save the union,
former Bank of England Governor Mervyn King, CNBC 21 March 2016


Bara en person. Angela Merkel.
EU skulle skapa fred på Balkan genom att göra de forna jugoslaviska staterna till en del av gemenskapen.
I dag är det i stället EU som ”balkaniseras”.
Den enda som kan stoppa sönderfallet är Tysklands förbundskansler Angela Merkel
Rolf Gustavsson, SvD 9 mars 2016


Mervyn King: the eurozone is doomed
Telegraph 29 Febr 2016

The eurozone is doomed to fail and will lurch from crisis to crisis unless it is broken up, according to the former governor of the Bank of England.

In his new book, Lord King claims that steps towards fiscal union will not quell tensions in the 19-nation bloc and could even tear it apart.

He warns of a looming “economic [and] political crisis” triggered by endless bail-outs, austerity demands and pressure from the “elites in Europe” and the US to create “a transfer union” to solve the eurozone’s woes

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The rout in European financial markets last week was a wat­ershed event.
Münchau via Rolf Englund blog 16 Febr 2016


Donald Tusk, the president of the European council,
warned that positions were hardening on Britain’s future in Europe
and the risk of break-up was real.
Guardian 15 Febr 2016

David Cameron scrapped a debate at the European parliament on Tuesday and scheduled a meeting with Jean-Claude Juncker, president of the European commission, amid fears that a proposed settlement geared to keeping the UK in the EU could unravel because of growing European objections to the concessions promised to Britain.

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News


Europe’s leaders find solutions that are temporary, barely satisfactory and designed chiefly
to serve the purpose of somehow keeping the EU show on the road.

Like the Holy Roman Empire the EU may not disintegrate but slip into a glacial decline
Tony Barber, Europe Editor and Associate Editor, FT 21 December 2015

Whether it concerns terrorism, immigration, homegrown political extremism, the eurozone’s unity, unemployment, lacklustre economic growth or even Europe’s military defences,
national governments and the EU apparatus in Brussels look increasingly as if they are not up to the numerous challenges bearing down simultaneously from every direction.

Like Cavafy’s imaginary state, or like the Holy Roman Empire, which lasted for 1,000 years before Napoleon put it out of its misery in 1806,
the EU may not disintegrate but slip into a glacial decline, its political and bureaucratic elites continuing faithfully to observe the rites of a confederacy bereft of power and relevance.

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The EU did not collapse suddenly like the Roman empire.
Its decline was more like that of the Holy Roman Empire.

Extract from the Oxford History of Modern Europe, published in 2045,
Timothy Garton Ash, FT 18 December 2015

Early 2005 may be considered the apogee of what was then called the European project. The previous spring, 10 states of central and eastern Europe joined the EU, making it the largest commonwealth of liberal democracies in European history.

That union was proposing a constitutional treaty, popularly known as a “European constitution”. A single currency, the euro, appeared to be working well — and for many Europeans there was a sense of all-round optimism.
The outbreak of a pro-European Orange revolution in Ukraine convinced Russian president Vladimir Putin that the apparently soft, postmodern EU was a real threat to his power.

“The next decade, however, proved these to be grandiose illusions. A series of crises left European leaders reeling, starting with the rejection of the European constitution in referendums in France and the Netherlands, and continuing with a decade-long crisis of the eurozone, Russian annexation of parts of Ukraine, Islamist terror attacks, a British referendum on leaving the EU, millions of refugees fleeing the Middle East and Africa, as well as the growth of eurosceptic, anti-system and xenophobic parties across the continent.

“Unfortunately, the European leaders who gathered for one of their innumerable summits in Brussels in December 2015 failed to acknowledge the depth of the union’s existential crisis, let alone to find answers that effectively addressed the growing disillusionment of their peoples

The EU did not collapse suddenly like the Roman empire, with barbarian hordes occupying the bureaucratic palaces of Brussels. Its decline was more like that of the Holy Roman Empire.

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Timothy Garton Ash Home page

Rome, Habsburg and the European Union

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News


Unworkable and unreformable, the euro surely cannot survive another serious downturn
The euro in its present form will die not of the financial traumas that first threatened its existence, but of popular anger
Jeremy Warner, Telegraph 18 August 2015


I vastly overestimated the risk of /Euro/ breakup, because I got the political economy wrong
— I did not realize just how willing euro elites would be to impose vast suffering in the name of staying in.
Relatedly, I didn’t realize how easy it would be to spin a modest upturn after years of horror as success.
Paul Krugman, NYT 10 June 2015

I’m sorry to say that I completely missed the important of liquidity and cash shortages in driving bond prices in the euro area.
It wasn’t until Paul DeGrauwe weighed in that I realized just how much difference it would make if the ECB did its job as lender of last resort;
if the euro survives, DeGrauwe — and this guy named Draghi, who put his ideas into practice — should get a lot of the credit.

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If Europe cannot bend it will break
Germany’s tough approach is based on a realistic assessment of how hard it will be to get reforms through a 28-member EU
— as well as a profound aversion to rolling back the process of EU integration.
But it is also an alarming commentary on Europe’s inability to respond to changed circumstances, whether it is a 25 per cent shrinkage in the Greek economy,
or the unanticipated migration of millions of people across the EU.
Gideon Rachman, FT 8 June 2015

That failure to be flexible about change is dangerous. A Europe that cannot bend is much more likely to break.

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Gideon Rachman at IntCom

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There will be no serious adjustments of policy, since it will just be too hard to agree what to do.
That kind of complacency is Europe’s default reaction to political revolts from the unenlightened masses, otherwise known as voters.
Gideon Rachman, FT May 26, 2014


“The decision to use the single currency to drive the European project forward was a risky one,
and at some stage or probably in several stages, it will be necessary to put the missing fiscal framework into place,
Stanley Fischer, the vice-chairman of the Fed, FT 21 May 2015

Mr Fischer quoted EU founding father Jean Monnet in arguing that the history of Europe would be “forged in crises”.
The responses by the European Central Bank in recent years, plus the creation of a Banking Union, were examples of this principle in action, he argued.

“All that has been done so far makes it very likely that EMU — the Economic and Monetary Union — will survive this crisis,” Mr Fischer said.

Full text at FT

Full text at Fed

Federalism

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Policy makers in Italy, Portugal and Spain say their economies and financial systems are strong enough to survive a Greek departure from the eurozone,
but they acknowledge that Grexit might set a precedent replete with risks for Europe’s 60-year-old integration project.
FT 8 april 2015

On the other hand, a Grexit that was carefully managed and led to economic recovery in Greece, albeit after five to 10 years,
might strengthen populist parties such as Italy’s Northern League and Five-Star Movement,
which contend that eurozone membership has been little short of a national economic disaster.

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News


A Greek departure from the eurozone would still be "negative",
but that he believed it would be less damaging now because financial markets were much more confident than they had been in recent years.
However, he added that a "Grexit" would still leave the idea of monetary union in doubt. "It breaks a taboo and sets a precedent," he said.
Former European Commission president Jose Manuel Barroso, BBC 2 April 2015

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News


Accidental exit from the eurozone is quite likely — not because Greece or its partners want it
Exit would transform the eurozone from an irrevocable currency union into a regime of hard exchange-rate pegs.
That would be the worst of both worlds: neither as credible as a union nor as flexible as floating rates.

Martin Wolf, FT 31 March 2015

A country is most likely to leave the euro if its government cannot meet its obligations, its banks close their doors, its economy is depressed and its politics are turbulent. Greece might soon be in this state. A chaotic exit may then occur. It is vital to avoid such a “Greccident”.

Moreover, exit — particularly if unassisted — could cause grave economic and geopolitical consequences. Greece might plunge into an economic abyss. Abandoned by Europe, it might turn towards unfriendly powers. This would be a strategic disaster. Finally, Greece has already suffered the pains of austerity. From now on, things should get better, provided policy improves.

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Grekland

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To save the euro, let Greece go
... negotiations will continue until the last minute and concessions on the Greek side may enable the eurozone leaders to “extend and pretend” one more time.
DeAnne Julius, former member of the Monetary Policy Committee of the Bank of England, FT blog 31 March 2015

But, if so, this will not be the final act.

The unfolding drama has exposed the fundamental weakness of imposing a common currency on such disparate societies
without the central mechanisms either to enforce constraints on budget deficits or to trigger large inter-country subsidies.

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Fundamental misalignments that have made life so unbearable for many Europeans.
Imbalances tend to arise in economic life. There is nothing wrong with them in principle as long as they disappear eventually.
But there is no sign of a benign route out of the eurozone’s internal imbalances.
Wolfgang Münchau, FT 29 March 2015

Germany had a surplus of 7.5 per cent of its economic output last year.
Greece is running a current account deficit despite one of the most brutal economic adjustments in modern history.

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Interndevalvering

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Sustaining the Unsustainable Eurozone
When the eurozone was established, its creators envisioned gradual progress toward an “optimal currency area,”
characterized by fiscal integration, the free movement of labor, and political union. But this process has not occurred
Yannos Papantoniou, Greece’s Economy and Finance Minister from 1994 to 2001, Project Syndicate 25 March 2015

But this process has not occurred, and, as the interminable Greek crisis has shown, the eurozone remains rife with structural weaknesses and extremely vulnerable to internal shocks. This is clearly not sustainable.

Despite efforts to promote fiscal-policy coordination, eurozone members’ budgets still fall under the purview of separate national authorities, and northern Europeans continue to oppose transfers from more to less prosperous countries beyond the very limited allowance of the European Union’s regional funds.

Moreover, labor mobility is severely constrained by linguistic and cultural barriers, as well as administrative bottlenecks.

And “ever-closer” political union has ceased to attract public support – if it ever did – and is thus not feasible today.

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Federalism

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It is a sign of low expectations in the handling of the Greek debt crisis
when a deal to keep the country from chaos for four months at the most and only 72 hours at the least
is hailed as a great breakthrough.
FT View 22 February 2015


In theory the euro is forever. That is what all the law associated with it says.
And once it is not forever for Greece, it is not forever for any nation, even Germany.
Robert Peston, BBC economics editor, 17 February 2015

Whether Berlin likes it or not, the moment Greece leaves, those who control the world's huge pools of liquidity or cash
will start placing bets on the next country to head for the exit.
Once that happens, eurozone fragmentation is almost impossible to reverse

Berlin, Paris and the rest simply cannot be confident the euro will be for all time if Greece is either bundled out the exit door or chooses to walk through it.
Because it would demonstrate that the euro had failed in its core underlying purpose,
which was to bind its members ever closer together, economically, financially and - perhaps critically - in a political sense too.

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"ever closer union" - The United States of Europe

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The banks in Greece will not open on Monday, I guess
Rolf Englund, 14 February 2015


The euro is engaged in two dances of death.
The fact that both /ECB and Greece/ threaten euro destruction is testament to the astonishing mis-construction of the euro itself.
Peter Doyle, an economist and former IMF staffer, FT 10 February 2015
Highly Recommended

The risks of mutual misreading between Merkel and the markets on this are potentially catastrophic.
If she wrongly finds affirmation from markets’ quiescence that defenses are strong enough to withstand Grexit and so lets Greece go,
but markets’ quietude actually reflects QE and their belief that she will again crumble, bang goes the euro.
Peter Doyle, an economist and former IMF staffer, FT 10 February 2015


ECB; expansion of so-called Emergency Liquidity Assistance by about 5 billion euros to Greece on Thursday
Bloomberg, Friday 13th 2015


The real risk for the eurozone is that Greek default and euro departure go relatively well
Roger Bootle, Telegraph 11 Jan 2015, via Rolf Englund blog


The spectre of Greece's exit from the single currency - or "Grexit" - once again.
Eurozone policymakers have consistently ruled out that possibility because they are wary of opening Pandora's box.
Linda Yueh, BBC Chief business correspondent, 29 December 2014


Snap elections in Greece open the way for an anti-austerity government
and a cathartic showdown over the terms of euro membership.
Yields on 3-year Greek debt surged 185 basis points to 11.9pc
Ambrose Evans-Pritchard, 29 Dec 2014


Eurozone’s weakest link is the voters
The euro crisis is back.
The rise of anti-system parties threatens a currency that depends on consensus
Gideon Rachman, FT December 29, 2014


Secular stagnation
Eurozone policy makers face three choices.
First, they can transform the eurozone into a political union, and do whatever it takes:
a eurobond, a small fiscal union, transfer mechanisms and a banking union worthy of its name.
Second, they can accept secular stagnation.
The final choice is a break-up of the eurozone.
Wolfgang Münchau, FT October 19, 2014

The second and third choices are not mutually exclusive. As the political union is firmly off the table, this leaves us with a choice between depression and failure – or both in succession.

Financial markets have woken up to the possibility of a eurozone-wide economic depression with very low inflation over the next 10 to 20 years.
The implications for those who live in such an economic snake pit are already visible: high unemployment; rising poverty; real and nominal wage stagnation; a debt burden that will not come down in real terms; a decline in public sector services, and in public investment.
A shocking example is the decrepit state of German military hardware. Of the Luftwaffe’s 254 fighter planes, 150 cannot fly.

Secular stagnation – the idea that a chronic shortfall of investment might produce a long period of weak demand – also has disturbing implications for financial investors.
The recent high levels of equity prices were premised on the best possible of all scenarios:
that productivity growth rates would revert to historical averages, and that the level of gross domestic product would eventually catch up with the pre-crisis economic growth trajectory.
Investors have now begun to realise that neither is going to happen. GDP is still only close to the levels of 2007.

Eurozone policy makers face three choices.

First, they can transform the eurozone into a political union, and do whatever it takes: a eurobond, a small fiscal union, transfer mechanisms and a banking union worthy of its name.

Second, they can accept secular stagnation.

The final choice is a break-up of the eurozone.

The second and third choices are not mutually exclusive. As the political union is firmly off the table, this leaves us with a choice between depression and failure – or both in succession.

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Secular Stagnation

Defiant France ignores the abyss
There is the argument in government ministries and the smoke-free conference rooms of Brussels,
as politicians and bureaucrats attempt to define new continent-wide rules to ensure Europe does not slip back into a new and debilitating debt crisis.
But the future of the European economy and its single currency is more likely to be decided on the streets.
Gideon Rachman, FT October 18 2010


Borders and budgets risks provoking political crises
that could plausibly culminate in the break-up of the euro, or even the EU.

Gideon Rachman, FT October 20, 2014


How the euro was saved
In the French seaside resort of Cannes
To the astonishment of almost everyone in the room, Angela Merkel began to cry.
the man sitting next to her, French President Nicolas Sarkozy, and the other across the table, US President Barack Obama
Peter Spiegel, Financial Times 11 May 2014



Der Spiegel


Unbalanced and unsustainable – if something cannot go on forever, then it will stop
If something cannot go on for ever, Herb Stein, one time economic adviser to President Richard Nixon, famously remarked, it will stop.
Yet sometimes, it seems to take an awfully long time to grind to a halt.
Jeremy Warner, Telegraph, August 15th, 2013

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/RE: If something cannot go on for ever it will stop. The Public Interest - nr 97 Fall 1989/ and http://en.wikiquote.org/wiki/Herbert_Stein/


Eurointelligence puff:
From the man who single-handedly invented the whole concept of economic commentary in newspapers
comes a very clear-sighted column on why he thinks the eurozone will ultimately collapse

If something cannot go on for ever it will stop.
Why the eurozone will come apart sooner or later
The single currency has failed to become the harmonising force that it was supposed to be
Samuel Brittan, Financial Times, August 8, 2013

Since the euro was inaugurated in 1999, German unit labour costs have risen by less than a cumulative 13 per cent. During this time, Greek, Spanish and Portuguese labour costs have risen by 20 to 30 per cent, and Italian ones by even more.

It is hardly surprising that Germany has a current account surplus of 6 per cent of gross domestic product

The economic theory – such as there was – behind the creation of the euro was that the single currency itself, and the supposed impossibility of devaluation by members, would act as a harmonising force.

But this has not happened and present relationships have become unsustainable.

Herbert Stein, an economist active in Washington towards the end of the last century, said that if a policy or situation was unsustainable, it would not be sustained. But he did not indicate how long it would take for such situations to unravel.

/RE: If something cannot go on for ever it will stop. The Public Interest - nr 97 Fall 1989/ and http://en.wikiquote.org/wiki/Herbert_Stein/

Meanwhile, it is in the interests of the eurocrats to make the problems seem as complicated as possible so that only a small number of so-called financial experts can even discuss them; and we have had one financial package after another and one guarantee after another to keep the structure going.

But loans and guarantees do not make the unsustainable sustainable.

There is only a limited number of ways that the situation could develop.

First, “austerity” in the peripheral countries could succeed.
By this, I mean the demand squeeze imposed on them results in a fall in costs and prices,
relative to their eurozone neighbours, leading to greater competitiveness,
an eventual recovery in living standards and a sharp drop in unemployment.

/Interndevalvering (Ådals-metoden)/

Second, the peripherals could continue to stagnate. Unemployment is now 22 per cent in Greece, 24 per cent in Spain, 18 per cent in Portugal, 15 per cent in Ireland and 10 per cent in Italy.

The third option is unlikely, but included for completeness. Germany and other northern euro members could pursue more “expansionary” (read inflationary) policies, thus reducing the agony of the south. Alternatively it could continue to subsidise the peripherals indefinitely.

The fourth option is for one or more of the peripherals to leave the eurozone. If I had to bet (which I don’t), my money would be on number 4. But I would not bet at all on when it will occur.

The Holy Roman Empire was founded by Charlemagne in 800 and lasted until it was dissolved by Napoleon in 1806.

The timescale of euro disintegration is anyone’s guess.

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More by Samuel Brittan at Financial Times

More by Samuel Brittan at IntCom and nejtillemu.com

Rome, Habsburg and the European Union

EMU Startpage

Home


This month marks the fourth anniversary of the May 2010 financial rescue of Greece.
Clearly, the supposed experts who predicted the imminent disintegration of the eurozone have been proved wrong.
But it is equally likely that those now declaring that the crisis is over will be proved wrong as well.
Barry Eichengreen, Project Syndicate, 12 May 2014

Ireland, Portugal, Spain, and Greece have made considerable progress in lowering their unit labor costs to 1999 levels relative to Germany.
The problem is that 1999 levels are not enough, because producers now have China and other emerging markets with which to contend.

Italy and France, meanwhile, have made considerably less progress on improving their international competitiveness.

Europe’s banking crisis is unresolved. Loans to finance fixed investment continue to fall.

Remarkably, the European Banking Authority’s latest stress test for the eurozone’s banks does not contemplate the possibility of deflation in its adverse scenario.

Europe’s much vaunted banking union harmonizes deposit-insurance coverage but does not provide a common deposit-insurance fund.

The associated resolution fund will possess only € 55 billion of its own capital, whereas European bank liabilities are on the order of € 1 trillion.

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The longer the crisis in the Eurozone drags on,
the more it looks like the “Lost Decade” in Latin America in the 1980s
than the “Phoenix Miracle” of the East Asian countries following their crisis in the 1990s.
Barry Eichengreen, Naeun Jung, Stephen Moch, and Ashoka Mody, Berkeley, May 2013

In Latin America it took nine years for growth to recover sustainably to the levels prevailing prior to the crisis in 1982.
The meantime saw a grinding process of internal adjustment characterized by debt overhang rather than debt reduction.

East Asia’s crisis, in contrast, took the form of a v-shaped recession and recovery, with growth falling sharply in 1998, the year following the onset of the crisis, but recovering equally sharply in 1999 to levels nearly as high as before the crisis.
The growth of debts was more limited, and exports increased dramatically. Internal and external adjustment was faster.

Thanks Eurointelligence and Brad Delong for the link.

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Rolf Englund, Den Stora bankkraschen, Timbro, 1983

Internationella valutafondens roll i krishantering: fallet Asien
För oss från Norden var det dock uppenbart redan i ett relativt tidigt skede av krisen i Asien att
det fanns flera likheter med den bank- och finanskris vi upplevt i Sverige, liksom i Finland och Norge.
Låt oss här nämna tre punkter där vi anser att likheterna är de mest uppenbara.
Eva Srejber m fl, Ekonomisk Debatt nr 2/1999

http://www.internetional.se/evas299.htm#asien

News


Since the European debt crisis broke out in 2009,
Greece, Ireland, Portugal, Spain and Cyprus have sought international emergency aid.
Pledges from the euro area and the International Monetary Fund have totaled 496 billion euros ($649 billion).
Bloomberg 7 May 2013

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Kommentar av Rolf Englund:
OBS att detta är lån.
Man undrar hur dom tänker sig att Greece, Ireland, Portugal, Spain and Cyprus
skall kunna betala tillbaka pengarna 4.235 miljarder kronor


Förhoppningsvis går det att hitta hållbara vägar ur dagens djupa europeiska kris, men det blir inte lätt.
Annika Ström Melin, DN 18 april 2013


Det vi beskådar är inte eurons kris.
Ordet kris antyder något övergående, ljuset i tunneln kommer snart...
Det vi beskådar är eurons dödskamp.
Slutet kan bara bli ett.
Men varför skall miljoner människor lida för att Angela Merkel skall hinna bli omvald i september?
Rolf Englund 11 mars 2013


In the US, bank assets were close to 80 per cent of gross domestic product.
In the EU, they were 350 per cent.
EU has a banking sector that is not only too big to fail, but too big to save
Martin Wolf, Financial Times, 4 October 2012


The ECB is saying that it will seek to eliminate the threat of a break-up, except when this threat is most real,
which is. of course, precisely when the country is failing to meet policy conditions.

Martin Wolf, Financial Times 11 september 2012


Kommer Europa låta Bryssel ta över den ekonomiska makten eller läggs EMU-projektet ner?
Endera måste ske och det mesta talar för att Bryssel tar hem spelet.
Det lär vi i så fall få ångra i generationer framåt.

Resonerar man kring vad som är ”långsiktigt hållbart” så landar man lätt i slutsatsen att eurons dagar är räknade.
Det finns dock starkare krafter som talar för att EMU-länderna trots allt lär ge upp makten till Bryssel.
Etablissemanget vill det. Nästan alla etablerade partipolitiker kommer framstå som åsnor om EMU havererar.
Marknaden vill det. Finansiella marknader har nästan alltid ett kortsiktigt fokus och bryr sig inte om vad som är rättvist eller demokratiskt.
Lobbyisterna vill det. Hela banksektorn och tyska exportindustrin kämpar med alla medel för att euron ska överleva.
Peter Benson, SvD Näringsliv 21 juli 2012


"Lätt som en plätt"
Egentligen handlar eurokrisen om att Sydeuropa aldrig lyckats hålla jämna steg med konkurrenterna från Nordeuropa.
Så länge varje land hade sin egen valuta var det ingen tragik i detta.
Skillnaderna i produktivitetsutveckling kunde då regleras med att den tyska D-marken årligen förstärktes någon procent mot de svagare konkurrentländerna.
Med den breda penseln kan man måla upp två huvudscenarier för framtiden.
Dessa scenarier kallar jag ”Euron havererar” respektive ”Bryssel tar makten”.
Peter Benson, SvD Näringsliv 14 juli 2012


What is needed is a solution that is both politically feasible and economically workable
Not only to achieve agreement among governments responsible to national electorates, but also to obtain at least toleration of that agreement among those voters
Economic workability means offering electorates enough hope for the future to persuade them to elect leaders prepared to stick with membership of the eurozone
I no longer believe this could work
Martin Wolf, Financial Times 26 June 2012


Unsustainable and Disintegration
ECB president Mario Draghi described the current set-up of the eurozone as "unsustainable".
And EU economics commissioner Olli Rehn said more austerity was needed if the eurozone was to avoid disintegration.
BBC 31 May 2012

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Euron kollapsar i Spanien
Rolf Englund 28 maj 2012


Martin Wolf: Would he conclude that the European currency union was a mistake?
Paul Krugman: “Yes, I think we’ve been asking, whose fault is this crisis?
And I think it was basically fated, from the day the Maastricht Treaty was signed.
Now, I think it might be rescuable with a higher inflation target, which is a poor second best to having a fiscal union.
But no, the setup is fundamentally not workable.
Financial Times 26 May 2012

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A Greek exit from the euro area has the potential to be
EU’s most economically and politically destructive event of a generation
Bloomberg Opinon, Editors, May 16, 2012 1:00 AM GMT+0200

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RE: The Ultimate Article about EMU and the Eurocrisis
Time to plan a velvet divorce for the euro
In the coming months, Europe may be forced to decide
Sacrificing national self-rule on the altar of the euro is inherently objectionable
– and would invite a nationalist backlash across Europe.

Gideon Rachman, Financial Times 21 May, 2012


Why the euro is doomed to fall apart:
it was an incredibly stupid idea in the first place

Tim Worstall, Senior Fellow at the Adam Smith Institute in London
Telegraph, 9 May 2012

Adam Smith Institute


The bottom line, as brilliantly explained in the European Economic Advisory Group's latest annual report,
is that it is a balance of payments crisis, pure and simple, which the eurozone lacks the adjustment mechanisms to deal with

Jeremy Warner, Daily Telegraph, March 16th, 2012



With Spain now front and center, the essential wrongness of the whole European policy focus becomes totally apparent.
Spain did not get into this crisis by being fiscally irresponsible; here’s a little comparison:

Paul Krugman, 7 March 2012


Events on the Continent have come to feel much like the drift into war.
There is a feeling of powerless inevitability about it.

Jeremy Warner, 1 Dec 2011


Is this really the end?
Unless Germany and the ECB move quickly, the single currency’s collapse is looming
The Economist print Nov 26th 2011



The greatest threat to the euro is that Greece will make a success of default and devaluation.
Suppose that once the new drachma has fallen by 30pc to 50pc, Greece begins to show signs of growth.
How would it then be possible to persuade the electorate of Spain, Portugal, Italy, and even Ireland, that there is no alternative to years of misery?
It is all very well building firewalls to stop financial contagion, but how do you build firewalls around the voters?
Roger Bootle, Daily Telegraph 26 February 2012


The Ticking Euro Bomb
The architects of the euro and their successors have lost the Maastricht Treaty bet.
They have jeopardized an agreement made by 12 countries in the hope that the markets wouldn't notice how fragile their shiny new currency really is.
Der Spiegel Staff, 7 October 2011
En lysans artikel - Highly recommended


a defining moment for Europe
I make no apologies for repeatedly taxing the reader with commentary on the future of the single currency,
for its crisis is without doubt the most important European story of the decade.
We are fast approaching a defining moment.
Jeremy Warner, Daily Telegraph 9 Dec 2010



What EU leaders once ruled out — a default by a euro-zone nation — has firmly entered the sphere of the possible
Top euro-zone politicians, engaged for months in a string of meetings that have failed to bring agreement on how to provide more aid to Greece, are trying furiously to stamp out the flames of contagion licking at Italy and Spain
Wall Street Journal 14 July 2011



Eurogruppens ledare Jean-Claude Junker och Jean-Claude Trichet, chef för den Europeiska Centralbanken ECB
SvD Näringsliv 13 juli 2011


Euron är "världens mest stabila valuta".
Eurogruppens ordförande Jean-Claude Juncker i en tidningsintervju på fredagen, rapporterar Bloomberg News.
DI 2011-01-03



Greece’s austerity plan looks doomed to fail.
It does too little to prevent the epic folly of Greece’s railways and other ruinous schemes.
It will screw down too hard on ordinary Greeks, with new taxes, spending cuts and a rushed privatisation scheme.
And it will almost certainly condemn Greece to recession, strife and an eventual debt default.
The Economist print June 30th 2011

“Events in Greece have brought the euro area to a crossroads:
the future character of European monetary union will be determined by the way in which this situation is handled.”
Jens Weidmann, Bundesbank president and European Central Bank governing council member, Hamburg, 20 May, 2011
Financial Times, Ralph Atkins, May 24 2011 22:35

It’s now clear that Greece, Ireland and Portugal can’t and won’t repay their debts in full, although Spain might manage to tough it out
Paul Krugman, New York Times, 22 May 2011


The eurozone's crisis in BBC graphics:
Click here


En omstrukturering kan innehålla olika typer av förändringar av villkoren i ett lån, men vanligtvis innebär det en nedskrivning av skuldernas värde.
Tekniskt sett är en omstrukturering lika med en betalningsinställelse.
Hittills har den officiella linjen från ledande EU-politiker och beslutsfattare varit att en omstrukturering inte är aktuell, även om de flesta räknar med att det bakom kulisserna dras upp planer på hur en sådan skulle se ut
Viktor Munkhammar DI 14/4 2011
Rolf Englund: Ett annat ord är Statsbankrutt.




raising the spectre of the "effective end of the euro area,"
The Economist Intelligence Unit has warned, 4 Apr 2011

Hoppet är ute för EMU - Euron kollapsar i Spanien
Rolf Englund blog 31/5 2010

Euron spricker när dollarn faller
Rolf Englund NWT 8/1 2001


'If the euro fails, then Europe fails,'
warned the German Chancellor Angela Merkel last night
DT Tuesday 16 November 2010 with nice pic


"Risken är att EU plötsligt ger upp andan"
Europeiska unionen är döende, skrev Charles Kupchan i en tankeväckande krönika i söndagens Washington Post.
Det finns tyvärr en del som tyder på att han har rätt.
Annika Ström Melin, Kolumn DN 1 september 2010


The futile attempt to save the eurozone
Samuel Brittan, FT November 4 2010

Otmar Issing, the former chief economist of the European Central Bank and the German Bundesbank,
is a genial number-cruncher who believes in the overall benefits of European integration
has turned virulently pessimistic over the European single currency.
In a marked change from his relative sanguinity during his eight years at the ECB,
he terms member countries’ unreliability on economic policies “a basic design flaw of monetary union.”
David Marsh, Market Watch, Jan. 10, 2011
Highly recommended


Euro's Collapse Is Not 'Unthinkable': Warren Buffett
CNBC, 24 March 2011


Det finns egentligen inte någon Eurokris.
Tvärtom tvingar euron fram reformer som sedan länge varit nödvändiga, vilket alltid har varit ett av de starkaste argumenten för en gemensam valuta.
Stefan Fölster, Magasinet Neo 2010-06-15

Stefan Fölster menar att en nedskrivning av Greklands skulder är oundviklig.
– Det är egentligen inte en Greklandskris utan en bankkris
Stefan Fölster intervjuad i Sv D Näringsliv 28 juni 2011


The eurozone is now subject to a generalised and full-blown run on its bond market,
as the crisis has now spread to France, Belgium and Austria.
Eurointelligence 16 November 2011

Italian spreads reached a horrendous 5.3% this morning, Spanish spreads are moving towards 5%, and French spreads, at 1.916%, are no longer at a level that this consistent with an AAA rating. Belgium’s spread has hit 3.2% this morning, and is now at a level of Italy and Spain a couple of months ago. Even Austria is now under attack, with spreads of 1.8% yesterday.

It was a day when global equity market plunged, amid fears that the eurozone crisis could throw the world economy into recession.



Traders said there were few buyers in many bond markets, with only the European Central Bank active in Italy and Spain.

“It is really scary,” said one at a US bank. “Everyone is liquidating in the eurozone bond markets ... Everyone is heading for the door.”


Origins of the Euro Crisis
The key point here is that countries within the euro zone have no policy tools
with which to manage their balance of payments

Paul Krugman, NYT September 23, 2011

Kash Mansori has an excellent post about the origins of the euro crisis. He documents the fact — which the Germans cannot bring themselves to acknowledge — that fiscal irresponsibility had very little to do with it.
And he shows that what really predicts who found themselves in crisis was capital inflows

Somewhere in the years just before the crisis I was at a meeting in Barcelona where Olivier Blanchard tried to tell the Spaniards how dangerous the situation was getting;
he got trashed and ridiculed for his pains, just like those who warned about the US housing bubble.

Full text

Olivier Blanchard, the IMF’s chief economist called for several bold innovations.
Central banks should raise their inflation targets—perhaps to 4% from the standard 2% or so.
The Economist print Feb 18th 2010

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News


Germany should leave the euro zone in order to save the union,
former Bank of England Governor Mervyn King, CNBC 21 March 2016


The euro is engaged in two dances of death.
The fact that both /ECB and Greece/ threaten euro destruction is testament to the astonishing mis-construction of the euro itself.
Peter Doyle, an economist and former IMF staffer, FT 10 February 2015
Highly Recommended

On the one hand, in an incredible reversal of practice during the global financial crisis—when central banks were at pains to conceal which institutions were receiving their emergency assistance for fear of compounding the adverse signals and therefore the crisis—
the ECB has brazenly publicized exactly which Greek banks depend on its help and how much. And it has overtly warned it would withdraw that help.
In this way, the central bank is overtly threatening to blow up the Greek banking system, in order to make the euro work.

On the other hand, Syriza would like nothing better now than to see the yields on Spanish, Portuguese, or Italian sovereign debt relative to Germany jump, signalling broader market disquiet— that Grexit may be imminent and that the rump eurozone would be badly destabilized by it—so forcing ECB retreat. So Syriza, in league with Podemos in Spain and prevailing anti-euro Italian political forces, is openly threatening to blow up its own exchange rate regime, the euro, in order to make it work.

The army of euro-philes and euroapologists including the IMF, casting themselves as what Krugman labels “Very Serious People” (VSPs), defended it as the best possible monetary-craft for Europe.

The risks of mutual misreading between Merkel and the markets on this are potentially catastrophic.
If she wrongly finds affirmation from markets’ quiescence that defenses are strong enough to withstand Grexit and so lets Greece go,
but markets’ quietude actually reflects QE and their belief that she will again crumble, bang goes the euro.

Full text

"After twenty years of service, I am ashamed to have had any association with the Fund at all,"
wrote Peter Doyle an ex-economist for the International Monetary Fund in a letter to the IMF's executive board
http://www.businessinsider.com/imf-economist-peter-doyle-letter-christine-lagarde-2012-7?op=1#ixzz3RdIizjIy


Some eurozone policy makers seem to be confident that a Greek exit from the euro, hard or soft,
will no longer pose a threat to the other periphery countries.

They might be right; then again, back in 2008, US policy makers thought that the collapse of one investment house, Bear Stearns,
had prepared markets for the bankruptcy of another, Lehman Brothers.
We know how that turned out.
Kenneth Rogoff, Project Syndicate, 2 February 2015


The euro is still vulnerable, and Greece is not the only problem
Even if the immediate threat of break-up has receded, the longer-term threat to the single currency has, if anything, increased.
The Economist, Dec 13th 2014 print

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Pamflett skriven av Joschka Fischer: Scheitert Europa? (Misslyckas Europa?).
Det europeiska samarbetet är på väg mot fiasko. EU-projektet har aldrig varit så hotat som i dag.
Finanskrisen aktualiserade de alltjämt olösta existentiella frågorna om EU:s mål och medel.
Det traditionellt tongivande samarbetet mellan Tyskland och Frankrike blockeras av att båda vägrar diskutera framtiden.
Rolf Gustavsson, SvD 23 november 2014


The euro is in greater peril today than at the height of the crisis
Insurrectional electorates more likely to vote for a new generation of leaders
Wolfgang Münchau, FT November 9, 2014


America’s experience in the 1960s should have warned the eurozone’s creators that tying national monetary authorities’ hands might not be such a good idea.
Europe’s leaders must recognize that the eurozone, as it is currently constituted, is larger than Europe’s optimal currency area.
Some of its member countries – certainly Greece, and probably Italy and Spain – need an independent monetary policy.
Koichi Hamada, Special Economic Adviser to Japanese Prime Minister Shinzo Abe and Professor of Economics at Yale University,Projet Syndicate 28 October 2014

That would not be the case if the eurozone operated according to Robert Mundell’s vision of an optimal currency area, with labor and capital adjustments replacing exchange-rate adjustment, and shocks being homogeneous (rather than asymmetric).

Moreover, Germany’s experience with reunification suggests that political union is integral to such a union’s success.

The eurozone’s performance has not met any of these criteria.

Full text


This parrot has ceased to be
Unlike Japan, which has a homogenous, stoic society, the euro area cannot hang together through years of economic sclerosis and falling prices.
As debt burdens soar from Italy to Greece, investors will take fright, populist politicians will gain ground,
and — sooner rather than later — the euro will collapse.
The Economist print, editorial, October 25th 2014

Full text

Youtube: This parrot is dead

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The future of the European economy and its single currency is more likely to be decided on the streets.
Gideon Rachman, FT October 18 2010

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Borders and budgets risks provoking political crises
that could plausibly culminate in the break-up of the euro, or even the EU.

Gideon Rachman, FT October 20, 2014


Remember Europe?
You know — the place with the common currency that almost fell apart two years ago because of trouble in Greece,
prolonged recession and fighting among political leaders over the best way out of the mess.
Until a few days ago, international investors seemed to have forgotten that there was ever anything wrong on the Continent,
as they lined up to buy bonds from Spain, Italy and even Greece
New York Times 16 October 2014

But the recent sell-off in global stock markets seems to have revived repressed memories.

Full texr

Greece

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News


Today, with the eurozone economy still flatlining five years after its crisis erupted,
the ECB inauguration of a two-year programme to nationalise loans to households and businesses
- to the tune of several hundred billions of euros - looks like a slightly desperate last role of the dice.

Some two or three years ago, the European Central Bank (ECB) would have been seen as revolutionary and courageous,
if it had then set about buying bank debt in the form of bonds, including junk from Greece and Cyprus.
Robert Peston, BBC economics editor 2 October 2014


Ilargi: Europe Is Crumbling Into Collapse
Yves Smith (naked capitalism) October 2, 2014
Highly Recommended

Yves here. The word “collapse” may seem overwrought when applied to Europe, but cold-blooded, clear eyed colleagues who have good connections and have spent a bit of time there recently say things that are broadly similar to Ilargi’s take.

Despite the conventional wisdom that the cost of a Eurozone breakup is catastrophically and thus will never take place, that confidence may prove to be the currency union’s undoing. Ideological rigidity about austerity is leading to policies that are crushing large swathes of the population.

And Europe, unlike the US, had enough of a tradition of popular revolt that that uprisings, either on the street or in the ballot box, are real possibilities, as the sudden rise of the anti-EU right shows.

Full text

Freden

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Draghi’s recent speech at the annual gathering of central bankers in Jackson Hole has excited great interest,
but the implication of his remarks is even more startling than many initially recognized.
If a eurozone breakup is to be avoided, escaping from continued recession will require increased fiscal deficits financed with ECB money.
The only question is how openly that reality will be admitted.
Adair Turner, former Chairman of the United Kingdom’s Financial Services Authority,
member of the UK’s Financial Policy Committee and the House of Lords, Project Syndicate 8 September 2014


Italy's Renzi must bring back the lira to end depression
Output has collapsed by 9.1pc from the peak, back to levels last seen 14 years ago. Industrial production is down to 1980 levels.
It takes spectacular policy errors to bring about such an outcome in a modern economy.
Ambrose Evans-Pritchard, 13 Aug 2014


The argument between Italy and Germany asks a question at the heart of the currency’s future
Can an arrangement that will always fall well short of a textbook monetary union
be at once economically robust and politically sustainable?

Philip Stephens, FT 10 July 2014

Italy, with the same eye on domestic politics, worries about political credibility. This rests on a resumption of growth.

Germany may be right to argue that a stable debt and deficit framework is a prerequisite for growth, but if markets conclude the remedy is killing the patient, then the whole system would lose credibility.

Full text

Italien - Tyskland

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Ferdinando Giugliano?
Ferdinando Giugliano is the FT’s global economy news editor.
Unhappy Union: How the Euro Crisis – and Europe – Can be Fixed,
Book by John Peet and Anton La Guardia, journalists from The Economist.
Review by Ferdinando Giugliano, FT 6 July 2014
Rolf Englund blog 2014-07-07

As La Guardia and Peet argue, the eurozone’s politicians made
a serious conceptual mistake in confronting the turmoil that entangled Greece and the rest of the bloc’s periphery.

Full text

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Rolf Gustavsson i SvD 29 juni
den hittills överlägset bästa analysen

The Euro Crisis and Its Aftermath
Jean Pisani-Ferry

http://www.amazon.com/Euro-Crisis-Its-Aftermath-ebook

http://www.project-syndicate.org/columnist/jean-pisani-ferry

Jean Pisani-Ferry was the first Director of Bruegel from 2005-2013.
He is currently /June 2014/ the Commissioner-General of the French Prime Minister’s Policy Planning Staff in Paris and professor of economics with Hertie School of Governance

http://www.bruegel.org/about/person/view/27213-jean-pisani-ferry/

Jean Pisani-Ferry at Financial Times
http://blogs.ft.com/the-a-list/guest-author/jean-pisani-ferry/


We were asked: “What probability do you attach to Greece leaving the eurozone by the end of the year?”
He said 100%. I said 0%. This caused no little amusement in the audience. In the end, one of us was more right than the other.
What those forecasting the eurozone’s collapse overlooked was the commitment of elected officials and their constituents to the European project.
Along with this deep and abiding commitment to the European project, there is fear of the unknown.

Barry Eichengreen, Project Syndicate 11 September 2013

The consequences of abandoning the euro are highly uncertain, and few European leaders are willing to go there.
When push comes to shove, they are prepared to do just enough to hold the eurozone together, even if the necessary steps are economically and politically distasteful.

Full text

Barry Eichengreen


Many explanations have been proffered. Yes, the French and the British were protesting their ineffective establishment parties.
Yes, the European Parliament itself, with its halfhearted mandate and wasteful spending, isn’t an institution people care about.
Yes, the European elections have often been a vehicle for flaky protest votes.
And of course it’s true that the European Union itself has made terrible decisions in recent years,
including the creation of a currency union that devastated the economies of several of its members.

Anne Applebaum, Washington Post, May 31, 2014

Full text

Plus ca change, plus c'est la meme chose:
One of the most remarkable characteristics of the European Union is the ability of its leaders to keep building their institutions and expanding their power,
self-righteously ignoring whatever obstacles European voters throw in their path.

Anne Applebaum Washington Post 2/6 2005

EU-valet 2014


The results in France are infinitely the more important
– and not just because Ms Le Pen’s smile does not disguise the FN’s fascist and anti-semitic roots.
France, by contrast, is an essential pillar.
Without France, the euro and the entire European project would collapse in on themselves.
Philip Stephens FT May 29, 2014


I Malmö levererade Persson, våren 2011, som vanligt utan manus, precisa formuleringar som hade kunnat gå rakt till trycket.
Men framför allt sade han något som ytterst få ens knystade om vid denna tid.
När Persson kom in på Europas skuldkris svepte han förbi Grekland, Portugal, Irland, Spanien och Italien och underströk sedan att
problemen där är ingenting jämfört med vad som väntar ifall Frankrike börjar vackla.
Per T Ohlsson, Sydsvenskan 2 december 2012


The EU authorities are now in a near hopeless situation.
The logic of EMU is a further erosion of nation states.
The "Two Pack", "Six Pack" and "Fiscal Compact" are all coming into force, and national regulators are losing control over their banking systems. The euro will inevitably lurch from crisis to crisis without some form of fiscal union and debt pooling.
Yet voters have just let forth a primordial scream against any further transfers of power.
With the exception of Germany, the elections were a broad repudiation of EMU austerity.

The two dominant parties of the post-Franco order in Spain saw their share of the vote drop to 49pc from 80pc last time,
with the Podemos radicals coming from nowhere four months ago to win 8pc with a campaign to "stop Spain being a colony of Germany and the Troika".
The austerity coalition that has pushed the Netherlands into debt deflation crashed to 21pc.
The ruling enforcers of EU-IMF Troika policies fell to 31pc in Greece and 28pc in Portugal.

Europe's "Fiscal Compact" has set in motion a doomsday machine,
requiring states to retrench for year after year by law until their debts are ground down to 60pc, and we are all dead.
The best that can be hoped for is 1pc growth in southern Europe through the decade,
too little to prevent a lost youth or to halt the rise in combined public and private debt ratios.

Full text of Ambrose Evans-Pritchard 28 May 2014



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European Spring:
Why Our Economies and Politics are in a Mess and How to Put Them Right, by Philippe Legrain

"a well-informed and blistering critique of errors made by European policy makers since Greece revealed the extent of its fiscal woes in 2009-10.
It is essential reading for those who wonder how an economic powerhouse managed to stumble into a sovereign debt crisis that ended up threatening its very existence.
Review by Ferdinando Giugliano, FT May 25, 2014


As these books all argue, the crisis was always about more than whether financial markets would buy government debt.
It raised broad worries over how countries with widely differing levels of prosperity, competitiveness, public spending and taxes, and regulation of labour and product markets,
could share a currency without economic shocks blowing them apart.

And it was about whether euro-zone voters would accept low growth, high unemployment and a permanent loss of sovereignty to the centre.
The Economist print, May 17th 2014

The Euro Crisis and its Aftermath. By Jean Pisani-Ferry.

European Spring: Why our Economies and Politics are in a Mess—and How to Put Them Right. By Philippe Legrain.

The Trouble with Europe. By Roger Bootle.

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To eliminate the monetary independence of 17 sovereign countries and create a major new world currency is a pretty big undertaking.
It was arrogantly assumed that political will would overcome all problems.
Moreover, although there was political will aplenty, it wasn’t at all clear what was willed.
For no one was ever asked to sign up to the whole caboodle. What was on offer was always monetary union lite.
Roger Bootle, Daily Telegraph 16 October 2011

Ett intressant inlägg kommer från tankesmedjan Bruegel i Bryssel.
I rapporten ”Two crises, two responses” skriver ekonomerna André Sapir och Jean Pisani-Ferry om stora och viktiga skillnader mellan de krisdrabbade ekonomierna.
Som exempel tar de Grekland och Spanien, två länder med olika typer av problem som varken kan eller bör lösas på samma sätt.

DN 7/5 2010


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This month marks the fourth anniversary of the May 2010 financial rescue of Greece.
Clearly, the supposed experts who predicted the imminent disintegration of the eurozone have been proved wrong.
But it is equally likely that those now declaring that the crisis is over will be proved wrong as well.
Barry Eichengreen, Project Syndicate, 12 May 2014


Complacent policy makers and investors imagine the crisis is over.
Avoiding catastrophe is still not guaranteed. That is anyway a grossly insufficient goal.
Martin Wolf, FT, May 13, 2014


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Europe’s Plan Z - The Grexit gamble
Part two of Peter Spiegel’s series from behind the scenes on how the euro was saved
"no single Plan Z document was ever compiled and no emails were exchanged between participants"
Financial Times 14 May 2014

Peter Spiegel reveals how a secret strategy was developed to contain the firestorm from a Greek exit.

June 15 2012 was the Friday before a parliamentary election – the second national vote in as many months – and the country appeared to be edging towards panic.
On that day, Greeks withdrew more than € 3 bn from their bank accounts

Unbeknown to almost the entire Greek political establishment, however, a small group of EU and International Monetary Fund officials had been working clandestinely for months preparing for a collapse of Greece’s banks.
Their secret blueprint, known as “Plan Z”, was a detailed script of how to reconstruct Greece’s economic and financial infrastructure if it were to leave the euro.

Plan Z was never used.
Mr Tsipras’s Syriza party finished second, allowing Greece’s mainstream parties to form an uneasy coalition that eventually agreed to stay the bailout course.
But senior officials said the near-miss that summer, and the ensuing debate about Greek membership, helped focus minds in capitals across the eurozone
– particularly Berlin, where fights over the advisability of Grexit raged for three more months, before Angela Merkel, the German chancellor, finally put an end to them.

Several senior officials said they were stunned Ms Merkel and Mr Sarkozy had aired the idea that the eurozone could be left voluntarily, something that had previously been vigorously denied.

According to one participant, no single Plan Z document was ever compiled and no emails were exchanged between participants about their work.

“It was totally fire-walled even within [the institutions],” said the official. “Even between the teams there was fire-walling.”

A decision was made not to involve Greek officials out of fear of leaks.

Their firewalls worked. During a dinner between José Manuel Barroso, the commission president, and Ms Merkel at the chancellery in Berlin less than two weeks before the Greek vote, Ms Merkel asked for reassurance from Mr Barroso that a plan was in place in case Greece rejected bailout conditions and Grexit ensued.


Mr Barroso acknowledged the plan’s existence and offered to show it to Ms Merkel but she said his word was enough, according to officials in the room.

Under the German system, such documents can be requested by the Bundestag, and senior German officials were concerned they would be obliged to disclose such planning if they had it in writing.

Full text

Part 1-3


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How the euro was saved
In the French seaside resort of Cannes
To the astonishment of almost everyone in the room, Angela Merkel began to cry.
the man sitting next to her, French President Nicolas Sarkozy, and the other across the table, US President Barack Obama
Peter Spiegel, Financial Times 11 May 2014

“Das ist nicht fair.” That is not fair, the German chancellor said angrily, tears welling in her eyes.
“Ich bringe mich nicht selbst um.” I am not going to commit suicide.

A cornered Ms Merkel threw the French and American criticism back in their faces. If Mr Sarkozy or Mr Obama did not like the way her government ran, they had only themselves to blame. After all, it was their allied militaries that had “imposed” the German constitution on a defeated wartime foe six decades earlier.

Greece was imploding politically; Italy, a country too big to bail out, appeared just days away from being cut off from global financial markets; and Ms Merkel, try as Mr Sarkozy and Mr Obama might, could not be convinced to increase German contributions to the eurozone’s “firewall” – the “big bazooka” or “wall of money” they believed had to grow dramatically to fend off attacks by panicking bond traders.

And yet less than a year after that November 2011 night, the existential crisis for Europe’s single currency would, for all intents and purposes, be over.

Strict budget rules were made inviolable; banking oversight was stripped from national authorities; and the printing presses of the European Central Bank would become the lender of last resort for failing eurozone sovereigns.

Full text

Part 1-3

Europeiska centralbankens (ECB) högste chef Mario Draghi
Nu har det snart gått två år sedan italienaren uttalade de numera välkända orden
”Inom ramen för vårt mandat, är ECB redo att göra allt som krävs för att rädda euron. Lita på mig, det kommer att räcka”.
Louise Andrén Meiton, SvD Näringsliv, 6 mars 2014

Om man har en sedelpress går man inte i konkurs.
Det var varit det till synes självklara budskapet på denna blog ett antal gånger, första gången i november 2011.
Rolf Englund blog

Tyskland

Freden

President Obama was in France for a meeting of the G20.
In addition the President also held bilateral talks with French President Nicolas Sarkozy and German Chancellor Angela Merkel
US Embassy Paris

Euro stability more important than Greece, says Angela Merkel
German chancellor and Nicolas Sarkozy insist saving the currency the priority in face of surprise Greek referendum
The Guardian, Thursday 3 November 2011

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Charlemagne
Beware of europhoria
Stagnation and a looming political backlash make optimism about the euro overdone
The Economist, May 10th 2014, print edition

If markets once seemed ready to push the weakest countries out of the euro, now it is voters who may pull their escape cord. Support for the European project, always fragile, will keep falling if it fails to deliver greater prosperity.

Full text


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It is slow moving variables — long term unemployment, gradual shifts in public opinion, and so on — that pose the greatest threat to the Euro’s survival.
If the far right does as well as people now seem to think it will in the European elections,
this will presumably be presented in the media as a “shock” to the system,
but has it not been obvious since 2010 at the latest that something like this was likely, given Eurozone macroeconomic policies?

And has it not been obvious for years that actually existing EMU is harming the broader European project?
Kevin O Rourke, The Irish Economy, 25 February 2014

Europe’s political leaders should remember what Ernest Hemingway said about bankruptcy.
“How did you go bankrupt?"
Two ways. Gradually, then suddenly.”

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German wages fell 0.2pc in 2013. Germany too is in wage deflation.
Which raises the question: how on earth are France, Italy, Spain, Portugal, and Greece supposed to claw back lost labour competitiveness against Germany
by means of "internal devaluations" if German wages are falling?

Ambrose Evans-Pritchard, February 20th, 2014


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Whatever happened to the eurozone crisis?
To many people the eurozone crisis has disappeared. It is off the front pages.
It has certainly left the TV screens. I have heard prime ministers and presidents declare the crisis "over".
Gavin Hewitt, BBC 28 January 2014

The Anglo-Saxon jeremiads have been proved wrong.
There have been no exits from the single currency and significant steps have been taken to fix the design flaws.

It needs to be said at the outset that Europe is still enjoying the "Draghi effect":
the reassurance given by the President of the European Central Bank (ECB) that he would do "whatever it takes" to defend the euro
- and no-one seems willing to bet against the ECB.

To politicians and officials the key question hanging over the euro was its survival. For the moment that question has been laid to rest.

But to the public there is perhaps a more important question - does the single currency deliver prosperity or stagnation?

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ECB


Marknaderna skiter i hur det går för Spanien, Grekland, Italien och andra krisländer
Det enda marknaderna bryr sig om är om dessa länders obligationer kommer att inlösas på förfallodagen, eller ej.
Att dessa länders räntor nu har sjunkit är således inte något tecken på att marknaderna tror att dessa länders ekonomier är på rätt väg.
Rolf Englund blog, 10 januari 2014


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Do you think that the euro will fail?
The euro has already failed.
It was a project that was supposed to create convergence, growth and solidarity between the peoples of Europe, it was supposed to create a commonality among Europeans.
The euro has created divergences, recession, poverty, it is like a straitjacket for Europe, increases the national and the social tensions in Europe.
It succeeds because it instills fear. I do not think this is sustainable for long
Lavanguardia.com, 5 February 2014

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Euron har redan kollapsat I går kväll, efter att ha uppdaterat sidan om "När och hur spricker EMU?" stod sanningen helt plötsligt klar för mig.
Euron har redan kollapsat. Men vi har av någon konstig anledning inte märkt det.
Rolf Englund blog 17 mars 2012


Strong Governments, Weak Banks
Banks in the northern eurozone have capital ratios that are, on average, less than half of the capital ratios of banks in the eurozone’s periphery.
Paradoxically, financially strong governments breed fragile banks.
Paul De Grauwe, Yuemei Ji, CEPS Policy Briefs, 25 November 2013

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Paul De Grauwe

Banks


FORES presenterar en antologi där några av Sveriges kunnigaste ekonomer beskriver bakgrunden till krisen
och hur eurons framtid kan komma att se ut.
Lars Calmfors, Harald Edquist, Nils Lundgren, Stefan de Vylder, Pehr Wissén, och Hans Tson Söderström, bokens redaktör
14 november 2013

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Lars Calmfors: "Överlever euron?" Bokpresentation 14/11, Youtube, Highly Recommended

För Youtube click here

Interndevalvering

Lars Calmfors


Greece, Spain and Portugal need to devalue in real terms by about 30 per cent
relative to the eurozone average in order to correct the distortions that were
brought about before the crisis by the inflationary credit bubble created by the single currency

and thus restore their competitiveness.
Hans-Werner Sinn, Financial Times, November 13, 2013


A concern is that the monetary policy of the ECB is unsuitable for Germany and might even cause asset price bubbles.
This is surely true, just as the monetary policy pursued before 2007 was unsuitable for Ireland and Spain and did indeed drive asset price bubbles.
A central bank called upon to deliver a target rate of inflation in a union of diverse economies will destabilise nearly all the members at some time.
But that is what joining a currency union entails for all members, including even the largest.
Martin Wolf, FT, November 12, 2013

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Europe Breakup Forces Mount as Union Relevance Fades
Collapse, slow decline, or renaissance are the EU’s three alternative futures, a U.S. intelligence analysis argued last year
Their “Global Trends” paper - released on the same day in December 2012 as EU leaders accepted the Nobel Peace Prize in Oslo - found a “low” likelihood of collapse, in which the euro and European single market fragment and civic order breaks down.
Bloomberg, Oct 22, 2013

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Global Trends

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Sieps uppdrag är att på ett självständigt och allsidigt sätt belysa aktuella europapolitiska frågor.
EU och världsekonomin har i och med den finansiella och ekonomiska krisen upplevt den kraftigaste ekonomiska nedgången sedan andra världskriget.
Återverkningarna märks i dag på flera sätt, inte minst genom
euroländernas svåra statsskuldkris, som har resulterat i ett mycket starkt politiskt förändringstryck.
Sieps 2012-2014

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SIEPS remissvar på Lissabon
Det är inte tillfredsställande att grundlagen ger ett så vagt och otydligt besked om förutsättningarna för Sveriges medlemskap i EU
Klicka här

Sieps var en gång en förhållandevis aktad organisation med viss akademisk prägel.
Nu är budskapen mer i Gunnar Hökmarks anda.

Sieps förlorade heder

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Debt loads rise faster than nominal GDP - The "denominator effect"
The complacency of those dictating Euroland's policies - though not its victims - is breathtaking.
"Europe, it seems, has become anaesthetised to bad news,"
Ambrose, September 4, 2013

So says Simon Tilford from the Centre for European Reform. Tentative signs of life after six quarters of contraction are deemed a vindication of shock therapy, even as the underlying crisis gets worse in almost every key respect.
"The reality is that the Spanish and Italian economies will shrink by a further 2pc in 2013.
Greece is on course to contract by an additional 5pc to 7pc and Portugal by 3pc to 4pc.

Far from being on the mend, the economic crisis across the South is deepening. Real interest rates are increasing from already high levels," he said.

Europe has not recovered. It has begun to stabilise, but only just, amid mass unemployment, with debt trajectories still spiralling out of control in Italy, Portugal, Spain and once again in Greece.

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Hur kan man undvika att inse att 25 procents arbetslöshet är en katastrof för land och folk?
Rolf Englund blog 27 augusti 2013

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Hollande Bids Adieu to EU Vacation Culture as Crisis Lingers
six years after a phone call from Frankfurt shattered former European Central Bank President Jean-Claude Trichet’s holiday in northern France.
The caller informed him that three troubled BNP Paribas SA hedge funds were causing money markets to seize up, the first signal that a global financial crisis was breaking out.
Bloomberg, Aug 26, 2013
You could read about it at the time on this website


The euro zone crisis could be largely over by the end of the year
Holgar Schmieding, chief economist at Berenberg Bank,
told CNBC 12 March 2013

"We are now only at a very small risk of the break up of the currency.

A year ago going into the Greek elections, the risk was more severe. Now, [the euro zone crisis] looks fairly contained

unless Italy throws a very funny surprise,"

"Except in Italy, where we have to ask in a post-Monti [environment] what happens next, the political risks to the euro have receded,"

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Det vi beskådar är inte eurons kris.
Ordet kris antyder något övergående, ljuset i tunneln kommer snart...
Det vi beskådar är eurons dödskamp.
Slutet kan bara bli ett.
Men varför skall miljoner människor lida för att Angela Merkel skall hinna bli omvald i september?
Rolf Englund 11 mars 2013

Början på sidan


Once the French get into a full-scale crisis, it’s over.
Lars Seier Christensen, co-chief executive officer of Danish bank Saxo Bank A/S,
said the euro’s recent rally is illusory and the shared currency is set to fail
because the continent hasn’t supported it with a fiscal union.

Bloomberg 18 February 2013

“Another possible fallout is getting rid of some of the countries that are being ruined by being in the euro, notably the southern European economies,” Christensen said.
“People have been dramatically underestimating the problems the French are going to get from this. Once the French get into a full-scale crisis, it’s over. Even the Germans cannot pay for that one and probably will not.”

“It’s the political world that has been extremely supportive of the euro, not for economic reasons but for political reasons,” said Christensen, a long-time critic of the single currency and who now lives in Switzerland.

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Frankrike

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Gloomsters buried the euro too soon
The turning point came when Chancellor Angela Merkel concluded that
a eurozone collapse would risk the break-up of the EU.

Philip Stephens, FT January 31, 2013


"Intellectuals"
Elva av Europas skarpaste hjärnor tycker att en politisk union är nödvändig,
annars kommer valutan att överleva i ett par decennier innan den kollapsar till följd av kriser och krig.
”Socialism eller barbari, brukade vi säga. Idag står valet mellan en politisk union och barbari.
För att vara mer exakt: federalism eller kollaps – följt av social misär, osäker arbetsmarknad och en tsunami av uppsägningar och fattigdom.”
SvD Näringsliv, 28 januari 2013


Why the Euro Zone Crisis is Over…Until September
CNBC 21 Jan 2013

On Sunday, Merkel's conservative coalition lost regional elections in Lower Saxony, one of the country's most populous states.
Merkel's Christian Democratic Union (CDU) has now lost its majority in the upper house of the German parliament, the Bundesrat, which could make it harder for Merkel to introduce policies in the federal parliament without compromising with opposition parties, Newton told CNBC.

So far, Merkel's euro zone policy decisions have only been constrained by public opinion and Germany's constitutional court,

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Tyskland


I ett alltmer instabilt lapptäcke av IMF-åtgärder, europeiska länder utan egna sedelpressar och tecken på riktig depression
har både ekonomer och ledarsidor de senaste månaderna börjat bubbla om att EU kanske ändå borde anamma ett konkursförfarande i Kruegers gamla anda.
Nu är hedgefonder med i leken om statsskulder också, och mindre kompromissvilliga gäldenärer är svåra att finna
Jenny Nordberg, SvD 20 januari 2013

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Martin Wolf och Rolf Englund om att den som har en sedelpress går inte i konkurs.
Ganska självklart, men vänta till Wolf har förklarat det vetenskapligt
Rolf Englund blog 23 maj 2012

Början på sidan


The real risk for the global economy is in Europe.
Spain and Greece are in depression, with no hope of recovery in sight.
The eurozone’s “fiscal compact” is no solution, and ECB’s purchases of sovereign debt are at most a temporary palliative.
Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, Project Syndicate 31 december 2012

If the ECB imposes further austerity conditions (as it seems to be demanding of Greece and Spain) in exchange for financing, the cure will only worsen the patient’s condition.

Likewise, common European banking supervision will not suffice to prevent the continuing exodus of funds from the afflicted countries. That requires an adequate common deposit-insurance scheme, which the northern European countries have said is not in the cards anytime soon.

While European leaders have repeatedly done what previously seemed unthinkable, their responses have been out of synch with markets. They have consistently underestimated their austerity programs’ adverse effects and overestimated the benefits of their institutional adjustments.

Read more at http://www.project-syndicate.org/commentary/risky-europe-and-america-in-2013-by-joseph-e--stiglitz#b11VlTEMJExumiKJ.99

Will the dam break in 2007?
Joseph Stiglitz, The Guardian 27/12 2006

Joseph Stiglitz

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The EMU disaster is not at root a public debt crisis, and never was.
As EMU leaders themselves say – correctly – Euroland's aggregate public debt is lower than in the UK, US, and Japan as a share of GDP.
What Europe faces is a north-south incompatibility crisis,
the result of ramming together misaligned economies and countries into a single currency.

Ambrose Evans-Pritchard, January 8th, 2013

Whether you think this matters depends on whether you think the democracies of southern Europe will tolerate slow grinding depression – with no light at the end of the tunnel – for year after year.

The denouement is hard to predict in such situations. Political upheavals are famously non-linear. But the situation in Spain is remarkable, with the added nitroglycerine of a ruling party determined to exploit the crisis to take power back from the regions, and Catalonia determined to resist with all means at its disposal.

Data from Tinsa released today shows that Spanish house prices fell 11.3pc last year, and are now down 33.3pc from the peak in 2007.

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Spain

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Eurozone governments’ determination to stop the liquidity crisis
is matched only by their refusal to recognise the solvency crisis.

Wolfgang Münchau, Financial Times, October 28, 2012

The ECB’s support cannot help in the solvency case because the central bank is not allowed, by its own legal definition, to write off or participate in a restructuring of any debt it holds.

Germany was now ready to accept a two-year extension of the Greek programme, but there would be no new money, leaving Greece itself to fund the gap – something that is simply not going to happen.

The refusal to let the European Stability Mechanism fund Spanish banks directly falls into the same category. Debt that has arisen in Spain will remain debt of the Spanish state as ultimate guarantor.

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Grekland

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In 2010, US banks had assets of €8.6tn. But those of the EU’s were €42.9tn.

In the US, bank assets were close to 80 per cent of gross domestic product.
In the EU, they were 350 per cent.
EU has a banking sector that is not only too big to fail, but too big to save
Martin Wolf, Financial Times, 4 October 2012

Half of the world’s 30 biggest banks are headquartered in the EU. If the EU makes a mess of banking, it can explode the world economy.

In brief, while individual US banks may be “too big to fail”, the EU has a banking sector that is not only too big to fail, but too big to save.

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Basel

Too big to fail

Banks


The ECB action will not prevent countries like Spain from having a pretty terrible few years.
But, for the first time since the start of the crisis, the eurozone - on paper at least - has what Americans would call a catastrophic insurance policy.
Stephanie Flanders, BBC Economics editor, 7 September 2012


The ECB is saying that it will seek to eliminate the threat of a break-up, except when this threat is most real,
which is. of course, precisely when the country is failing to meet policy conditions.

Martin Wolf, Financial Times 11 september 2012


Spain and Italy are at the heart of the story, which could yet end with a breakup of the euro zone.
A botched rescue of Greece will not in itself deal a body blow to the euro.
A botched rescue of Spain and Italy could.
BusinessWeek 26 July 2012

The bottom line: If a bailout of Spanish sovereign debt costs €300 billion, then the Europeans may lack the funds needed to rescue Italy.

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Det som händer i Europa är stort, mycket svårt att greppa, och åtgärderna som föreslås är stundtals radikala.
Det säger sig självt att en massiv uppbyggnad av nya institutioner under panikartad brådska inbegriper stora risker.
SvD-ledare 30 juli 2012

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German, French or other savers may hold bank accounts, pensions, insurance policies.
The economic reality is that their savings are bound up in Irish or Spanish buildings of little value
or inflated Greek public sector wages consumed years ago.
These claims cannot be liquidated. At best they can, in time, be honoured
– but only if growth returns to the debtors.
Martin Sandbu, Financial Timnes, 25 July 2012

Investors’ panic does the opposite. They cannot repatriate capital that has been invested or consumed, but their attempt to do so has meant an abrupt halt of new funding. The periphery’s need to reduce current account deficits equally abruptly is the main cause of the recessions. By refusing to extend new financing, investors are ruining their chance of recouping their own investments.

The way the eurozone’s imbalances are being unwound is poisoning what solidarity the monetary union used to possess.

It is not sufficiently appreciated that these imbalances were driven by private investors.
When money flowed from, say, Germany to Spain or Ireland, it did so between the stewards of Germans’ savings
– banks, insurance companies, pension funds – and Irish and Spanish banks.

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Welcome to Martin E. Sandbu's website.


Euro Zone as We Know It Has Two Years Left
Goldman Sachs Asset Management Chairman Jim O'Neill, 25 July 2012

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If EMU Exists In 5 Years
Goldman Sachs Asset Management Chairman Jim O'Neill, 23 May 2012

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Fiskal Union
En ny undersökning från Stockholms Handelskammare visar att Stockholmsregionens kommunpolitiker
anser att skatteutjämningssystemet inte bara missgynnar Stockholm,
utan att det dessutom dämpar tillväxten och bostadsbyggandet i regionen"
Fredrik Johansson, analys- och policychef Stockholms Handelskammare och Sofia Linder, analytiker Stockholms Handelskammare, SvD 25 juli 2012

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Man bör fråga sig hur det kommer sig att vi i Sverige överför stora belopp inom vårt land mellan olika regioner
och att detta har brett politiskt stöd. De kommunala skatteutjämningsbidragen är lika viktigt som okänt för allmänheten.
Varför är Sverige en fiskal union?
Rolf Englund blog 19 februari 2012

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”Det handlar alltså inte om en gigantisk överstatlig finanspolitisk union”, det ser bara ut så.
Det sista lade jag till. Det första skrev EBRD:s chefsekonom Erik Berglöf på DN Debatt (25/7), två gånger, i början och i slutet av artikeln.
Allt däremellan handlar om hur vi är på väg att bilda en gigantisk finanspolitisk union.
SvD-ledare, Alen Musaefendic, 28 juli 2012

Debattartikeln är en bra sammanfattning av den inte mycket mer detaljerade tiosidiga rapporten, Breaking the Deadlock: A Path out of the Crises, varpå artikeln baseras.

Mecenaten bakom rapporten är Institute for New Economic Thinking (INET); ett ungt institut grundat av George Soros 2009, en inte fullt lika ung legend inom valutaspekulation och välgörenhet.

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Federalism

Svenska Dagbladet


Liksom i juli 1914 vandrar Europa lealöst mot en katastrof av ofattbara proportioner
”En bankunion kan rädda det europeiska projektet”
Erik Berglöf, chefsekonom för den europeiska utvecklingsbanken EBRD och medlem av INET, Council on the Eurozone Crisis.
Han ingår i gruppen som arbetat fram förslaget.
DN Debatt 25 juli 2012

INET, Council on the Eurozone Crisis

EBRD

Krisen i eurozonen kan fortfarande lösas, men för det fordras att Europas ledare förmår separera två problem:
att hantera de kostnader som eurosystemets ursprungliga brister förorsakat
och att laga själva systemet.

Detta är huvudpunkterna i det förslag för hur krisen ska lösas som i dag presenteras av en grupp av 16 europeiska nationalekonomer från de flesta av EU:s stora medlemsländer, inklusive fyra framstående tyska ekonomer av olika politisk färg. Utgångspunkten är att en lösning inte bara måste vara hållbar ekonomiskt men också politiskt möjlig att genomföra.

Alla som var med om att skriva under Maastricht-avtalet som lade grunden till euron har ett ansvar. Alla måste vara med och dela på de kostnader som uppstått till följd av eurons brister och för det massiva krisprogram som fordras för att få tillbaka tillväxten i alla medlemsländer.

En insättarförsäkring skulle som i Sverige kunna baseras på en gemensam fond uppbyggd genom avgifter på bankerna, men den skulle också fordra någon form av delat betalningsansvar, exempelvis via ECB, om kostnaderna för en kris skulle överstiga fondens resurser.

En bankunion ger också hopp om en förnyad demokratisk legitimitet för det europeiska projektet. Medborgarna i den Europeiska unionen har med växande skepsis sett hur makt överförts till europeiska institutioner utan att åtföljas av motsvarande politiskt ansvar. Men de har också med tilltagande indignation följt hur bankerna och deras ledningar kommit mer eller mindre oskadda ut ur krisen samtidigt som skattebetalarna fått bära kostnaderna för deras misstag.

För att eurosystemet skall fungera på lång sikt måste den europeiska centralbanken ECB ta ett ökat ansvar, inte bara för en bankunion, men också fungera som ”lender of last resort”. En viktig del i dess ökade ansvar vore att ge den nya ekonomiska stabilitetsfonden ESM en banklicens så att den kan låna från ECB.

Allt detta kan ske utan att i grunden ändra ECB:s statuter.

Det behövs med andra ord inte någon gigantisk överstatlig finanspolitisk union.

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Eurokrisen, fisksoppan och elitens olidliga dumhet
Man läser dagligen, för att inte säga stundligen, nya artiklar om riskerna för att euron skall kollapsa och att ett antal länder skall återgå till sin egen valuta.
Alla, vare sig de önskar eller icke önskar en sådan utveckling är ense om att svårigheterna är stora.
Man kommer då osökt att tänka på att hur lätt det är att göra fisksoppa av ett akvarium, men hur mycket svårare det är att göra ett akvarium av en fisksoppa.
Nu har de, som tror sig vara Europas elit, bildat euron och sitter nu där med sin fisksoppa.
Rolf Englund blog, 28 november 2011


Med en gemensam real ränta måste man ha en gemensam central myndighet/regering och stora transfereringar mellan valutaområdets olika delar
Följden av EMU blir därför ett Europas Förenta Stater, vare sig man vill det eller ej.
Antingen får man ett Europas Förenta Stater, alldeles för tidigt,
eller så kommer EMU-projektet att haverera, i en röd-grön röra av förfärande dimensioner
Rolf Englund (m) i Österåkers kommunfullmäktige den 14 december 1998


The Institute For New Economic Thinking
”en dominobricka efter den andra”
Senast ut: Spanien, som enligt experterna bara är dagar ifrån en allvarlig likviditetskris.
Kristoffer Törnmalm, SvD Märingsliv, 25 juli 2012

”Breaking the Deadlock: A Path Out of the Crisis” (Bryta dödläget: En väg ut ur krisen).
Så heter en ny rapport från The Institute For New Economic Thinking där 17 ledande internationella ekonomer utvärderar den ekonomiska krisen i Europa och ger tips på hur unionens politiker ska ta sig ur knipan.
Deras grundtes är att Europa aningslöst rör sig mot en såväl ekonomisk som humanitär katastrof där ”en dominobricka efter den andra” den senaste tiden har fallit in i krisen. Senast ut: Spanien, som enligt experterna bara är dagar ifrån en allvarlig likviditetskris.

För att angripa problemet vid roten anser ekonomerna att unionens länder bör lägga alla skulder som överstiger 60 av landets BNP, allt enligt Maastrichtavtalet, i en gemensam pott med Tysklands kreditvärdighet som garant.

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Europe is “sleepwalking towards disaster”
The lack of any light at the end of the tunnel is leading to a populist backlash in both the debtor and creditor states.
The only question is whether the North or the South succumb to revulsion first.
“The sense of a neverending crisis, with one domino falling after another, must be reversed.
The last domino, Spain, is days away from a liquidity crisis,” said the economists.
They include two members of Germany’s Council of Economic Experts and leading euro specialists at the London of School of Economics, all euro supporters.
Ambrose, 24 July 2012

“This dramatic situation is the result of a eurozone system which, as currently constructed, is thoroughly broken. The cause is a systemic failure. It is the responsibility of all European nations that were parties to its flawed design, construction and implementation to contribute to a solution. Absent this collective response, the euro will disintegrate,” they added in a co-signed report for the Institute for New Economic Thinking.

Institute for New Economic Thinking

They claimed the system could be stabilised immediately by creating a lender of last resort to back-stop the bond markets, either by mobilising the ECB or by giving the eurozone bail-out fund (ESM) a banking licence to borrow from the ECB.

The lack of any light at the end of the tunnel is leading to a populist backlash in both the debtor and creditor states. The only question is whether the North or the South succumb to revulsion first.

Spain

Början på sidan

Startsida EMU


Had Greece still had its drachma the shortcomings of the country's financial accounts would have been much clearer for all to see much earlier
A free-floating drachma would have given Greek voters an indication of how good their government was on the economy
It would also have made the risk of lending to the Greek government much more transparent to German and French banks
which in turn would have made it more difficult for the Greek government to pile up such a mountain of debt in the first place
David Champion, Harvard Business Review Blog Network, June 29, 2012

Rubrik: The Wisdom of the Currency Crowd

Extraordinary Popular Delusions and the Madness of Crowds

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Början på sidan

Startsida EMU


IMF:
"The euro area crisis has reached a new and critical stage.
Despite major policy actions, financial markets in parts of the region remain under acute stress,
raising questions about the viability of the monetary union itself,"

Telegraph staff and agencies, 18 July 2012

IMF Executive Board Concludes Article IV Consultation on Euro Area Policies
Public Information Notice (PIN) No. 12/80, July 18, 2012


Själv röstade jag ”ja” till att Sverige skulle gå med i valutaunionen vid folkomröstningen 2003
Jag har svårt att tro på idén om en långtgående centralisering av finanspolitiken
Alternativet är en partiell eller total upplösning av valutaunionen
Jag ansluter mig till dem som menar att Sverige bör avvakta EMU:s framtida utveckling innan vi på nytt tar upp frågan om ett svenskt medlemskap
Assar Lindbeck, DN Debatt 17 juli 2012

Kommentar av Rolf Englund:
Huvudnyheten i artikeln är att Assar Lindbeck förutser, antagligen även förespråkar, en partiell eller total upplösning av valutaunionen,
eftersom han inte tror på alternativet, en långtgående centralisering av finanspolitiken.


Kommer Europa låta Bryssel ta över den ekonomiska makten eller läggs EMU-projektet ner?
Endera måste ske och det mesta talar för att Bryssel tar hem spelet.
Det lär vi i så fall få ångra i generationer framåt.

Resonerar man kring vad som är ”långsiktigt hållbart” så landar man lätt i slutsatsen att eurons dagar är räknade.
Det finns dock starkare krafter som talar för att EMU-länderna trots allt lär ge upp makten till Bryssel.
Etablissemanget vill det. Nästan alla etablerade partipolitiker kommer framstå som åsnor om EMU havererar.
Marknaden vill det. Finansiella marknader har nästan alltid ett kortsiktigt fokus och bryr sig inte om vad som är rättvist eller demokratiskt.
Lobbyisterna vill det. Hela banksektorn och tyska exportindustrin kämpar med alla medel för att euron ska överleva.
Peter Benson, SvD Näringsliv 21 juli 2012

Grekland lämnar sannolikt EMU. Men istället för att leda till att euron havererar så lär Greklands djupa kris bli ett tacksamt slagträ när EMU-lobbyn ska skrämma opinionen till att acceptera Bryssels nya maktfunktioner.

Under hotet att bli ett nästa Grekland kommer medborgarna låta ett nytt EU-fördrag kuppas igenom.

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ECB President Mario Draghi
The euro is “irreversible” and is not in danger of collapsing
eurozone nations will eventually be bound even closer together
analysts have been too pessimistic and had not recognised the political will behind the eurozone
Telegraph 21 July 2012

Nils Lundgren 2011:
Om man ställer till rejäla kriser, så kan varje nationell maktelit skrämma sitt folk till underkastelse. De tvingas acceptera.
EU-kommissionens tidigare ordförande, virrpannan Romano Prodi, var så omedveten att han skrev en kolumn i självaste Financial Times (20 maj 2010),
där han lugnt konstaterade att han och alla de andra som drev fram europrojektet naturligtvis visste att det skulle leda till en svår kris förr eller senare.

"I am sure the euro will oblige us to introduce a new set of economic policy instruments.
It is politically impossible to propose that now. But some day there will be a crisis and new instruments will be created."
Romano Prodi, EU Commission President. Financial Times, 4 December 2001

Federalism

Freden

Det Stora Språnget


"Lätt som en plätt"
Egentligen handlar eurokrisen om att Sydeuropa aldrig lyckats hålla jämna steg med konkurrenterna från Nordeuropa.
Så länge varje land hade sin egen valuta var det ingen tragik i detta.
Skillnaderna i produktivitetsutveckling kunde då regleras med att den tyska D-marken årligen förstärktes någon procent mot de svagare konkurrentländerna.
Peter Benson, SvD Näringsliv 14 juli 2012

Artikeln om eurokrisens scenarier visar hur arbetskraftskostnaden per tillverkad enhet har förändrats sedan euron infördes. I Tyskland har kostnaden ökat noll procent medan tillverkning i Italien och Spanien nu är ungefär en tredjedel dyrare. Valutakursen för euron balanserar dock mitt emellan dessa båda ytterligheter vilket innebär att tysk export får turbofart av en svag valuta samtidigt som det omvända gäller för Italien och Spanien.

Med den breda penseln kan man måla upp två huvudscenarier för framtiden.
Dessa scenarier kallar jag ”Euron havererar” respektive ”Bryssel tar makten”.


Eurokrisens scenarier:
Haveri eller ökat makt till Bryssel?

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Federalism

Början på sidan

Startsida EMU


Jesper Stage och Magnus Henrekson
Det råder stor splittring mellan ledande nationalekonomer i Sverige om hur eurokrisen ska lösas.
Ekot 13 juli 2012

Jesper Stage, professor i nationalekonomi vid Mittuniversitetet i Sundsvall, tycker att euroområdets makthavare borde fokusera på att få fart på ekonomin igen.

– Inflationsmålet inom euroområdet borde höjas till åtminstone tre procent eller kanske mer. Med den inflationsnivå som gäller nu bygger man in massarbetslöshet i krisländerna under lång tid framöver, säger Stage.

Jesper Stage är en av många ekonomer som skrivit under manifestet för ekonomisk sans som nobelpristagaren i ekonomi Paul Krugman skapat på Internet. Det beskriver i dramatiska ordalag hur misstagen från krisen på 1930-talet nu håller på att upprepas. Krugman tillhör den keynesianska skolan som förespråkar en aktiv finanspolitik.

Men andra svenska ekonomer tycker att Stages och Krugmans syn på hur krisen ska lösas är naiv. Tillväxtreformer och uteblivna besparingar är kostsamma på kort sikt och kräver att Tyskland och andra stabila länder öppnar den stora plånboken. Det är inte rimligt, menar bland andra professor Magnus Henrekson som är VD på Institutet för Näringslivsforskning.

– Med stor sannolikhet kommer man inte få tillbaks de här pengarna och det ska politikerna ta ansvar för gentemot sina nationella väljare. Som det ser ut i dag är väljarna inte intresserade av det utan kommer rösta bort en politiker som fattar ett sådant beslut.
Det är lätt att vara ekonom och mästra men det är väldigt svårt för en riktig politiker, säger Henrekson.

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Magnus Henrekson, professor nationalekonomi SvD Näringsliv 27 juli 2011
– Vad man borde göra är en sak, vad man faktiskt gör är en helt annan. Grekland, Portugal och Spanien hör inte hemma i eurosamarbetet. Men mycket prestige har investerats i projektet och man kommer säkert att försöka hålla dem under armarna så länge det går.
Magnus Henrekson menar att de aktuella länderna inte är tillräckligt flexibla och politiskt transparenta. Han påpekar att eurosamarbetet från början motiverats som ett fredsprojekt, något han nu ser som paradoxalt.
– Att tvinga fram sanktioneringar som gör att de som sköter sig ska stötta de som missköter sig leder till fiendskap om något.

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Freden

Magnus Henrekson, VD på Institutet för Näringslivsforskning.
Han var under åren 2001–2009 innehavare av Jacob Wallenbergs forskningsprofessur i ekonomi med särskild inriktning på det svenska näringslivets utveckling och den ekonomiska politiken vid Handelshögskolan i Stockholm.
Mer här

Varför går det bra för Sverige? : om sambanden mellan offentlig sektor, ekonomisk frihet och ekonomisk utveckilng av Andreas Bergh, Magnus Henrekson

Bokus

Överlever EMU utan fiskal union?
Arrangör: Högskolan på Gotland och Europaperspektiv – de svenska universitetsbaserade nätverken för Europaforskning
Dag: 5/7 2011 10:00 - 12:00
Typ av evenemang: Seminarium & mingel

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Startsida EMU


The dream of the unification of Europe goes back at least to the 15th century
It is important to appreciate that the movement for European unification began as a crusade for cross-border amity and political unity, combined with freer movement of people and goods.
Giving priority to financial unification, with a common currency, came much later, and it has, to some extent, started to derail the original aspiration of European unity.
Amartya Sen, Guardian, 3 July 2012

The so-called "rescue" packages for the troubled economies of Europe have involved insistence on draconian cuts in public services and living standards.

The hardship and inequality of the process have frayed tempers in austerity-hit countries and generated resistance – and partial non-compliance – which in turn have irritated the leaders of countries offering the "rescue".

The very thing that the pioneers of European unity wanted to eliminate, namely disaffection among European nations, has been fomented by these deeply divisive policies (now reflected in such rhetoric as "lazy Greeks" or "domineering Germans," depending on where you live).

Freden

On the economic side, too, the policies have been seriously counterproductive, with falling incomes, high unemployment and disappearing services, without the expected curative effect of deficit reduction.

So what has gone wrong? Two issues need to be separated out:
one, the counterproductive nature of the policy of austerity imposed on (or, as in Britain, chosen voluntarily by) governments;
and two, a reasoned suspicion about the lack of viability of the shared euro.

The problems we are seeing in Europe today are mainly the result of policy mistakes:
punishments for bad sequencing (currency unity first, political unity later);
for bad economic reasoning (including ignoring Keynesian economic lessons as well as neglecting the importance of public services to European people);
for authoritarian decision-making;
and for persistent intellectual confusion between reform and austerity

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Members of the Financial Policy Committee (FPC), the Bank of England’s risk regulator,
“judged that the overall capitalisation of the banking system was unlikely to be sufficient for stability to be assured” if there were “severe but plausible” developments in the sovereign debt crisis
Telegraph 6 July 2012

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The record of the interim Financial Policy Committee reveals members thought
the risks to financial stability so serious that they were willing to consider a suspension of the Financial Services Authority’s world-leading liquidity rules
Financial Times 7 July 2012

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Det finns två huvudvägar för att rädda Europas ekonomi från en katastrofal utveckling - om man nu vill det.
Den ena vägen förutsätter att alla länder stannar kvar i euron. Den andra att ett eller flera länder lämnar.
Här ska jag göra en kort analys av den första vägen.
Danne Nordling, 6 juli 2012

Om vi börjar i slutändan måste dels Grekland och dels Spanien och Italien förhindras från att bli så bankrutta att de måste lämna euron.
Greklands problem borde vara lättast att lösa eftersom Grekland är så litet.

För att motverka den ökande risken för en statsbankrutt måste Greklands tillväxt bli positiv istället för negativ. Den konventionella teorin säger att om ett antal år kommer åtstramningsåtgärderna att leda till att företagen börjar investera och expandera igen.

Problemet är att teorin är utformad för länder som kan devalvera, vilket i Greklands fall är omöjligt inom euron.
Dessutom skulle processen ta för lång tid och leda till statsbankrutt långt innan teorins hägrande förbättringar kunde anas

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Draghi also poured cold water on a third option
— allowing the ESM rescue fund to have access to the ECB's cheap loans,
which would dramatically boost its firepower and allow it to intervene with real impact on bond markets,
where Spain's benchmark yields have again breached 7 percent.
"I don't think there is anything to gain in destroying the credibility of an institution,
asking it to behave outside the limits of its mandates," he said.

CNBC Friday, 6 July 2012

Nouriel Roubini, once known as "Dr. Doom" for bearish views predicting the 2008 financial crash,
told Germany's Handelsblatt on Friday
he would give the euro another three to six months:
"Then Italy and Spain will lose access to capital markets."

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The US is a federal nation state, not a federation of nations like the EU.
A nation state is a country in which the majority shares, if not necessarily common ancestry and religion, at least a common language and culture.
Unlike the EU, and like modern Germany and modern Italy, the US is a federal nation state whose political unification and preservation in the civil war was enabled by a pre-existing, extra-political national identity.
Michael Lind, Financial Times, 5 July 2012

The writer is author of ‘Land of Promise: An Economic History of the United States’ and a co-founder of the New America Foundation

Hamilton probably would have scoffed at the idea that federal institutions devised to unite Massachusetts, Virginia and New York could unite Germany, Greece and Poland.

In 1802 he wrote: “The safety of a republic depends essentially on the energy of a common national sentiment; on a uniformity of principles and habits; on the exemption of the citizens from foreign bias, and prejudices; and on that love of country which almost invariably be found to be closely connected with birth, education and family.”
Hamilton argued that “hardly any thing contributed more to the downfall of Rome than her precipitate communication of the privileges of citizenship to the inhabitants of Italy at large”.

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The respected economist and Telegraph columnist Roger Bootle summarises
the argument for an orderly break-up of the eurozone if a struggling member was forced to leave
that won him the Wolfson Economics prize
5 July 2012

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Not only must any agreement fit the needs of these three leaders.
It will not be worth much unless it also ends the market onslaught on governments and banks.
That requires, in the short term, action on Spain’s and Italy’s borrowing costs,
and for the long term, a real commitment to eurozone banking union.
Neither may be achievable.
The tools exist to give Spain or Italy a reprieve – though not both.
Financial Times, editorial 27 June 2012

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Hanteringen av Spaniens och Italiens statsfinansiella problem är förmodligen avgörande för EU:s framtid.
Dessa länder kan vara ”too big to save”. Blir deras statsfinansiella kriser akuta, är det bästa antagligen att genomföra stora skuldnedskrivningar
och sedan ge mer begränsade stöd för att rädda de banker som då hotar att gå omkull till följd av kapitalförluster på sina statspapperinnehav.
Lars Calmfors, Kolumn DN 27 juni 2012

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What is needed is a solution that is both politically feasible and economically workable
Not only to achieve agreement among governments responsible to national electorates, but also to obtain at least toleration of that agreement among those voters
Economic workability means offering electorates enough hope for the future to persuade them to elect leaders prepared to stick with membership of the eurozone
I no longer believe this could work
Martin Wolf, Financial Times 26 June 2012


"Det finns ingen anledning till oro"
Det är ett allvarligt ekonomiskt läge i euroområdet,
men varningarna om en kollaps för euron är överdrivna.

Magdalena Andersson, Socialdemokraternas ekonomisk-politiska talesperson, DI 25 juni 2012


Europa saknar de verktyg som är nödvändiga i en allvarlig kris:
en centralbank som ser till att avvärja finansiell panik och fungera som långivare i nöd, gemensamma institutioner för att övervaka och ta över banker i kris,
en europeisk finanspolitik som möjliggör för enskilda stater att ha budgetunderskott under en övergångsfas medan ekonomin sakta börjar återhämta sig.
EU-ledarnas besked till krisländerna de senaste åren har i stället varit att de ska återställa balansen i sina budgetar,
trots att underskotten i allt väsentligt orsakats av depressionen, inte tvärtom.

Peter Wolodarski, Dagens Nyheter 24 juni 2012


He said the eurozone crisis can have one of three outcomes.
Either Germany allows the ECB to backstop everything.
Second, Germany leaves.
Third Italy leaves.

Number is two is not going to happen, so we are left with the bifurcation we have forecasting for a long time.

Either they agree a full backstop – which can logically only come from the ECB, and which in turn requires a political union – or the eurozone collapses.

Berlusconi says Italy should quit eurozone unless Merkel changes course
Ok, he is no longer Italy’s prime minister, but he is still the leader of one of Italy’s most important political parties.
Eurointelligence Daily Briefing 21.06.2012


Just in time for the G-20 Summit,
the cover of "Newsweek" magazine showed a broken one-euro coin surrounded
by the words "Kaput? Fini? Finito? The End?"
Der Spiegel 19 June 2012

On Monday morning EU Commission President José Manuel Barroso lost it when a Canadian reporter in shorts wanted to know why the North Americans should be responsible for the problems of rich Europeans. "We are not coming here to receive lessons in terms of democracy or in terms of how to handle the economy," Barroso fumed. "By the way, this crisis was not originated in Europe. This crisis originated in North America and much of our financial sector was contaminated by, how can I put it, unorthodox practices from some sectors of the financial market."

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Eurozone crisis explained
BBC 19 June 2012

Click here

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Under no circumstances whatsoever could the eurozone members span a protective umbrella over Europe's big countries, like it has for the small ones.
Altogether, Greece has received 460 billion euros so far. That cannot be repeated proportionately for the big countries.
We are fast approaching a tight spot where things are getting very difficult.
Hans-Werner Sinn, president of the Ifo research institute, Deutsche Welle 17 June 2012

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printscreen from WSJ

World leaders must draw up a “concerted global action plan” to deal with the eurozone crisis at next week’s G20 summit
as countries including Italy and France may need international assistance,
Gordon Brown has warned, Telegraph 15 June 2012

In an article for news agency Reuters Mr Brown urged leaders to follow the example set at the 2009 London G20 summit, after the last credit crisis, when an international bail-out was agreed.

Full text at Telegraph

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Ivan Krastev, head of the Centre for Liberal Strategies, a Bulgarian think-tank,
compares and contrasts the collapse of the Soviet Union with the woes of the European Union.
He warns European leaders:
The Soviet collapse teaches us that just because the economic costs of disintegration would be very high,
this is not a reason for it not to happen.

To believe that the EU cannot disintegrate simply because it would be too costly
offers only weak reassurance that the Union will continue to be stable
Charlemgnes Notebook, The Economist 28 May 2012

Paradoxically, the belief that the Union cannot disintegrate, backed by the economists and shared by Europe's political class, is one of the risks of disintegration.

The last years of the Soviet Union are a classical manifestation of this dynamic. The perception that disintegration is 'unthinkable' could encourage policy makers to try to push dangerous policies under the assumption that 'nothing really bad can happen' in the long term, and foster the idea that anti-EU policies or rhetoric might even be helpful in the short term.

The Soviet collapse is the most powerful demonstration that the disintegration of the EU need not be the result of a victory of anti-EU forces over pro-EU forces.

More likely, it will be the unintended consequence of the growing dysfunction of the system and the elites' misreading of the political dynamics in their own societies.

Reflecting on the Soviet collapse, the eminent historian Stephen Kotkin is convinced that the real question to be asked is, "why the Soviet elite destroyed its own system?"

The Soviet collapse is the best demonstration that the rise of anti-integration forces can be the outcome, rather than the cause of collapse.

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Ivan Krastev, Wikipedia

Full text of Krastev


Apokalyps nu?
Kändisekonomerna sprider skräck med sina domedagsprofetior.
Europas politiker får underbetyg för skötseln av skuldbergen i medelhavsländerna, bankerna och euron.
Usel hantering leder till euroupplösning och kraschlandning i ekonomin.
Men det finns en motbild
Jens Henriksson, VD för Stockholmsbörsen Nasdaqomx och Andreas Cervenka, ekonomijournalist på Svenska Dagbladet.
Ekonomiekot Lördag 9 juni 2012

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Apocalypse Now..Ride Of The Valkyries
http://www.youtube.com/watch?v=Gz3Cc7wlfkI


The Euro’s 11th Hour
The euro zone may find another piecemeal solution and escape the hangman for now, but
unless it attacks its more fundamental problems, it is doomed to a cascading series of crises that will ultimately destroy the common currency.
Steven Rattner, a longtime Wall Street executive and a former counselor to the Treasury secretary, New York Times 8 June 2012

Frustrated, European leaders have descended into the five stages of grief: denial, anger, bargaining, depression and — by some — acceptance that the euro could fall apart

At the heart of the European quandary is the conundrum that ideas that are economically sensible are not politically feasible, while ideas that are politically possible make little economic sense.

Since 2000, wages of German workers have increased barely more than efficiency has grown. Meanwhile, Greece’s unit labor cost (the average cost of labor per unit of output) has increased by roughly 40 percent.

Greece is merely the most disobedient of a passel of problem children; by this all-important measure, the other 15 members are mostly sprinkled closer to Greece than to Germany.

The stronger countries must also accept the need for fiscal transfers — subsidies to poorer euro zone members — just as states like New York pay far more in federal taxes than they get back in services and transfer payments.

The euro zone may find another piecemeal solution and escape the hangman for now, but unless it attacks its more fundamental problems, it is doomed to a cascading series of crises that will ultimately destroy the common currency.

Steven Rattner, a contributing opinion writer, is a longtime Wall Street executive and a former counselor to the Treasury secretary.

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Steven Rattner, Wikipedia

Jag tycker att euron långsiktigt är bra en idé.
Den bygger ett gemenskaptänkande vilket är viktigt i Europa givet vår historiska belastning och bakgrund
Men den blev inte som det var tänkt.
Fredrik Reinfeldt, Ekot Lördagsintervju 9 maj 2012


Europe’s economic outlook and market conditions remain “daunting,”
and without a broader fiscal union the single currency may not survive,
said European Central Bank governing council member Ignazio Visco, who also heads the Bank of Italy
Bloomberg 9 June 2012

European governments need to take “courageous moves towards fiscal and financial union” to break the link between sovereign risk and bank risk, he said.

“Without the design and implementation of appropriate governance arrangements, monetary union is difficult to sustain,” Visco said.

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"I am sure the euro will oblige us to introduce a new set of economic policy instruments.
It is politically impossible to propose that now. But some day there will be a crisis and new instruments will be created."
Romano Prodi, EU Commission President. Financial Times, 4 December 2001


The equity market seems to be thinking it. The bond market certainly is.
The International Monetary Fund is preparing for it, and voters across bits of Europe are returning politicians who will cause it.

If Spain, Ireland, Greece, Portugal and maybe Italy, broke free (with a combined GDP to rival Germany).
They would enjoy an immediate 30pc cost advantage thanks to devaluation, which would jump start growth
Germany would probably be forced to adopt its own stimulus measures to boost consumer spending at home
A smaller German surplus and more inflation would result, but that's no disaster, even for Germans.
Damian Reece, Telegraph 31 May 2012

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In brief, the eurozone is now on a journey towards break-up
that Germany shows little will to alter

Martin Wolf, Financial Times 29 May 2012


Euro Crisis:
Is the Currency (Finally) Doomed?
So far, the doomsayers have been wrong.
But now we really have to ask if the game is up
TIME 24 May 2012

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Europas politiker har slagit in på en ekonomisk kurs som ser ut att leda mot sammanbrott.
Konsekvenserna riskerar att bli dramatiska.
Huvudargumentet för en europeisk valuta var att den skulle göra krig omöjliga.
Tio år senare har valutasamarbetet lett till motsatsen
Har vi svenskar förträngt hur vi löste vår egen finanskris under 1990-talet?
Peter Wolodarski, DN 27 maj 2012


It probably is about time to judge the euro zone as a failed idea,
As problems mount in the euro zone, it’s increasingly evident that we’ve been witnessing an institutional failure of monumental proportions.
We thus face the danger that the euro, the world’s No. 2 reserve currency, could implode.
Tyler Cowen, professor of economics at George Mason University, New York Times May 26
och Rolf Englund om Mats Johanssons omsvängsledare dag ett SvD, 27 maj 2012


Euron kollapsar i Spanien
Rolf Englund 28 maj 2012

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Bear Stearns, Lehman Brothers and Grexit calls into question
the very existence of the European Monetary Union
John Mauldin, 19 May 2012

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Europe’s hapless politicians, having asserted that exit from the single currency was impossible,
must now claim that exit would be relatively easy.
Only then can they plausibly threaten the Greek electorate with expulsion if they vote the wrong way.
John Kay, Financial Times 22 May 2012


RE: The Ultimate Article about EMU and the Eurocrisis
Time to plan a velvet divorce for the euro
In the coming months, Europe may be forced to decide
Sacrificing national self-rule on the altar of the euro is inherently objectionable
– and would invite a nationalist backlash across Europe.

Gideon Rachman, Financial Times 21 May, 2012

I had written repeatedly that the eurozone was a flawed construction that was likely to collapse. If that was the case, I was asked, would it not be better to break the whole thing up now?

At this point, I heard myself becoming shifty and evasive – “The trouble,” I replied, “is that I keep being told that a break-up would cause a catastrophe. Until I can tell you convincingly why that’s untrue, I can’t responsibly advocate it.”

But prevarication is no longer good enough. In the coming months, Europe may be forced to decide.

It is true that the transition from here to there will be painful and dangerous. My colleague Martin Wolf laid out an updated version of the full horror scenario in Friday’s FT – involving a breakdown of law and order in Greece, and financial collapse across Europe.

How could anyone responsibly run that risk?

The answer is that the alternatives to eurozone break-up are inherently implausible and deeply unattractive.

Without the option of devaluing their currencies, uncompetitive economies are left with “internal devaluation” – otherwise known as wage cuts and mass unemployment.

It is true that countries such as Greece badly need economic reforms. But these reforms – conducted within the straitjacket of monetary union with Germany – are causing political and economic turmoil.

In theory, the eurozone might rectify this error by moving to a real political union.

Even if EU politicians were able to overcome such objections and create a real federal union, this giant new entity would essentially hollow out the powers of national democracies.

Sacrificing national self-rule on the altar of the euro is inherently objectionable – and would invite a nationalist backlash across Europe.

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Internal devaluation

Federalism

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Suddenly, it has become easy to see how the euro
— that grand, flawed experiment in monetary union without political union —
could come apart at the seams.
Things could fall apart with stunning speed, in a matter of months, not years.
Paul Krugman, New York Times 17 May 2012


A Greek exit from the euro area has the potential to be
EU’s most economically and politically destructive event of a generation
Bloomberg Opinon, Editors, May 16, 2012 1:00 AM GMT+0200

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This is the first major revolt by any electorate against the eurozone’s austerity policies,
and it is those policies which have underpinned the willingness of the ECB to use its balance sheet to rescue the banking system.
Gavyn Davies, 16 May 2012

Furthermore, Greece is just the tip of the iceberg. The swing against austerity by voters in the eurozone is manifesting itself in many different places.
I have been wondering whether this is good or bad news for the resolution of the crisis.

Until the end of last year, austerity economics had a surprising amount of political support inside the eurozone, and not just in core countries like Germany.
This was a reflection of a wider international phenomenon.

The UK election in 2010 resulted in a new coalition government which opted for austerity on an accelerated timescale.

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ECB Draghi


ECB has apparently now said that it won't directly lend to some Greek banks that it judges to be technically "insolvent".
That sounds bad, but the banks that have lost access to direct ECB funding can almost certainly still get money from the Greek central bank, which, of course, is ultimately, getting its cash from the ECB
Stephanie Flanders, BBC Economics editor, 17 May 2012 Last updated at 01:08 GMT


David Cameron, Britain’s prime minister, will on Thursday warn that the single European currency could unravel
unless the eurozone’s 17 members move rapidly towards full fiscal and political union.
Financial Times, May 17, 2012 12:01 am


Om att äta kakan, ha den kvar, eller sälja den på kredit till Grekland
Rolf Englund 17 maj 2012


Should France Be Added to the 'PIIGS'?
Hollande’s biggest task could be avoiding the fate of the euro zone’s ailing peripheral states
— the so-called ‘PIIGS’ - Portugal, Italy, Ireland, Greece and Spain
Patrick Allen, CNBC EMEA Head of News, 16 May 2012


The euro currency is a malady that condemns at least a generation of Greeks, Italians, Spaniards, Portuguese and Irish to the economic infirmary.

The economists and politicians who created the system still proclaim it can survive.
Their time would be better spent recognizing they made a bad mistake and preparing for

an orderly dismantling of the euro before the damage spreads and further undermines European unity.
Peter Boone and Simon Johnson, Bloomberg Opinion, 14 May 2012

Peter Boone is a non-resident senior fellow at the Peterson Institute for International Economics, a visiting senior fellow at the London School of Economics and an adviser at Salute Capital Management.
Simon Johnson, a professor at the MIT Sloan School of Management as well as a senior fellow at the Peterson Institute for International Economics, is co- author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

Today, there are about 8.5 trillion euros ($11 trillion) of sovereign bonds outstanding in the euro area, and more than $180 trillion in derivatives linked to interest rates

These interest-rate derivatives -- known as swaps -- are held by large leveraged financial institutions (banks, hedge funds), or by pension and insurance companies with large, long-term liabilities.

If interest rates rise, bond prices fall, and derivative contracts change in value (good news for people who have hedged into fixed interest rates and a potential disaster for those exposed to rising interest rates).

Is there any hope for the euro dream? One potential way forward would be to create a European- level fiscal union that assumes all national debt, much like what Alexander Hamilton did as first U.S. secretary of the Treasury.

That isn’t going to happen in modern Europe.
Why would German taxpayers and savers agree to pay for the good times previously enjoyed in Greece, Italy or Spain?

Who could even ask them to do so?

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Bör alla avgå? Hur skall eurons Ja-sägare hanera sin besvikelse
Det var ett mycket allvarligt misstag att förespråka en svensk anslutning till EMU.
Rolf Englund 7 maj 2012


After Greek voters rejected austerity in last week's election Europe has been searching for a Plan B
It's time to admit that the EU/IMF rescue plan has failed.
Greece's best hopes now lie in a return to the drachma.

Der Spiegel, Staff, 14 maj 2012

At the Chancellery in Berlin, the television images from Athens now remind Merkel's advisers of conditions in the ill-fated Weimar Republic of 1919-1933.

Back then, the Germans perceived the Treaty of Versailles as a supposed "disgrace." Now, the Greeks feel the same way about the austerity measures imposed by Brussels.

And, as in the 1920s in Germany, the situation in Greece today benefits fringe parties on both the left and the right.

The country's political system is unraveling, and some advisers even fear that the tense situation could lead to a military coup.

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Chancellor Heinrich Bruening’s austerity administration

Freden

Tyskland

EMU Replay of the 30´s


Expelled from the eurozone, Greece might prove more dangerous to the system than it ever was inside it
– by providing a model of successful recovery
Arvind Subramanian, Financial Times 14 May 2012

The writer is a senior fellow at the Peterson Institute for International Economics and author of ‘Eclipse: Living in the Shadow of China’s Economic Dominance’

A substantially depreciated exchange rate would set in motion a process of adjustment that would soon reorientate the economy and put it on a path of sustainable growth.

What is the evidence? Just look at what happened to the countries that defaulted and devalued during the financial crises of the 1990s.

Suppose that by mid-2013 Greece’s economy is recovering, while the rest of the eurozone remains in recession. The effect on austerity-addled Spain, Portugal and even Italy would be powerful. Voters there would not fail to notice the improving condition of their hitherto scorned Greek neighbour.

The ongoing Greek tragedy could yet turn out not too badly for the Greeks.

But tragedy it might well be for the eurozone and perhaps for the European project.

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If the eurozone gives way on /Greece/, what chance would there be of painful austerity being continued,
not just in Greece but also in Portugal, Spain, Italy and Ireland?

The northern countries would face the prospect of pouring money into a bottomless pit.

The big danger for the rest of the eurozone is not that Greece makes a complete horlicks of monetary independence
but rather that it makes a comparative success of it.

The big danger for the rest of the eurozone
Suppose that within a year or so of exit, it looks as though the Greek economy is starting to recover.
How then would the governments of Portugal, Spain, Ireland and Italy persuade their electorates that
there is no alternative to austerity stretching out until the crack of doom?
Roger Bootle, Telegraph 13 May 2012

The game would be up.

Bank deposits would flee from these countries and end up with German banks which, through the Bundesbank, would recycle them to beleaguered banks in the periphery.

In the process, Germany and the other northern countries could end up taking on the risk of the whole banking system of peripheral Europe.

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Greece


"Eurodämmerung"
Paul Krugman skriver att Grekland troligtvis kommer att lämna euron redan nästa månad.
Dagens Industri 14 maj 2012

Eurodämmerung
Paul Krugman, New York Times, May 13, 2012

Some of us have been talking it over, and here’s what we think the end game looks like:
1. Greek euro exit, very possibly next month.
2. Huge withdrawals from Spanish and Italian banks, as depositors try to move their money to Germany.

4b. End of the euro.

And we’re talking about months, not years, for this to play out.

Full text hos Dagens Industri

Full text at New York Times

Krugman alltför optimistisk om tidsplanen för Eurodämmerung
Det är väl mer fråga om veckor, dagar eller timmar?
Rolf Englund, 14 maj 2012


De människor som mobbade EU till att anta en gemensam valuta,
de människor som är mobbade både Europa och USA till åtstramning är inte teknokrater.
De är istället djupt opraktiska romantiker.
Så varför drev dessa "teknokrater" på så hårt för euron, och bortsåg från många varningar från ekonomer?
Delvis var det drömmen om ett enat Europa, som kontinenten elit fann så lockande att de viftade undan praktiska invändningar.
Paul Krugman, New York Times, 20 November, 2011


Regeringen bör utlysa nyval
Regeringen, liksom S-ledaren, är för ett svenskt medlemskap i EMU
Den uppfattningen delas av runt tio procent av det svenska folket
Rolf Englund 12 maj 2012


Början på sidan


The political turmoil in the Netherlands has sent a disastrous message that could thwart Merkel's master plan to save the single currency.

If the Dutch with their robust economy aren't willing to observe the 15-year-old rule limiting the budget deficit to 3 percent of GDP,
many are asking, why should other nations such as Greece, Spain, Portugal and Italy, which have far bigger economic problems?

Der Spiegel 24 april 2012


Europe’s Economic Suicide
If European leaders really wanted to save the euro they would be looking for an alternative course.
The Continent needs an announced willingness to accept somewhat higher inflation
budgets in Germany that offset austerity in Spain and other troubled nations rather than reinforcing it.

Even with such policies, the peripheral nations would face years of hard times. But at least there would be some hope of recovery.
Paul Krugman, New York Times 15 April 2012

Spain’s fiscal problems are a consequence of its depression, not its cause.
Nonetheless, the prescription coming from Berlin and Frankfurt is, you guessed it, even more fiscal austerity.
This is, not to mince words, just insane.

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The most likely outcome... German inflation will rise
The dominant German view is that the crisis reflects fiscal indiscipline.
Others insist (rightly) that the core problem was excessive lending, divergent competitiveness and external imbalances.
Martin Wolf, Financial Times 17 April 2012

The political elites of member states and much of their population continue to believe in the postwar agenda, if not as passionately as before.

The most likely outcome... German inflation will rise and its external surpluses fall. Adjustment will occur

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Tyskland

Om man har en sedelpress går man inte i konkurs
It looks increasingly clear that sub-sovereign eurozone borrowers are in a different position from a sovereign country, such as the UK
Martin Wolf, Financial Times 2 February 2012


When the euro was being created, the economics profession split into three groups
-- enthusiasts, opponents and realists -- that predicted wildly different costs and benefits for the project.
By 2007, when the young currency was thriving, the enthusiasts declared a premature victory.
Now it’s the turn of the opponents, and they are, of course, wrong.
I say “of course” because currencies are meant to exist for centuries.
Charles Wyplosz, Bloomberg April 2, 2012

Their performance cannot be judged after five or 15 years. It’s understandable that people who felt a strong prejudice for or against the euro’s existence should feel the itch to make a point when things turn their way, but the point is bound to be misleading, and intentionally so. The reality, however, is that changes in the broad flow of history, which the euro certainly was, require a much longer view.

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There is no provision in any European Treaty for a country to leave the eurozone.
It was intended to make it clear that the eurozone was forever – like the Soviet Union and the Holy Roman Empire.


Minns ni folkomröstningen om EMU 2003,
när Ebba Lindsö försökte övertyga de tvivlande med att det egentligen inte är speciellt svårt att lämna euron?
”Vi kan välja att gå ur. Och en återgång till nationella valutor är rent tekniskt inte särskilt svårt.”
Och detta är väl något som Grekland kan glädja sig åt i dessa dagar. Att det rent tekniskt inte är speciellt svårt att lämna euron.
Mattias Lundbäck, 24 September 2011

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Ebba Lindsö

Martin Sandbu, the economics leader writer for the Financial Times, vad har han att säga?
Först proklarmerar han nejsidans seger i den intellekturella kampen om EMU:
The battle to save the euro is still being fought. But the intellectual battle for the merits of monetary union has been conceded without a shot being fired in its defence.
The euro’s real tragedy is that it has been disowned by its own kin.

Han fortsätter:
It is now a badge of pragmatism to argue that dissolving the monetary union is the best way forward. What do the euro’s defenders respond? That if the euro fails, Europe fails. That letting the euro disintegrate would do more harm than good.
This is both true and important. But to say that we must stick with the euro now that we have come this far, or else all hell will break loose, is to admit that it would be better not to have set out on this route to begin with.

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The Irish left the sterling zone. The Balts escaped from the rouble. The Czechs and Slovaks left each other.
History is littered with currency unions that broke up. Why not the euro?
Had its fathers foreseen turmoil, they might never have embarked on currency union, at least not with today’s flawed design.
Charlemagne, The Economist print 7 April 2012

The founders of the euro thought they were forging a rival to the American dollar.
Instead they recreated a version of the gold standard abandoned by their predecessors long ago.
Unable to devalue their currencies, struggling euro countries are trying to regain competitiveness by “internal devaluation”, ie, pushing down wages and prices.
That hurts: unemployment in Greece and Spain is above 20%.

Common sense suggests that leaders should think about how to manage a break-up. Some may be doing so. But having described a split as bringing economic Armageddon, leaders dare not be seen planning for it.

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Greker, spanjorer, italienare och andra försöker nu ta sig ur det brinnande eurohuset. Detssvärre saknas förberedda nödutgångar.
There is no provision in any European Treaty for a country to leave the eurozone. That was deliberate.
It was intended to make it clear that the eurozone was forever – like the Soviet Union and the Holy Roman Empire... more here

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Euro Was Flawed at Birth and Should Break Apart Now
Charles Dumas, Bloomberg, 2 April 2012
With nice chart about Sweden

Since the launch of the euro in January 1999, Germany and the Netherlands have experienced a growth slowdown and loss of wealth for their citizens that would not have happened had they never joined the euro.

We know this to be true, because we can compare the progress of these two Northern European economies with that of Sweden and Switzerland, which kept their freely floating currencies in 1999 and continued to grow as before.

Charles Dumas writes:

No wonder the Germans and Dutch are angry. But their anger should be directed at the governments that took them into the euro, not at the hapless citizens of Mediterranean Europe, who now are also suffering the effects of the common currency.

Sweden and Switzerland didn’t have to make any such sacrifice of ordinary people’s prosperity, while at the same time they enjoyed stronger employment as well as budget and current-account balances. That leads to only one conclusion: The euro was a mistake from the outset. It should be abandoned in unison and soon.

Källa: Bill Mitchell – billy blog
Modern Monetary Theory … macroeconomic reality

Full text by Carles Dumas at Bloomberg

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News


Nouriel Roubini: markets are “schizophrenic” they cannot decide whether to reward or punish countries such as
Spain and Italy for their austerity plans. “Without growth, the socio-political backlash will become overwhelming for some governments.”
The euro needs to sink to parity with the US dollar in order to restore Europe’s peripheral economies to growth
CNBC 30 March 2012


Hary Flam vill ha lönesänkningar i krisländerna
"Eurokrisen är inte över trots skärpta budgetregler.
Det framkom på en ekonomisk debatt i Europahuset i Stockholm på fredagen"

Europaportalen 23 mars 2012


U.S. Treasury Secretary Timothy Geithner warned heavily indebted countries not to resort to draconian measures to fix their budgets,
according to congressional testimony released on Monday
Reuters, 20 March 2012

"Economic growth is likely to be weak for some time. The path of fiscal consolidation should be gradual with a multiyear phase-in of reforms," Geithner said in remarks prepared for delivery to the House Financial Services Committee on Tuesday.

"If every time economic growth disappoints, governments are forced to cut spending or raise taxes immediately to make up for the impact of weaker growth on deficits, this would risk a self-reinforcing negative spiral of growth-killing austerity," he said.

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Istället för att satsa oss ur kristider innebär arbetslinjen att vi arbetar oss ur de besvärliga perioderna.
Medicinen är något beskare men sockerpiller hjälper bara mot inbillade problem.
SvD-ledare, signerad Maria Ludvigsson, 19 mars 2012


Metoden att genom åtstramningar få budgetbalans kan tyckas vara vad som behövs för de försumliga PIIG:s-länderna. Men oavsett hur illa vi tycker om dessa länders frivola leverne är det inte för att vi känner att det är moraliskt riktigt att sätta strypkoppel på dem som ska avgöra vad som är en riktig ekonomisk politik.

Vi måste tänka på konsekvenserna av en åtstramning i en stor del av Europa.
Det kommer att förvärra och inte förbättra läget.
Nästa år ska Spanien och Italien omsätta lån motsvarande 5 procent av BNP.
Om refinansieringen misslyckas råkar vi in i det scenario som jag skrev om 2/9 2011: en europeisk katastrof.
Och den beror enbart på politisk oförmåga.
Danne Nordling 16 november 2011

Det scenario som jag /Danne/ skrev om 2/9 2011


Euron har redan kollapsat
Rolf Englund blog 17 mars 2012


Eurozone members, stumbling from one crisis to the next,
continue with a project which everyone now essentially knows to be unsustainable
Jeremy Warner, Daily Telegraph, March 16th, 2012

Faced with execution today or execution tomorrow, most people would choose the latter option. Who knows what might happen in between – an amnesty might be declared, the executioner might die. Hope springs eternal.

This way of thinking has come to instruct European attitudes to the euro. Everyone now accepts that the euro hasn't worked out as hoped, but they would rather have it all breakup at some point in the future than face the immediate pain of having it breakup now. It seems unlikely, but you never know, in the meantime things might sort themselves out.

We've just had write-downs on Greek sovereign debt of more than €100bn, and we can be pretty certain there's a lot more of that to come, both from Greece and the rest of the eurozone periphery. Yet perhaps oddly, Germans haven't really noticed it. It all looks like fantasy money which doesn't really affect them.

Meanwhile, the periphery seems to believe the consequences of leaving will be worse than the price paid in never ending austerity of staying in.

And all think the dream of European solidarity and unity still something worth fighting for.

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It’s hard to see how getting European banks to buy bonds from potentially insolvent countries
is going to restore confidence in the system as a whole
Jeremy Warner, DT 1 March 2012

News


Det vi ser är inte primärt en statsskuldskris utan en eurokris som har lett till en statsskuldskris.
De euroländer som idag är i kris är de som skulle ha behövt en mycket stramare penningpolitik under valutaunionens första årtionde.
Men eftersom den största ekonomin, den tyska, behövde mycket låga räntor, var den europeiska centralbanken tvungen att föra en mycket lätt penningpolitik.
Nils Lundgren, 13 mars 2012

Detta ledde till att staten i Grekland, Portugal och Italien lånade upp pengar och finansierade en på sikt ohållbar efterfrågenivå som medförde stigande inflation i priser och löner och därmed obönhörligt sjunkande konkurrenskraft.

I Spanien och Irland var det istället den privata sektorn som lånade för mycket, när räntorna blev så låga.

Effekterna blev desamma. Priser och löner steg snabbare och den internationella konkurrenskraften försämrades kraftigt.

Däremot blev det inte några budgetunderskott och växande statsskulder under processen.

De problemen exploderade först när staten måste gå in och rädda banker samtidigt som efterfrågan säckade ihop och därmed skatteintäkterna samtidigt som utgifterna steg för arbetslöshetsersättning och andra krisåtgärder.

Det vi ser är således inte primärt en statsskuldskris utan en eurokris som har lett till en statsskuldskris.

Valutaunionen var ett mycket riskfyllt projekt som inte borde ha genomförts under detta historiska skede.

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Den hemska sanningen om John Hassler, Göran Persson och kronkursförsvaret
Rolf Englund blog 7 mars 2012

Forskarna kommer att ha till uppgift att förklara hur det kom sig att så många i det ledande skiktet i Europas länder kom att vara för
det redan nu misslyckade fullskaleexperiment, eller rättare sagt vågspel, som EMU och euron innebar.
Rolf Englund blog 4 februari 2012

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Kuriosa
Det är inte euron som orsakat krisen.
Det är misskötseln av finanserna i Grekland, Spanien och Portugal
Krisen har inte försvagat eurosamarbetet. Den har stärkt det
Olle Schmidt (FP)


Danne Nordling 12 mars om EEAG, SNS och Spanien
via Rolf Englund blog 18 mars 2012


”Situationen i euroområdet har fått utvecklas till en sådan djup kris att inga enkla lösningar längre finns att tillgå”,
skriver åtta tunga ekonomiska ekonomer i den årliga EEAG-rapporten.
Krisländerna måste ta ner prisnivån i landet så att varor och tjänster blir konkurrenskraftiga. Och därmed få i gång en tillväxt.
Det finns två sätt att göra det på.
– Antingen genom att lämna euron och devalvera eller genom kraftiga fall i löner och priser, sade John Hassler
Leif Petersen, SvD Näringsliv 7 mars 2012

När euron infördes närmade sig obligationsräntorna i eurozonen varandra. På ekonomspråk heter det konvergens.

– Initialt var det bra men utvecklingen gick för långt och riskerna på både mikro- och makronivå undervärderades, sade John Hassler när han presenterade rapporten.

Utvecklingen ledde till snabbt ökande löner och priser i de fattigare länderna. Det betydde att dessa länders exportvaror blev dyrare och de tappade konkurrenskraft.
I rapporten visas att priserna 1995–2008 steg med i snitt 26 procent i eurozonen.
I Tyskland var stegringen 9 procent och i Grekland 67 procent.

Förre finansministern Erik Åsbrink (S) var också en av kommentatorerna. Han varnade för alltför massiva interventioner i krisländerna.
– Det avvärjer en finanskris på kort sikt men kan leda till eurons undergång.

Krisländerna måste ta ner prisnivån i landet så att varor och tjänster blir konkurrenskraftiga. Och därmed få i gång en tillväxt.
Det finns två sätt att göra det på.
– Antingen genom att lämna euron och devalvera eller genom kraftiga fall i löner och priser, sade John Hassler.

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Interndevalvering


John Hassler, EMU, heder, sanning och rätt
I dagens pappersupplaga av SvD Näringsliv citeras han:
"Jag har blivit mer skeptisk till euro-projektet"
Mer skeptisk? Hur skeptisk var han då?

Rolf Englund blog 7 mars 2012

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EEAG och John Hasslers pudel.
My finest hour?
Rolf Englund blog 6 mars 2012

Hassler sade bland annat att det var viktigt när man skulle genomföra åtstramningar och strukturreformer i krisländerna att man hade en story som folket köpte, liksom vid den svenska statsskuldkrisen i början på 1990-talet.
Under frågestunden sade jag att det då inte var någon statsskuldkris. Det var en fastighets- och kostnadskris.
De dåliga statsfinanserna berodde på krisen. Krisen berodde inte på de dåliga statsfinanserna. Det är viktigt att hålla reda på riktningen på orsakssambanden, sade jag, vilket han nog medgav.

Hassler hade i slutet av sitt anförande en liten, liten pudel där han sade att problem hade blivit större och delvis annorlunda (TARGET) än vad han hade förutsett.

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zct

Target 2 at Google

Target2, the euro’s real-time gross settlement system, has emerged as the eurozone’s mechanism for financing the emergence of widening structural balance-of-payments gaps,
whereby capital flows out of southern Europe into Germany.
Carmen Reinhart, Project Syndicate 1 August 2017

For Greece, Italy, Portugal, and Spain, public-sector debt must now also include the central bank’s sharply rising debts.

Read more here

EMU Start


Furthermore, the ECB should reintroduce the requirement that TARGET2 debts be repaid with gold, as occurred in the US before 1975

The fiscal compact – formally the Treaty on Stability, Coordination, and Governance in the Economic and Monetary Union
French Prime Minister Manuel Valls and his Italian counterpart, Matteo Renzi, have declared – or at least insinuated –
that they will not comply with the fiscal compact to which all of the eurozone’s member countries agreed in 2012
Their stance highlights a fundamental flaw in the structure of the European Monetary Union

– one that Europe’s leaders must recognize and address before it is too late.
Hans-Werner Sinn, Project Syndicate 22 October 2014


Some economists warn that the German central bank faces hidden liabilities of 500 billion euros
in the form of unsettled claims within the European payments settlement system,
and could lose that sum if the euro zone breaks apart.
Der Spiegel 26 March 2012

According to SPIEGEL, the German government has said it sees no such risks. But a Greek euro exit could still cost the German central bank billions.

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We first need to understand the root causes of the crisis.
EU leaders tend to regard it primarily as a public debt crisis, and therefore focus their efforts on strengthening the political constraints on government borrowing.
Others see it simply as a crisis of confidence which can be settled by setting up a rescue fund large enough to convince markets that they cannot undo the euro – a "big bazooka".
Neither of these explanations ring true.

If you mis-diagnose the problem, you are highly likely to prescribe the wrong medicine, which is precisely what is occurring
The bottom line, as brilliantly explained in the European Economic Advisory Group's latest annual report,
is that it is a balance of payments crisis, pure and simple, which the eurozone lacks the adjustment mechanisms to deal with

Jeremy Warner, Daily Telegraph, March 16th, 2012

European Economic Advisory Group's latest annual report

Before the advent of the euro, such imbalances would be corrected through the natural market mechanism of free floating exchange rates.

Actually what's been happening is the exact opposite of what should occur. In terms of their competitiveness, or prices, relative to one another, the surplus countries have been devaluing since the euro came into existence, while the deficit countries have been appreciating.

/RE: Den som först i världen kom på denna lika allvarliga som ofrånkomliga effekt var, osannolikt nog, Stefan de Vylder, som skrev i Göteborgs-Posten 2002-10-22 /

Or as the EEAG Report puts it, "the economies adopting the euro locked themselves into a system with no feasible adjustment mechanism.

As a result of the capital flows the euro triggered, countries in the core of the euro area have run surpluses and have maintained low inflation, and countries outside the core have run deficits, or have large enough debts to be easily pushed into unsustainable macroeconomic dynamics."

German savers are continuing to finance the deficits, in part through the bailout mechanisms which have been put in place, but also through the good offices of the European Central Bank.

It works like this.

...

German banks are suddenly flush with cash... Some of this money is on lent to the German economy, /the rest/ gets deposited with the Bundesbank.
The Bundesbank in turn lends the money to the ECB, which lends it to the Greek Central Bank, which lends it to the Greek commercial banks to repay their German loans.

Quite obviously, this is an unsustainable model. It is simply not viable indefinitely to finance a customer who cannot pay his way. But generally you don't find that out until you demand the money back.

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(ECB) issuing over €1 trillion in short-term loans
What if, instead of holding the European Monetary Union (EMU or Eurozone) together, that actually makes a breakup more likely?
That would certainly fall under the rubric of unintended consequences, and be worth our time to contemplate in this week's letter.
John Mauldin 3 March 2012

The Hundred-Billion-Euro Bomb
Euro-Zone Central Bank System Massively Imbalanced
Der Spiegel, 6 March 2012

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News


Target 2
As of the end of April, net liabilities related to the allocation of euro banknotes were €16.2bn
and the Target 2 balance was negative by about €99bn.
Therefore, the total exposure of the Eurosystem to Greece was around €115bn.
zerohedge 20 June 2015

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Bankrun

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News


The EEAG Report on the European Economy 2012
Chapter 2
The European Balance-of-Payments Problem


Target 2 of the ECB vs.
Interdistrict Settlement Account of the Federal Reserve

Why was ISA not settled in April 2011?
Michiel Bijlsma and Jasper Lukkezen, Eurointelligence 15.03.2012

In the US similar imbalances have arisen since September 2008. Since the beginning of the Fed’s liquidity operations, the New York Fed has accumulated a large positive ISA account, while the Richmond and San Francisco Fed have accumulated a negative ISA account. They are not eliminated either.

But how can this be?
The Federal Reserve accounting manual stipulates that ISA balances should be settled:
Every year in April the average ISA balance over the past 12 months is calculated and netted via transfer of gold certificates between reserve banks.

Why was ISA not settled in April 2011?

Full text here


Repeated rounds of self-defeating austerity have become the order of the day. Still others see the crisis as one of confidence, which can be addressed by setting up a rescue fund large enough to convince markets that they cannot undo the euro – a “big bazooka”. This, too, is just wishful thinking.

The real cause, as long argued by Sir Mervyn King, Governor of the Bank of England, and now accepted by most leading economists, is a simple, old-fashioned balance of payments crisis.
Jeremy Warner Daily Telegraph 12 April 2012


172 German professors can’t be wrong
OR PERHAPS they can.
The most remarkable thing, says one FAZ reader, is that “so many economists could agree on a single text :-) – incredible.”
The Economist, July 6th 2012

A letter from 172 German-speaking economists published by the daily Frankfurter Allgemeine Zeitung (FAZ) lambasts the steps taken towards a banking union by euro-zone leaders at a summit last week in Brussels

It has unleashed a counterblast from government heavyweights and their economic advisers, leaving the public even more confused.

The 172 professors have certainly broken new ground. The most remarkable thing, says one FAZ reader, is that “so many economists could agree on a single text :-) – incredible.”

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Angela Merkel vs. 160 Angry German Economists
Why is Angela Merkel so reluctant to do what it takes to save the euro?
The economists include the president of the influential Ifo Institute for Economic Research Hans-Werner Sinn
Marc Champion, Bloomberg July 5, 2012

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Tyskland


The crucial step is to agree on the nature of the /euro/ illness.
On this, progress is now being achieved, at least among economists.
It is widely accepted that the balance of payments is fundamental to any understanding of the present crisis.
Martin Wolf, FT, April 10, 2012

Indeed, the balance of payments may matter more in the eurozone than among economies not bound together in a currency union.

Hans-Werner Sinn of CESifo, in Munich, has done much to explain, in his words, that “the European Monetary Union is experiencing a serious internal balance of payments crisis that is similar, in important ways, to the crisis of the Bretton Woods System, in the years prior to its demise.”

A special issue of the CESifo Forum, published in January 2012, is dedicated to this theme.

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Can one have balance of payments crises in a currency union?
The answer to this question is an unambiguous “yes”.
The fundamental point was made by the British economist, Tony Thirlwall, in a column entitled
“Emu is no cure for problems with the balance of payments”, in the Financial Times of October 9 1991

Martin Wolf, FT February 16, 2012

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The Hundred-Billion-Euro Bomb
Euro-Zone Central Bank System Massively Imbalanced
Der Spiegel, 6 March 2012

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Target 2
One of the more intriguing recent developments of the eurozone crisis is the shock expressed by
Germany’s economic establishment that the eurozone is, in fact, a monetary union.
Wolfgang Münchau, FT 4 March 2012

The Bundesbank is getting nervous about a counterparty risk if the euro were to collapse suddenly.

So, the two “Target 2” professors deserve credit for explaining the detailed mechanisms of how a monetary union functions in the presence of a broken banking sector.

And they are also right in pointing out that if the euro were to collapse suddenly, Germany could stand to lose a large proportion of its claims – some 20 per cent of gross domestic product.

However, it is hard to understand why everybody feigns surprise at the fact that current account imbalances can be financed indefinitely in a monetary union.

Is this not one of the characteristics that distinguish it from a fixed-exchange rate system?

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(ECB) issuing over €1 trillion in short-term loans
What if, instead of holding the European Monetary Union (EMU or Eurozone) together, that actually makes a breakup more likely?
That would certainly fall under the rubric of unintended consequences, and be worth our time to contemplate in this week's letter.
John Mauldin 3 March 2012


Frankfurter Allgemeine has the scoop of the day.
It has obtained a letter by Jens Weidmann, (president Bundesbank) to Mario Draghi, (president ECB)
warning about Germany’s Target 2 claims,
and proposing a return to the collateral rules before the crisis

Eurointelligence 1 March 2012

This is a hugely significantly development, considering also that the Bundesbank has until recently denied the significance of Germany’s €500bn Target 2 imbalances.

In his letter, Weidmann proposes a securitisation of the ECB’s claims against the weaker central banks in the eurosystem, which have reached a level of €800bn.

The paper says the proposals are bound to trigger a big controversy inside the ECB, and reflects growing concern inside the Bundesbank, whose own Target 2 claims of €500bn are the single largest item of the total.

Weidmann said if these claims were to fall foul, it is possible that the member states may not be able to pay for those losses.

Source: Eurointelligence

Frankfurter Allgemeine

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Hans Werner Sinn, the man who raised the Target 2 debate, writes in Frankfurter Allgemeine about how to fix the Target 2 imbalances.

He said Europe’s south-west is now financing its persistent current account deficits through the money presses, as central banks now provide unlimited liquidity to the banking sector.

That money, thus created, flows to Germany, where ends up at the Bundesbank as a claim against the eurosystem. He compares the Target 2 balances to equivalent balances in the US, which are much lower, which he says is due to different rules under which the system there operates.

He proposes to create covered bonds – securities on property and other assets – created by the eurosystem to redeem the Target 2 imbalances.

Source: Eurointelligence


Capital flight
Foreign banks have essentially stopped loaning money to banks in countries like Greece and Portugal,
the payment system among European central banks known as TARGET2.
Whereas the German TARGET2 balance is some €500 billion in the black, Greece has a deficit of €100 billion,
while Italy and Spain each face an imbalance of €200 billion /1.760 miljarder kronor/.
Der Spiegel 29 February 2012

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"A Primer on the Euro Breakup: Default, Exit and Devaluation as the Optimal Solution."
Orderly defaults and debt rescheduling coupled with devaluations are inevitable and even desirable.
In 1993 Czechoslovakia broke up into two separate states.
Jonathan Tepper via John Mauldin, 27 February 2012

Tepper reminds us that "during the past century sixty-nine countries have exited currency areas with little downward economic volatility."

He makes the case that "The mechanics of currency breakups are complicated but feasible, and historical examples provide a roadmap for exit."

The real problem in Europe, he says, is that "EU peripheral countries face severe, unsustainable imbalances in real effective exchange rates and external debt levels that are higher than in most previous emerging market crises."

The way through?

"Orderly defaults and debt rescheduling coupled with devaluations are inevitable and even desirable. Exiting from the euro and devaluation would accelerate insolvencies, but would provide a powerful policy tool via flexible exchange rates. The European periphery could then grow again quickly with deleveraged balance sheets and more competitive exchange rates, much like many emerging markets after recent defaults and devaluations (Asia 1997, Russia 1998, and Argentina 2002)."

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The greatest threat to the euro is that Greece will make a success of default and devaluation.
Suppose that once the new drachma has fallen by 30pc to 50pc, Greece begins to show signs of growth.
How would it then be possible to persuade the electorate of Spain, Portugal, Italy, and even Ireland, that there is no alternative to years of misery?
It is all very well building firewalls to stop financial contagion, but how do you build firewalls around the voters?
Roger Bootle, Daily Telegraph 26 February 2012

According to last week's plan, by 2020 the ratio of Greek national debt to GDP will be down to 120.5 procent.
Anyone who is forecasting a debt ratio down to the nearest 0.5pc in 2020 is trying to fool either us or themselves.

/RE: Man brukar säga att ekonomer använder decimaler i sina prognoser för att visa att dom har humor./

Since the beginning of 2008, Greek real GDP has fallen by more than 17pc. On my forecasts, by the end of next year, the total fall will be more like 25pc. Unsurprisingly, employment has also fallen sharply, by about 500,000, in a total workforce of about 5 million. The unemployment rate is now more than 20pc.
A 25pc drop is roughly what was experienced in the US in the Great Depression of the 1930s.

So what's the escape route?

Greece suffers from both heavy indebtedness and a lack of competitiveness. Attempts to cut back on the debt by austerity alone will deliver misery alone. Only measured austerity combined with economic growth offers a way out. But while Greece is so uncompetitive it is difficult to see where growth will come from.

The solution offered by Germany and its allies is that austerity will lead to an internal devaluation, i.e. deflation, which would enable Greece gradually to regain competitiveness.

Yet this proposed solution is a complete non-starter. If austerity succeeds in delivering deflation, then the growth of nominal GDP will be depressed; most likely it will turn negative. In that case, the burden of debt will increase.

The only way out of this mess is a combination of default and devaluation, which can accomplish in a flash what it would take many years or even decades of deflation to achieve.

Why can't the European political class that got us into this unholy mess see this?

In my view, the greatest threat to the euro is that Greece will make a success of default and devaluation. Something like it has happened several times before, notably with Argentina in 2002, when it defaulted and devalued. The country went from an appalling financial crisis to growing by 11pc in the space of 18 months.

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Leaders of the euro area’s wealthier nations are increasingly raising a provocative question:
Might the common currency now be strong enough to end the bailout agony and let Greece go?
The short answer is no. In fact, the euro area is probably more vulnerable to a Greek disaster than ever.
Bloomberg editorial, Feb 20, 2012

The improvement, though, is largely cosmetic. The ECB has brought down bond yields by offering banks a no-brainer trade: Buy European government bonds yielding more than 5 percent with money borrowed from the central bank at a rate of 1 percent. The resulting demand from banks has buoyed bond prices and helped Spain and Italy issue more new debt. It also leaves financial institutions -- and the ECB itself -- more exposed to losses in the event of sovereign defaults or renewed market turmoil.

Either way, the trend reflects just how fragile the euro area has become. If investors and regular account holders already see a difference between a euro deposited in Italy and a euro deposited in Germany, there’s a real danger that Greece’s withdrawal from the common currency would trigger bank runs and freeze government-debt markets.

Should an economy as large as Italy, Spain or even France come under attack, the question wouldn’t be whether German taxpayers want to pay for a bailout, as is the case for Greece, but whether they are able to.

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A spectre is haunting Europe: disorderly default
FT 17/2 2012


Why Greece and Portugal ought to go bankrupt
Wolfgang Münchau, Financial Times 12 February 2012

Two years ago, most European policymakers still believed that Greece would pull through.

They lacked experience in managing financial crises. They did not even consult with policymakers in other parts of the world who had dealt with crises in previous decades.

Armed with ignorance and arrogance, they ended up repeating everyone else’s mistakes.

They thought they were clever when they came up with the idea of an expansionary fiscal contraction.

And they thought that a voluntary private sector involvement (PSI) could really help.

In some northern European capitals, policymakers are beginning to understand that the Greek programme has been an unmitigated failure.

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European Doubts Growing over Greece Debt Strategy
Austerity is merely driving the country deeper into economic despair.
Is it time for a radical rethink? Many think the answer is yes.
Der Spiegel Staff, 13 February 2012

Europe is now paying the price for the inability of its leaders -- together with the International Monetary Fund (IMF) and its managing director Christine Lagarde -- have still not been able to agree on effective therapy for improving Greece's economic health.

They share the belief that, given the unforeseeable consequences, a Greek exit from the euro zone should be avoided at all costs. But it remains unclear how the highly indebted country can be nursed back to health within the currency union.

The agreement means that private creditors will have to write down between 70 and 75 percent of their claims. In exchange, they will receive new bonds with longer maturity periods and significantly lower yields. The new bonds will be guaranteed by the euro backstop fund, which provides added incentive for creditors to participate in the swap.
Yet it remains unclear whether a sufficient number of investors will ultimately go along with the deal. Only if 90 percent of private bond holders agree to participate will Greece be able to hit its target of €100 billion in debt relief. Financial insiders claim that the biggest resistance to the swap continues to come from hedge funds. They have insured themselves against a Greek insolvency and would actually profit should it come to pass.

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On Friday, German commentators argue that it is time for EU politicians to face the truth about the situation
- and accept that Greece will either have to default or leave the common currency
Der Spiegel, Friday 10/2 2012

The Financial Times Deutschland writes:
"Greece is currently trying to do something impossible: which is to reform the economy in the midst of a deep depression. That simply doesn't work."

The conservative Die Welt writes:
But the pictures of the demonstrations and the burning German flags show that they didn't reckon with the Greek population. Ultimately, the crucial thing is not the politicians' willingness to carry out reforms … but the will of the people. And the Greeks seem unwilling and unable to accept, for the sake of the stability of the single currency, cuts that go far beyond what we in Germany have ever experienced in terms of austerity measures

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Brüning

Merkel: I Won't Take Part In Pushing Greece Out Of Euro

Greece


Mr Cameron, The Prime Minister, said he believed the ''most likely outcome'' was that the euro would hold together, despite the current debt crisis.
But he stressed that in the longer term it was essential to address the ''fundamental competitiveness divide'' between the powerful German economy
and the weaker southern states.
Daily Telegraph, 9 Jan 2012

"You can't have a single currency with those fundamental competitiveness divides unless you have massive transfers of wealth from one part of Europe to another."

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Calmfors pekar på Eurokrisens huvudproblem,kostnadsläget
Rolf Englund blog 2011-09-13


The Budapest government saw borrowing costs soar and the currency plunge as traders bet that international authorities may abandon Hungary,
letting it become the first European Union country to default on its debts.
Louise Armitstead, Daily Telegraph, 4 Jan 2012

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Workers of Europe unite, you've only euro chains to lose
Comrades across Europe, come over to the eurosceptic side.
Ambrose Evans-Pritchard, 18 December 2011

Almost 97pc of the European Union’s population is now governed by conservative or Right-leaning coalitions, or EU-imposed mandarins. All that is left to social democrats is Austria (8.4m), Denmark (5.5m), and Slovenia (2.1m).

The whole machinery of the European Union (EU) system is under the control of the Right, with variants of Rhenish corporatism in the Council, and pre-modern Hayekians at the European Central Bank (ECB). Whether you regard this Hegelian ascendancy as good or bad, it certainly has profound consequences.

For just as former Prime Minister Margaret Thatcher protested at Bruges that “we have not successfully rolled back the frontiers of the state in Britain, only to see them reimposed at a European level”, the Left might equally protest that they have not fought the long, hard struggle for worker rights in their own democracies to see social welfare rolled back by Brussels and Frankfurt.

The 26 states that went along with this Merkel plan have given up the right to pursue counter-cyclical Keynesian stimulus, and have agreed to do so in perpetuity since it is almost impossible to repeal EU “Acquis”.

Personally, I am not a Keynesian – nor are many Daily Telegraph readers – but this strikes me as a mad commitment to make. For the Left it is surely an unmitigated disaster. They cannot pursue their economic agenda ever again.

Yet there is another parallel of equal resonance: the election of the Front Populaire in France with Communist support in May 1936, the cathartic rejection of deflation policy. Whether or not Leon Blum privately wanted to leave the Gold Standard – that inter-war replica of Europe’s unemployment union – the logic of his policies forced the outcome. Orthodoxy was overthrown.

The question for today’s Left is whether it is in their interests to keep apologising for an EU monetary regime that has pushed the jobless rate for youth to 49pc in Spain, 45pc in Greece, 30pc in Portugal and Ireland, 29pc in Italy and 24pc in France – yet 8.9pc in undervalued Germany – and that offers no credible way out of the slump for the Southern half.

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LO

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A constitutional and economic monstrosity
UK’s behaviour took attention away from the failure of the eurozone’s leaders to devise a credible remedy for the ills of the currency union.
They propose, instead, to tighten the screws on fiscal deviants. It may feel good. But it will not work.
Martin Wolf, Financial Times, December 13, 2011

What is the Commission going to do if they still fail to comply? Take them over? The answer, we now know, is: yes. This is a constitutional monstrosity.

Still more important, as professor Kevin O’Rourke of Oxford university argues on Project Syndicate, is that it is also an economic monstrosity.

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Europe's common currency actually has two gigantic problems.
The euro-zone's other, barely mentioned but huge problem is competitiveness.
It's far more basic and looks less solvable than the sovereign debt problem.
Allan S. Blinder, a professor of economics and public affairs at Princeton University,
and a former vice chairman of the Federal Reserve, Wall Street Journal, 13 december 2011

First, the immediate problem.

The euro was an audacious venture that put the cart before many horses. The fundamental problem is that the euro zone is not a country. Initially 11, and now 17, sovereign nations signed up for a currency union without first homogenizing their budget policies, their tax systems, their bank regulations or much else.

Normally, a weak economy has three ways to fight back.

It can loosen monetary policy, it can loosen fiscal policy, or it can let its currency depreciate. (If the currency is floating, the market will do this automatically.)

But membership in the euro zone forecloses two of these escape hatches, leaving only fiscal policy.

And once a member country stretches its borrowing capacity to the limit—as Greece did—that route is closed, too.

Then what happens?

One answer is playing out now as a Greek tragedy:

You have a depression. And if neither monetary stimulus, fiscal stimulus, nor currency depreciation is possible, when does this depression end?

In the latest summit agreement, reached last Friday, all 17 euro-zone countries, plus several others, pledged to pursue fiscal discipline—with tighter enforcement than previously. But that agreement is more about forestalling future crises than curing the present one.

The debt and banking crisis hogs all the attention because of its immediacy, plus the high drama of all those summit meetings.

But the other, slower-acting problem — lopsided competitiveness within the euro zone — is far more intractable.

To see why, remember the two fundamental determinants of exchange rates:

(1) productivity in different countries—so, other things equal, faster productivity growth should lead to a rising exchange rate; and
(2) prices and wages in different countries—so lower inflation should lead to a rising exchange rate.

Thus, for a currency union to succeed, its member nations need to register approximately equal productivity growth and approximately equal wage and price inflation.

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Grekland


The eurozone deal will fail
because it offers no explanation of how, precisely, the German current account surplus will be recycled
if the southern European nations head down the path of fiscal righteousness.
Stephen King, Financial Times, 12 december 2011
Stephen King is group chief economist at HSBC and the author of Losing Control (Yale)

Last year, Germany ran a balance of payments current account surplus of 5.7 per cent of gross domestic product, even bigger than China’s, which stood at 5.2 per cent of GDP.

These surpluses need to be recycled somewhere else in the world. A current account surplus, after all, represents no more than an excess of domestic savings over domestic investment.

A country running a current account surplus must, by definition, be acquiring foreign assets. Yet, in doing so, it may add to cross-border economic problems.

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Kommentar av Rolf Englund:
Sveriges bytesbalansöverskott var år 2010 större än Tysklands - 6,7 procent enligt Ekonomifakta

Rebalancing


It would be Europe’s worst nightmare: after weeks of rumors,
the Greek prime minister announces late on a Saturday night that the country will abandon the euro currency and return to the drachma.
Soon, the country’s international credit lines are cut after Greece, as part of the prime minister’s move, defaults on its debt.
As the country descends into chaos, the military seizes control of the government.
New York Times, December 12, 2011

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Grekland


Nils Lundgren:
Dagens Nyheter om eurokris, teknokrati och demokrati
Rolf Englund blog 8 december 2011


Europakten räddar inte Italien från bankrutt
Det är olycksbådande att höra Angela Merkel uttala sig efter EU-toppmötet
Det nya fördragets text blir klar i mars.
Hon fick frågan: "Vad händer då med Portugal, Spanien och Frankrike fram till dess?"
Danne Nordling, 9 december 2011

Är Merkel onykter eller har översättaren inte begripit vad hon sade? Trots att den frågande journalisten bjöd på att inte ta upp Italien, som är det mest akut utsatta landet, ville Merkel inte ens låtsas att hon hade en synpunkt på det kortsiktiga problemet med Portugal mfl.

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Traders are asking a more mundane question:
“Has it /EU summit/ done enough to get us through to Christmas?”
Their answer: probably not.
John Authers, Financial Times, December 9, 2011

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Two decades to the day after the Maastricht Treaty was concluded, the EU's tectonic plates have slipped
momentously along same the fault line that has always divided it — the English Channel
The Economist, 9 December 2011

Confronted by the financial crisis, the euro zone is having to integrate more deeply, with a consequent loss of national sovereignty to the EU (or some other central co-ordinating body); Britain, which had secured a formal opt-out from the euro, has decided to let them go their way.

Whether the agreement does anything to stabilise the euro is moot. The agreement is heavily tilted towards budget discipline and austerity. It does little to generate money in the short term to arrest the run on sovereigns, nor does it provide a longer-term perspective of jointly-issued bonds. Much will depend on how the European Central Bank responds in the coming days and weeks.

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Of the nine other EU countries outside the euro, Hungary, the Czech Republic and Sweden
have said they must consult their parliaments.

Six others - including Denmark, Poland and Latvia - have agreed to join the new deal.
BBC 9 December 2011

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News


Content of Merkozy proposal
Eurointelligence 6 dember 2011

Automatic sanctions. In case of non-compliance with the deficit rule, countries are subject to automatic sanctions, which will require a majority of 85% to overturn.
Golden Rule: All EU member states, but in particular the eurozone, should subject themselves to uniform debt limits. The ECJ will adjudicate in case of a dispute, and should have the right to declare national budgets illegal.
Private Sector Participation will follow the rules of the IMF. The PSI agreement on Greece remains valid, but is a unique case that should not be repeated;
Germany and France want the ESM to start end-2012.
The heads of state and government meet once a month as the eurozone’s economic government.
There shall be no eurobonds.
The negotiations about the treaty should concluded end March.


How to Forge a Common European Identity
Der Spiegel 2 december 2011


Events on the Continent have come to feel much like the drift into war.
There is a feeling of powerless inevitability about it.

Jeremy Warner, 1 Dec 2011

Crisis summits come and go with no resolution in sight, but there's always the next one to set the world to rights, though we all know that in truth it won't.

Markets and politicians cling to the belief that in the end, the single currency won't be allowed to fail. The economic and financial consequences are thought too awful to allow for such an outcome. Yet as long as the eurozone's creditor nations continue to adopt their "can pay, but won't pay" approach to the crisis, it is hard to see how it can end in any other way.

Europe is already back in the midst of a credit crunch, with its banks largely frozen out of wholesale funding; eurozone banks have become so risk averse that they prefer to lodge their excess liquidity with the European Central Bank than lend to each other. Across the Continent, banks are shrinking their credit.

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Doom

The long shadow of the 1930s
Could things go bad again?
I mean really bad – Great Depression bad, world war bad?
The kind of cataclysmic event my generation has learned to think belongs only in the history books.
Gideon Rachman, Financial Times, November 28, 2011

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News


This time they may save the euro
Mr Monti’s appearance on the scene has made possible a deal that would see
Germany underwrite the weaker eurozone economies
in return for political commitments to put their national finances in order.
Philip Stephens, Financial Times, December 1, 2011

Germany huddles in the shadow of its experience during the 1930s and has been paralysed by an obsession with moral hazard.

On the other side of the debate, the governments under siege from the bond markets know that at some point fiscal austerity becomes a self-defeating strategy.

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Comment by Rolf Englund
"This time is different"


Bank of England Governor Sir Mervyn King
Banks should brace themselves to withstand the "extraordinarily serious and threatening" economic situation
Eurozone crisis was the biggest threat to the UK's banking system.
King said the Bank itself was making "contingency plans" in case of a eurozone break-up.
BBC 1 December 2011

Some bankers argue that tighter capital requirement rules mean lower lending, as banks are forced to hang on to assets as a contingency, rather than pass it on to borrowers.

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News


Central bank deal should remind eurozone leaders of looming disaster
The warning signs of an impending European banking collapse, which would have global implications, cannot be ignored any longer.
Damian Reece, Head of Business, Dainly Telegraph 11:01PM GMT 30 Nov 2011

Eurozone money supply has been contracting recently in an eerie echo of the events contributing to the 1930s Depression

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One possibility would be to guarantee financing of rollover of public debts and fiscal deficits
for Italy, Spain and Belgium for 2012 and 2013. That would cost up to €1,000 bn
Martin Wolf, Financial Times, 29 November 2011

... though even this might be insufficient to arrest the contagion

The world has reached a new and potentially even more devastating stage of the financial crisis that emerged in the advanced countries in the summer of 2007.
Its epicentre is the eurozone.

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1000 miljarder euro är väl mycket pengar?
Rolf Englund blog 30 november 2011

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News


For Europe, a Lehman Moment
The world can't wait for architects to draw up plans for a new and improved Europe.
David Wessel, The Wall Street Journal's economics editor, 1 December 2011

Europe in 2011 differs from the U.S in 2008. The American union was solid in 2008, the survival of its currency unquestioned. Europe more closely resembles the U.S. in 1777-89 under the Articles of Confederation, the flawed compromise between centralization and decentralization that gave way to the Constitution and a stronger federal government.

Already, European banks—having trouble borrowing in dollars, facing higher capital standards, holding government bonds that may not be worth their value on the books—are dumping assets and pulling back from emerging markets.

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Lehman Brothers


The fiscal solution
Europe's "Hamiltonian moment"
Buttonwood, The Economist, Nov 29th 2011

THERE is a new note from Arnaud Mares of Morgan Stanley about what he calls Europe's "Hamiltonian moment" after the point when Alexander Hamilton committed the US federal government to assume the debts of the individual states.

The voters, What if they reject fiscal control in a referendum? History suggests they will be asked to keep voting until they give the "right" answer with complete financial meltdown for those who get it wrong.

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Alexander Hamilton (January 11, 1755 or 1757[1] – July 12, 1804) was a Founding Father, soldier, economist, political philosopher, one of America's first constitutional lawyers and the first United States Secretary of the Treasury.
Wikipedia


The euro zone's 17 finance ministers converged on EU headquarters Tuesday in a desperate bid to save their currency
— and to protect Europe, the United States, Asia and the rest of the global economy from a debt-induced financial tsunami.
CNBC, 29 November 2011

The ministers were discussing ideas that only weeks ago would have been taboo:
countries ceding fiscal sovereignty to a central authority,
an elite group of euro nations that would guarantee one another's loans but require strong fiscal discipline from members.

Cataclysm

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Investors need to prepare for three possible outcomes to the European debt crisis,
including the worst-case scenario in which the monetary union is left in tatters,
Pimco's Mohamed El-Erian, the co-CEO of the the world's largest bond fund manager
CNBC, 29 Nov 2011

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'Germany As Isolated on Euro as US Was On Iraq'
Market participants and EU politicians are starting to sound more apocalyptic in their warnings about the euro crisis
as yet another make-or-break summit, on Dec. 8 and 9, draws near.
Meanwhile the pressure on Germany to drop its opposition to euro bonds or a massive intervention in bond markets by the European Central Bank is intensifying by the day
. Der Spiegel, 29 November 2011


One striking feature of the euro crisis is how fast the unthinkable has become mainstream.
Until the Cannes summit a month ago, a euro-zone breakup was considered a tiny probability.
Now every investor is discussing the implications of a possible breakup.
Simon Nixon, Wall Street Journal, 29 November 2011

Last week, the U.K. Financial Services Authority publicly advised banks to draw up contingency plans.

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News


- Germany is the only country in Europe that can act to save
the eurozone and the wider European Union from “a crisis of apocalyptic proportions”
The Polish foreign minister, Financial Times, November 28, 2011

The extraordinary appeal by Radoslaw Sikorski, delivered in the shadow of the Brandenburg Gate in the German capital, came as the Organisation for Economic Co-operation and Development called on European leaders to provide “credible and large enough firepower” to halt the sell-off in the eurozone sovereign debt market, or risk a severe recession.

Sikorski is married to American journalist and historian Anne Applebaum.

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Euro Zone on the Brink - A Continent Stares into the Abyss
Fear is spreading through the financial markets as investors pull their money out of the crisis-stricken euro-zone countries.
With Chancellor Angela Merkel opposed to using the ECB's firepower to solve the crisis, the monetary union appears increasingly in danger of breaking apart.
Some economists are even arguing for Germany to reintroduce the deutsche mark.
Der Spiegel, Staff, 28/11 2011

Investors have lost confidence in the euro-zone countries and in their ability to rescue the common currency. Not even the recent changes of government in Italy, Greece and Spain have been enough to persuade them otherwise.

There is a growing sense of fear, both in the financial markets and in government offices. Even serious bankers who exude confidence in public admit privately that the monetary union could soon fall apart.

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The long shadow of the 1930s
Could things go bad again?
I mean really bad – Great Depression bad, world war bad?
The kind of cataclysmic event my generation has learned to think belongs only in the history books.
Gideon Rachman, Financial Times, November 28, 2011

Since the collapse of Lehman Brothers in 2008, we have discovered that things can definitely get worse. The question is how much worse?

The risk of a grave economic crisis in Europe is severe.

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Doom - Cataclysm

"Men EMU är i alla fall bra för freden"


The eurozone has 10 days at most.
If the European summit could reach a deal on December 9 the eurozone will survive.
If not, it risks a violent collapse.
Even then, there is still a risk of a long recession, possibly a depression.
Wolfgang Münchau, Financial Times 27/11 2011

I have yet to be convinced that the European Council is capable of reaching such a substantive agreement given its past record.

Of course, it will agree on something and sell it as a comprehensive package. It always does.

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Breaking up is hard to do
It has suddenly become respectable to ask the question: what would happen if the euro broke up?
Gavyn Davies, Financial Times, November 27, 2011


The people who bullied Europe into adopting a common currency,
the people who are bullying both Europe and the United States into austerity aren’t technocrats.
They are, instead, deeply impractical romantics.
So why did those “technocrats” push so hard for the euro, disregarding many warnings from economists?
Partly it was the dream of European unification, which the Continent’s elite found so alluring that its members waved away practical objections.
Paul Krugman, New York Times, November 20, 2011

And the things they demand on behalf of their romantic visions are often cruel, involving huge sacrifices from ordinary workers and families.
But the fact remains that those visions are driven by dreams about the way things should be rather than by a cool assessment of the way things really are.

To save the world economy we must topple these dangerous romantics from their pedestals.

The truth is that Europe’s march toward a common currency was, from the beginning, a dubious project on any objective economic analysis.
The continent’s economies were too disparate to function smoothly with one-size-fits-all monetary policy, too likely to experience “asymmetric shocks” in which some countries slumped while others boomed. And unlike U.S. states, European countries weren’t part of a single nation with a unified budget and a labor market tied together by a common language.

Let me single out in particular the European Central Bank (E.C.B.), which is supposed to be the ultimate technocratic institution, and which has been especially notable for taking refuge in fantasy as things go wrong. Last year, for example, the bank affirmed its belief in the confidence fairy — that is, the claim that budget cuts in a depressed economy will actually promote expansion, by raising business and consumer confidence. Strange to say, that hasn’t happened anywhere.

So am I against technocrats? Not at all. I like technocrats — technocrats are friends of mine. And we need technical expertise to deal with our economic woes.
But our discourse is being badly distorted by ideologues and wishful thinkers — boring, cruel romantics — pretending to be technocrats.

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Federalism

News


Italian bond yields rise above 8%
So-called “real money” managers – including pension funds and insurers – as well as banks have already begun
offloading their holdings of “peripheral” European debt.
Financial Times, November 25, 2011


With the replacement of Zapatero's Socialist party by Rajoy's conservative Popular Party,
all the governments in office in the PIGS — Portugal, Ireland, Greece and Spain — have been turned out.
Irwin Stelzer, WSJ, 21 Nov 2011

The assured election of Mr. Rajoy's PP could not bring the rate Spain had to pay for 10-year money last week below an unsustainable 7%.

Nor does anyone believe that Lucas Papademos, the economist who now heads the Greek government, can do anything other than preside over a default, orderly if possible, disorderly if necessary.

The EFSF pop gun has not been converted into the "big bazooka" needed to back up the more than €I trillion Spain and Italy will have to borrow in the next three years.

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Eurojättar varnar för total valutakollaps
Ekot 25/11, 18:35, med fin bild

Krisen inom eurozonen accelererade ytterligare i dag. Räntorna på lån till Italien har nått ohållbara höjder. Och i eftermiddag varnade Tysklands förbundskansler Angela Merkel och Frankrikes president Sarkozy, för att en skuldkollaps i Italien skulle leda till "slutet för euron".

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Ekot 25/11 2011

Ekot


Death of a currency as
Eurogeddon approaches
It's time to think what hitherto markets have regarded as unthinkable – that the euro really is on its last legs.
Jeremy Warner, DT 24 Nov 2011

The defining moment was the fiasco over Wednesday's bund auction, reinforced on Thursday by the spectacle of German sovereign bond yields rising above those of the UK.

Up until the past few days, it has remained just about possible to go along with the idea that ultimately Germany would bow to pressure and do whatever might be required to save the single currency.

In recent days, it has become plain as a pike staff that the lady's not for turning.

Suddenly, no-one wants to hold euro denominated assets of any variety, and that includes what had previously been thought the eurozone safe haven of German bunds.

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Earlier by Jeremy Warner

Armageddon at Parthenon?
The yield on 10-year Greek bonds blasted upwards by over 40 basis points to 7.15pc in a day of wild trading.
Ambrose Evans-Pritchard 28 Jan 2010

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News


Is this really the end?
Unless Germany and the ECB move quickly, the single currency’s collapse is looming
The Economist print Nov 26th 2011

The latest example is Spain. Despite a sweeping election victory on November 20th for the People’s Party, committed to reform and austerity, the country’s borrowing costs have surged again.

The panic engulfing Europe’s banks is no less alarming. Their access to wholesale funding markets has dried up, and the interbank market is increasingly stressed, as banks refuse to lend to each other.

Firms are pulling deposits from peripheral countries’ banks. This backdoor run is forcing banks to sell assets and squeeze lending;
the credit crunch could be deeper than the one Europe suffered after Lehman Brothers collapsed.

Germany, still fretful about turning a currency union into a transfer union in which it forever supports the weaker members, has dismissed the idea.
This attitude has to change, or the euro will break up.

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Funding


The crisis in the euro area is turning into a panic and dragging the zone into recession.
The risk that the currency disintegrates within weeks is alarmingly high
The Economist, print Nov 26th 2011

The intensifying financial pressure raises the chances of a disorderly default by a government, a run of retail deposits on banks short of cash, or a revolt against austerity that would mark the start of the break-up of the euro zone.

Consider the three ingredients for recession: a credit crunch, tighter fiscal policy and a dearth of confidence.

In aggregate, European banks’ loans exceed their deposits, so they rely on wholesale funds — short-term bills, longer-term bonds or loans from other banks — to bridge the gap.

But investors are becoming warier of lending to banks that have euro-zone bonds on their books and that can no longer rely on the backing of governments with borrowing troubles of their own.

Long-term bond issues have become scarce and American money-market funds, hitherto buyers of short-term bank bills, are running scared.

Have a nice day and read full text here

Funding

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Markets and the euro 'end game'
Stephanie Flanders, BBC Economics editor, 24 November 2011


(Reuters) - Riot police shielded Greece's national parliament Sunday

as demonstrators gathered to protest against austerity measures on the eve of talks in Brussels on a 130-billion-euro ($171 billion) bailout

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The euro is a macro-economic weapon of mass destruction - it simply must be defused.
Should Germany sanction the European Central Bank to guarantee the sovereign debts of all ?
These are the questions that the cheer-leaders of “fiscal union” need to answer.
Liam Halligan, DT, 19 Nov 2011

Berlin doesn’t know what to do.

The world’s financial markets, the British and American governments, and practically every non-German eurozone politician, are united. They’re watching and waiting, convinced that Merkel will eventually relent.

The job of any central bank, the ECB included, is to act as “lender of the last resort” to commercial banks in its jurisdiction that are solvent, but in need of temporary liquidity.
Central banks aren’t meant to dish-out free money to governments that have spent themselves into insolvency.

Are all these countries, their electorates supplicant, their future politicians content, really going to subscribe to and live under, for decades to come, a system based on Berlin telling them how much they can borrow and spend?

How long before new, more extreme politicians come to the fore, pandering to base human prejudice? How long before a system that’s supposed to promote free trade and European co-operation ended up, instead, promoting protectionism, hatred and conflict?

These are the questions that the cheer-leaders of “fiscal union” need to answer.

“Fiscal union” advocates will also need, when the time comes, to send out the eurozone riot-police.
Voters get angry, and sometimes violent, when their own politicians let them down.
But when they feel controlled and humiliated by foreigners, they become totally enraged. That, I’m afraid, is the undeniable lesson of history.

How much louder do the alarm bells need to ring before time is called on this absurd monetary experiment?

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Varför är Sverige en fiskal union?
Rolf Englund blog

Lender of last resort

Federalism

Freden

Tyskland

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News


Conspiracies, Coups and Currencies
The inhabitants of Italy and Greece, who have just watched democratically elected governments toppled by pressure from
financiers, European Union bureaucrats and foreign heads of state, it evokes the cold reality of 21st-century politics.
Democracy may be nice in theory, but in a time of crisis it’s the technocrats who really get to call the shots.
National sovereignty is a pretty concept, but the survival of the European common currency comes first.
Ross Douthat, New York Times, November 19, 2011

Stability would be achieved at the expense of democracy: the rituals of parliaments and elections would endure, but the real decision-making power would pass permanently to the forces represented by the so-called “Frankfurt Group” — an ad hoc inner circle consisting of Germany’s Angela Merkel, France’s Nicolas Sarkozy and a cluster of bankers and E.U. functionaries, which has been spearheaded European crisis management since October.

One could argue that the Greeks and Italians — and the Spanish and the Irish and everyone else — should have known what they were signing up for when they joined the euro in the first place

But the fact is that the project of European union has never enjoyed deep popular support. Its advocates were always adept at re-running referendums until the vote came out their way, or designing treaties that bypassed the voting public entirely.

The people of Europe have always been wary of trading their sovereignty for ever-greater unity — and now we can see why.

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Federalism


The longer the financial crisis in Europe drags on, the greater the risk of a European economic collapse
with substantial additional negative spillover effects on the United States and the rest of the global economy
.
John H. Makin, American Enterprise Institute, October 31, 2011

The financial crisis in Europe has resulted from the attempt to impose a single money on such disparate economies as Germany and Greece.
Europe’s single currency regime has meant that Greece — along with some other European countries—has borrowed more than it can repay.
With European banks and even the European central banks holding large amounts of risky sovereign debt, financial sector risks have risen to a point where they are harming economic growth.
John H. Makin, American Enterprise Institute, October 31, 2011

So far the approach to Europe’s debt crisis has been to have richer countries—essentially Germany—lend more to Greece so it can continue to service its debt. However, the condition for such aid has been sharp fiscal retrenchment in Greece, which has caused the economy to collapse and created the riots being seen in news media.

Better to recognize that Greece is insolvent, write down its debt, and contain the crisis there than to keep supplying Greece with the funds to service an ever-increasing level of debt. While not a pleasant outcome, such decisive steps could help to keep Greece’s debt crisis from spreading even further — to Portugal, Spain, and Italy — and thereby threatening to precipitate a European economic collapse.

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John H. Makin at AEI


The gathering storm in Italy has a growing number of policy makers calling on the ECB
to use its most powerful tool—its printing press—to shore up debt markets by buying unlimited amounts
of euro-zone bonds, becoming the lender of last resort.
So far, the bank has resisted, arguing this wouldn't be legal under European law.
Wall Street Journal, 18 November 2011

Yet few believe the ECB would let the common currency collapse to defend that principle.

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Of course, even a panic can be rational.
If you think the very existence of the eurozone is now in question, then the funding pressure we are seeing across Europe
- not just governments but also, as the Wall Street Journal and the FT report today, banks and major companies - is entirely rational.
Stephanie Flanders, BBC Economics editor, 18 november 2011

But the German Chancellor is not supposed to think the existence of the euro is in question.

In fact, it is at the heart of her approach to the crisis - politically and economically - that the single currency must not only come out of this in one piece, but come out of it stronger, with the all members committed to behaving more like Germany.

Even that Germanic future for the euro might not be possible, if the market mayhem of the past few weeks is allowed to turn into a full-blown credit crunch, as many now fear. That would make it all but impossible for countries like Spain and Italy to re-balance their economies - or grow out from under the massive debts (public and private).

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Funding


And he /Sir Mervyn King, Bank of England chief/ has never thought the ECB should or could be the saviour of the euro, by buying vast quantities of Italian - or Spanish - government debt.

Why? Because, as I have explained on too many occasions,

To ask the ECB to step in, in these circumstances, is basically to ask it to take risks onto its balance sheet,
on behalf of a fiscal union that does not yet exist.
Apart from anything else, it's deeply undemocratic. No-one ever elected the ECB.
Stephanie Flanders, BBC Economics editor, 16 november 2011

Suitably designed, the ECB's balance sheet could perhaps be a temporary bridge to a full-blown fiscal union.
But it's quite something to ask it to play this role in a vacuum, however convenient that might be for governments like the French.
Apart from anything else, it's deeply undemocratic. No-one ever elected the ECB.

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Finito?
I have been examining and re-examining the situation, trying to find the potential happy ending.
It isn't there. The euro zone is in a death spiral.
The Economist, Free Exchange, Nov 9th 2011, by R.A,

Markets are abandoning the periphery, including Italy, which is the world's eighth largest economy and third largest bond market. This is triggering margin calls and leading banks to pull credit from the European market.

This, in turn, is damaging the European economy, which is already being squeezed by the austerity programmes adopted in every large euro-zone economy.

A weakening economy will damage revenues, undermining efforts at fiscal consolidation, further driving away investors and potentially triggering more austerity.

The cycle will continue until something breaks. Eventually, one economy or another will face a true bank run and severe capital flight and will be forced to adopt capital controls.

At that point, it will effectively be out of the euro area.

What happens next isn't clear, but it's unlikely to be pretty.

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Det finns ingen lösning, bra eller dålig, på eurokrisen
Det finns ingen lösning, bra eller dålig, på eurokrisen där euron finns kvar med de nuvarande medlemsländerna där dessa, förr eller senare, återfår sin ekonomiska blomstring. Rolf Englund blog 21 oktober 2011

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The euro is not an end in itself. The single currency is just an instrument, aimed at promoting economic prosperity and political harmony across Europe.
As the evidence mounts that it is doing the precise opposite, it is time to think not about how to save the euro – but about how to scrap it, or at least allow the weakest members to leave.

For reasons of pride, fear, ideology and personal survival,
it is extremely hard for European leaders to accept that the euro is a large part of the problem.

Gideon Rachman, FT 7 November 2011

The euro has helped both to create and sustain the crisis in Europe.

First, it caused interest rates to plunge in southern Europe, encouraging countries such as Italy and Greece to go on a borrowing binge.

Now the single currency rules out the options that postwar Italy and others traditionally used to cope with high levels of debt: inflation and devaluation of the currency.

Neither policy was cost free, but they provided an alternative to the “internal devaluation” (otherwise known as wage cuts and mass unemployment) that is currently being urged on Italy, Greece and much of southern Europe.

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Det finns ingen lösning, bra eller dålig, på eurokrisen
Felet är att eurozonens ledare inte vill inse att allt var fel från början.
De vill inte inse att tanken, att ha en gemsam valuta för Tyskland och Grekland, Finland och Cypern, var och är en felaktig tanke.
Allt var fel från början, precis som kommunismen.
Rolf Englund blog 2011-10-21

News


Euro crisis reaches the Rubicon
Sarkozy and Chancellor Merkel said that if Greece failed to accept the bailout package then she would have to leave the euro – and even the EU.
This is dynamite. The monetary union may behave more like a fixed exchange rate bloc
Roger Bootle, Daily Telegraph 6 Nov 2011


"would make the collapse of Lehman Brothers seem like a small problem"
A bank run in Greece is a “real danger” and the country’s plan for a referendum on the European bailout package is a “very serious threat” to the currency,
Andreas Utermann, the firm’s /Allianz Global Investors, a fund-management unit of Europe’s biggest insurer/ chief investment officer, said at a press event in Frankfurt today.
Bloomberg Nov 3, 2011

“An uncontrolled insolvency of Greece and an end of the euro would unleash a tsunami that would make the collapse of Lehman Brothers seem like a small problem.”

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Eurodämmerung
Things are falling apart in Europe; the center is not holding.
Papandreou is going to hold a referendum; the vote will be no.
Italian 10-years at 6.29 at pixel time; that’s a level at which the cost of rolling over the existing debt will force a default

And with everyone simultaneously pushing for fiscal austerity, a recession seems almost certain, aggravating all of the continent’s problems.
Paul Krugman 1 November 2011

The question I’m trying to answer right now is how the final act will be played.

At this point I’d guess soaring rates on Italian debt leading to a gigantic bank run, both because of solvency fears about Italian banks given a default and because of fear that Italy will end up leaving the euro.

This then leads to emergency bank closing, and once that happens, a decision to drop the euro and install the new lira.

Next stop, France.

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Götterdämmerung

Götterdämmerung är tyska för Ragnarök (ordagrant "Gudaskymning").

Ragnarök ("Gudarnas sista öde" refererar inom nordisk mytologi till en serie händelser, inklusive en avgörande strid, som förutspås leda till jordens undergång.


Bundestag went along with /Merkel/ – with an important caveat.
They made their approval conditional on the European Central Bank continuing to comply with Article 123 of the Treaty of Lisbon,
which says that the ECB cannot print money (or words to that effect).
John Mauldin, 29 Oct 2011

Before the summit, German Chancellor Angela Merkel went before her parliament and, in an impassioned speech, basically declared that unless the parliament approved the expansion and leverage of the EFSF the European Union would collapse, along with the decades-long peace that has prevailed. And the Bundestag went along with her – with an important caveat. They made their approval conditional on the European Central Bank continuing to comply with Article 123 of the Treaty of Lisbon, which says that the ECB cannot print money (or words to that effect). The Germans are obsessed with an independent ECB that will maintain the value of the euro – something to do with Weimar being embedded in their collective psyche.

Contrast this "obsession" with Martin Wolf leading the chorus for incoming ECB president Mario Draghi (an Italian) to ignore the Germans. Here are some choice paragraphs from his recent piece:

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Be Honest – The European Debt Deal Was Really A Greek Debt Default
This Greek debt deal is a huge red flag which signals to global financial markets that there is no longer safety in European bonds
theeconomiccollapseblog.com, 28 Oct 2011

But investors are not stupid. Greece was allowed to default. If Italy or Spain or Portugal gets into serious trouble it is likely that they will be allowed to default too.

Investors like to feel safe. They want to feel as though their investments are secure. This Greek debt deal is a huge red flag which signals to global financial markets that there is no longer safety in European bonds.

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One day after European leaders announced a plan to boost their euro backstop fund to 1 trillion euros,
China indicated it may attach conditions to any money it invests.
Der Spiegel 28 Oct 2011

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A key reason why the eurozone is under challenge is that markets have become conscious of a fundamental weaknesses in its design.
It relies on three hardly-compatible principles: national banking systems, which both finance the sovereign and rely on it as a potential backstop;
states that are supposed to be solely responsible for their own debt, so that they cannot rely on partners when in trouble;
and a central bank that has not been given the mandate to be a lender of last resort.
Jean Pisani-Ferry, economist and director of Bruegel, FT 26 October 2011

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Even if leaders do enough to avoid a financial meltdown,
resolving the deeper causes of the debt crisis — which include economic disparities that Europe hasn't figured out how to redress within the euro framework —   is likely to take years, analysts and officials warn.
WSJ 22 October 2011


A UK businessman is offering
a £250,000 /SEK 2,6 miljoner/ prize for the best plan to manage one or more countries abandoning the euro currency.
The award is being sponsored by Lord Wolfson, the chief executive of Next, the High Street retailer, and a Conservative party donor.
BBC 20 October 2011

The prize is described as the second biggest cash prize to be awarded to an academic economist after the Nobel Prize.
However, Lord Wolfson told the BBC that the competition was open to everyone.

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Europe Deeply Divided Ahead of Make-or-Break Summit
French President Nicolas Sarkozy fears that downgrading these countries' bonds would lead to the collapse of his banking system.
Der SPIEGEL Staff, 17 October 2011


Pumping cash into a problem and imposing austerity – as is happening in Greece – is not the answer.
Finding ways for prices and wages to adjust is.
But without a floating exchange rate, that requires a level of government intervention
that would probably be unacceptable to electorates.
Daily Telegraph quoting Mervyn King, Bank of England, 18 Oct 2011

By fixing their exchange rates within the eurozone, its 17 members have denied themselves "the natural safety valve, which can limit the extent of imbalances in demand across countries", said Sir Mervyn.
They've done this without putting in place other measures to protect competitiveness.

Anyway, far more urgent is how we deal with the crisis of confidence in some banks and sovereigns.

Here the Bank of England Governor had a clear message for the eurozone.
"A transparent recognition of losses and a substantial injection of additional capital are necessary to restore market confidence."

Four years into the crisis, said Sir Mervyn, it was "surely time to accept that the underlying problem is one of solvency, not liquidity".

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BNP Paribas SA and Commerzbank AG (CBK) are unloading sovereign bonds at a loss,
leading European lenders in a government-debt flight that threatens to exacerbate the region’s crisis.
Bloomberg 8 November 2011

Banks are selling debt of southern European nations as investors punish companies with large holdings and regulators demand higher reserves to shoulder possible losses.

The European Banking Authority is requiring lenders to boost capital by 106 billion euros after marking their government debt to market values.

The trend may undermine European leaders’ efforts to lower borrowing costs for countries such as Greece and Italy while generating larger writedowns and capital shortfalls.

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If losing half the face value of a bond does not amount to a default, what does?
The bond exchange is billed as “voluntary”, but it is not clear that the International Swaps and Derivatives Association, a trade body, will agree.
The Economist print 29 Oct 2011

If it judges that a “credit event” has taken place, then payouts will be triggered on credit-default swaps (CDSs), insurance contracts against default on government bonds.

This is something that the governments and the ECB had been determined to avoid, fearing it would lead to financial catastrophe, rather as the bankruptcy of Lehman Brothers did in 2008.

“You don’t have to be paranoid to be terrified,” says a senior figure involved in the deliberations.

Sadly, this latest deal promises to be no more enduring. At best, it will buy time before the next round of panic. At worst, it may push the euro zone into catastrophe.

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A euroozone built on one-sided deflationary adjustment will fail.
If policymakers had understood two decades ago what they know now, they would never have launched the single currency. Only fear of the consequences of a break-up is now keeping it together.
The question is whether that will be enough. I suspect the answer is, no.
Martin Wolf, FT, 8 Nov 2011

Efforts to bring the crisis under control have failed, so far. True, the eurozone’s leadership has disposed of George Papandreou’s disruptive desire for democratic legitimacy. But financial stress is entrenched in Italy and Spain

The crisis will be over if and only if weaker countries regain competitiveness.

At present, their structural external deficits are too large to be financed voluntarily.

A euroozone built on one-sided deflationary adjustment will fail. That seems certain. If the leaders of the eurozone insist on that policy, they will have to accept the result.

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PJ Anders Linder, politisk chefredaktör på SvD, m fl,, borde kunna medge att det var bra att det blev Nej till EMU i folkomröstningen
Rolf Englund blog 1 november 2011


The eurozone sovereigns lack a true lender of last resort.
They are what Charles Goodhart of the London School of Economics calls "subsidiary sovereigns".
Martin Wolf, FT 2011-11-23


The fundamental challenge is not financing, but adjustment.
Eurozone policymakers have long insisted that the balance of payments cannot matter inside a currency union.
Indeed, it is a quasi-religious belief that only fiscal deficits matter: all other balances within the economy will equilibrate automatically.
This is nonsense. By far the best predictor of subsequent difficulties were the pre-crisis external deficits, not the fiscal deficits (see charts).
Martin Wolf, Financial Times 18 October 2011
Highly Recommended

Inside the eurozone, adjustment of imbalances remains essential. But it is also vastly difficult, because the exchange rate has gone.

In its place, comes adjustment via depression and default. A currency union with structural mercantilists in the core now threatens a permanent slump in the periphery.

Solving that is the true cure. Can it be done? I wonder.

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Flera franska bankaktier faller tungt på tisdagen,
efter att Moody's varnat för att Frankrikes kreditbetyg AAA är under press.
e24 2011-10-18

Frankrike kan få bidra med ytterligare pengar till andra europeiska länder eller sitt eget banksystem, som skulle innebära "betydande" nya förpliktelser i balansräkningen.

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...

Big snag.
If Europe’s leaders do indeed leverage their €440bn bail-out fund (EFSF) to €2 trillion or €3 trillion

through some form of "first loss" insurance on Club Med bonds – as markets now seem to assume –
the consequences will be swift and brutal.
Ambrose Evans-Pritchard, October 17th, 2011

Professor Ansgar Belke, from Berlin's DIW Institute, said any leveraging of the EFSF would be "poisonous" for France’s AAA rating and would set off an uncontrollable chain of events.

"It counteracts all efforts made so far to stabilize the eurozone debt crisis, which are premised on the AAA rating of a sufficiently large number of strong economies.
In extremis, it would probably cause the break-up of the eurozone", he told Handlesblatt.

We will find out soon enough what EU leaders actually intend to do – rather than what the European Commission would like them to do.

As US Treasury Tim Geithner said "the devil is in the details", not in the headlines.

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Something slightly odd is going on.
Markets are behaving as though European governments will definitely agree a rescue package for the eurozone next weekend and that the rescue package will sort all Europe's financial and economic woes.
Eurozone governments see investors lack of confidence in Italy's and Spain's ability to repay their debts as wrong, and that one day soon investors will come to their senses.
Robert Peston, BBC Business editor, 17 October 2011

All of which is to say that anyone who believes that we may be approaching the end of the eurozone's wobbles and agonies is guaranteed to be disappointed, and quite soon.

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The lead negotiator for private holders of Greek debt has said that
investors are unwilling to accept greater losses on their bonds than the 21 per cent agreed in July,
jeopardising eurozone plans to finalise a second Greek bail-out by the end of next week.
Financial Times 14 October 2011

A group led by France and the European Central Bank has insisted that any new “haircut” must be voluntary, since forced writedowns would constitute a full-scale Greek default, triggering insurance policies, known as credit default swaps, and potentially reigniting investor panic.

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Voluntary?


As Sir John Major wrote this morning in the FT, this does not solve EMU’s fundamental problem,
which is the 30pc gap in competitiveness between North and South,
and Germany’s colossal intra-EMU trade surplus at the expense of Club Med deficit states.

Ambrose Evans-Pritchard, 27 Oct 2011

It is therefore unlikely to succeed. It means that Italy, Spain, Portugal, et al must close the gap with Germany by austerity alone, risking a Fisherite debt deflation spiral. As I have written many times, this is a destructive and intellectually incoherent policy, akin to the 1930s Gold Standard

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Sir John Major wrote this morning in the FT

Hindsight is often graceless. But it is a fact that sterling did not enter the euro because we foresaw flaws in its structure. We believed monetary union without fiscal union was risky; that convergence of the powerful northern economies with southern Europe was unlikely (especially once Germany had absorbed her Eastern Länder). I had a political objection as well: that entry into the euro, and the abolition of sterling, would remove key policy options from the British government. That is why, at Maastricht, I opted out of the euro.

It was not easy. The opt-out was only obtained by threatening to veto the treaty.

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Germany is pushing behind the scenes for a "hard" default in Greece
with losses of up to 60 pc for banks and pension funds,

risking a chain-reaction across southern Europe unless credible defences are established first.
Ambrose Evans-Pritchard, 10 Oct 2011

Although Greece's 10-year bonds are trading at a 60pc discount on the open market, European banks do not have to write down losses so long as there is no formal default and the debt is held in their long-term loan book.

The danger arises if banks are forced to "crystallize" the damage before raising their capital buffers.

Said Gary Jenkins from Evolution Securities:
"Nothing has really changed and we still expect that the most likely outcome will be a comprehensive package – that circles the wagons around the sovereigns and the banks
– that will only be agreed at one minute to midnight when the alternative is that the market is about to implode on the Monday morning."

Pulling the plug on Greece risks bringing a much bigger crisis to a head all too quickly.

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The euro zone's decision to impose losses on holders of Greek government bonds has been an unmitigated disaster,
an entirely self-inflicted wound that has gravely destabilized the global economy.

From the moment euro-zone leaders first agreed at their Deauville summit in October 2010 that bondholder losses would be a condition of any euro-zone bailout after 2013
— breaking the unwritten rule that sovereign bonds from a developed economy are risk-free — the bloc has been dragged into a vortex of despair from which it has so far found no escape, as first government bond markets, then bank funding markets and now ordinary bank lending to companies have seized up
Simon Nixon, WSJ 7 October 2011

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The Ticking Euro Bomb
The architects of the euro and their successors have lost the Maastricht Treaty bet.
They have jeopardized an agreement made by 12 countries in the hope that the markets wouldn't notice how fragile their shiny new currency really is.
Der Spiegel Staff, 7 October 2011
En lysans artikel - Highly recommended

The nations of the euro zone are in debt to the tune of €8 trillion, while banks hold European government bonds at a face value of €1 trillion on their books.

The central banks of Greece, Italy, Portugal and Spain owe Germany's Bundesbank €348 billion.

The ECB has purchased €150 billion in government bonds, and the banks, fearing loan defaults, would rather park up to €150 billion with the ECB than lend money.

For a monetary union to function, the economies of its member states cannot drift too far apart, because it lacks the usual balancing mechanism, the exchange rate.

Normally a country depreciates its currency when its economy falters. This makes its goods cheaper on the world market, allowing it to increase exports and thereby reduce its deficits. But this doesn't work in a monetary union. If one country doesn't manage its economy effectively, the common currency acts as a manacle (fotboja).

Rogoff saiys the euro project is at a crossroads. The European partners must either enter into a forced marriage, a shotgun marriage, or the union will break apart sooner or later.
"And, of course, it's questionable whether the people of Europe are willing to enter into such an unromantic marriage."

In the end, only two possibilities will remain: a transfer union, in which the strong countries pay for the weak; or a smaller monetary union, a core Europe of sorts, that would consist of only relatively comparable economies.

A transfer and liability union requires new political institutions, and individual countries would have to confer a significant portion of their powers on Brussels.

The second path, a firewall would have to be erected between the countries that are in fact insolvent and others that have only a short-term liquidity problem. Then the banks would have to be provided with government funds, so that the financial system does not collapse when banks are forced to write off some of the government bonds on their balance sheets.

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Europe’s crisis is all about the north-south split
Anticipating the euro, drachma-denominated 10-year sovereign bonds fell more than 450 basis points
relative to German Bund rates in the three years leading up to Greece’s adoption of the euro in 2001.
Likewise, Portugal and Italy
Alan Greenspan, FT October 6, 2011

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Kommentar av Rolf Englund:
Konstigt att Greenspan inte tar med Spanien och Irland i denna grupp.

"I am sure the euro will oblige us to introduce a new set of economic policy instruments. It is politically impossible to propose that now. But some day there will be a crisis and new instruments will be created." Romano Prodi, EU Commission President. Financial Times, 4 December 2001 http://www.liebreich.com/LDC/HTML/Europe/08-Euro.html

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We are now in the stage of the crisis where people get truly desperate.
The latest crazy idea, which is being pursued by officials, is to turn the eurozone’s rescue fund into an insurance company,
or worse, a collateralised debt obligation, the financial instrument of choice during the credit bubble.
This is the equivalent of putting explosives into a can, before kicking it down the road.
Wolfgang Münchau, FT 2 October 2011

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Most economic historians and international economists I know believe a monetary union would fail unless it develops into a fiscal union.
Yet, almost all political and legal experts who specialise in the European Union believe a fiscal union is Utopian.
If both are right, a fiscal union is simultaneously necessary and impossible.
And that would mean – again if both are right – that the euro is doomed to fail.
Wolfgang Münchau, FT December 12 2010

Doom

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What Really Caused the Eurozone Crisis? (Part 1)
streetlightblog.blogspot.com, 22 Sept 2011
Good charts

First, Wolfgang Schäuble, Germany’s finance minister, from his recent piece in the Financial Times:
Whatever role the markets have played in catalysing the sovereign debt crisis, it is an undisputable fact that excessive state spending has led to unsustainable levels of debt and deficits that now threaten our economic welfare.

Next, here's an excerpt from a statement recently made by Greece's Deputy Prime Minister and Minister of Finance, Evangelos Venizelos:
We should not be the scapegoat or the easy excuse that will be used by European and international institutions in order to hide their own lack of competence to manage the crisis and give a definitive and complete answer to the attacks against euro, the world’s strongest currency.

These two statements capture the essence of two radically different views about the origins of the EZ debt crisis.

Which one is right?

Rather than large current account deficits being the result of fiscal mismanagement or excessive consumption, the current account deficits were the necessary and unavoidable counterpart to the surge in capital flows from the EZ core.

Rather than above-average inflation rates and deteriorating competitiveness being signs of labor market inefficiencies or lax fiscal policies in the peripheral countries, appreciating real exchange rates were inevitable as the mechanism by which those current account deficits were effected.

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Konstruktionen kring euron har inte varit fel
Jan Björklund, Birgitta Ohlsson, Carl B Hamilton och Olle Schmidt


There was progress towards a eurozone rescue deal during the IMF's annual meeting in Washington, according to those present.
There would be a haircut or writedown of Greek sovereign debt of 50%.
Robert Peston, BBC Business editor, 25 sept 2011

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War Game
On 13-14 September about 100+ movers and shakers took part in a conference and "war game"
organised by the Breughel think tank, modelling solutions to the euro crisis.
The full document is here. But the summary is: they saved the euro. Here's how.
In the war game the EU/IMF decided to expand the EFSF to between $3 trillion and $5 trillion
Paul Mason Economics editor, BBC Newsnight, 25 Sept 2011

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Amid a growing air of desperation, world financial leaders said they are scrambling to douse
the European debt crisis that threatens to spark another global financial meltdown.
WSJ 24 Sept 2011

"The threat of cascading default, bank runs, and catastrophic risk must be taken off the table, as otherwise it will undermine all other efforts, both within Europe and globally," U.S. Treasury Secretary Timothy Geithner said in a speech before the IMF. The U.S. Treasury is pushing Europe to respond to the crisis with a "shock-and-awe" strategy. Washington believes a major increase in the effective size the euro zone bailout fund would finally put market fears to rest.

People's Bank of China Gov. Zhou Xiaochuan urged a prompt resolution to the euro-area debt crisis through "forceful and credible" measures. "The negative feedback loop between public-sector and private financial institutions' vulnerabilities weighs heavily on market confidence and limits the effectiveness of macroeconomic policies," he said.

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Debate about whether the European dream, and the euro, can survive, and if it should have even been created in the first place.
CNN 23 September 2011

The Treaty on European Union, known as the Treaty of Maastricht, was signed in the Netherlands city of Maastricht on February 7, 1992,

A default by Greece, or its departure from the eurozone, also carries contagion risk. That means investors will worry about other nations in trouble
- such as Italy, which makes up 17% of the eurozone economy, nearly seven times bigger than the economy of Greece -- and further increase financial instability across the globe.

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Allt var fel från början, precis som kommunismen.
- Om bara inte Stalin hade kommit...
- Om bara inte Grekland hade misskött sin ekonomi...
Rolf Englund blog juli 2011

Det är målsättningen om ett ständigt fastare förbund
- "ever closer union" -
som är själva grundbultsfelet med EU.
Rolf Englund 2005

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The euro, as we know, is a curious edifice (A building, especially one of imposing appearance or size), built without exits.
Perhaps it was noble commitment to the unifying ideal, perhaps hubris of an order to rival Ozymandias,
but, either way, its founders decreed the currency to be forever. Retreat was not an option.
WSJ 23 Sept 2011

The zone's endless travails have long ceased to be either a little local difficulty or the object of a bit of schadenfreude on the part of the world's Treasuries.

They've become a source of grave systemic risk at a time when the world really doesn't need another one.

The central theme of "Ozymandias" is the inevitable complete decline of all leaders, and of the empires they build, however mighty in their own time.
http://en.wikipedia.org/wiki/Ozymandias

There is no provision in any European Treaty for a country to leave the eurozone.
That was deliberate.
It was intended to make it clear that the eurozone was forever – like the Soviet Union and the Holy Roman Empire.
Roger Bootle, Daily Telegraph 5 September 2011

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The commentaries that puzzle me are those that say in one breath that the eurozone cannot survive
and follow in the next by asserting that break-up is impossible because of the attendant costs.
From the recent conversations I have had with European ministers and officials, the passenger on the Berlin U Bahn or Athens Metro
is just as likely to be right as the multitude of pundits and experts.

Philip Stephens, FT September 22, 2011

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Snillen spekulerar
“The evidence is very clear,” said EU employment commissioner Laszlo Andor at a European Parliament hearing.
“The most rapid increases of the unemployment rate in the last one year were observed in countries that underwent very tough austerity.”
WSJ 22 sept 2011


What comes next is the explosion of the European project.

America will survive this because America is a state.
But as Bismarck once remarked, "Whoever speaks of Europe is wrong. Europe is a geographical expression."
The "fiscal union" that's being mooted will never come to pass:
German voters won't stand for it, and neither will any other country that wants to retain fiscal independence
— which is to say, the core attribute of democratic sovereignty.

Bret Stephens, writes the Journal's column on foreign affairs, WSJ 20 Sept 2011

The riots of Athens will become those of Milan, Madrid and Marseilles. Parties of the fringe will gain greater sway. Border checkpoints will return. Currencies will be resurrected, then devalued.

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Sockerbagare

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Remarkably, the European authorities that drove Ms Lagarde’s selection just three months ago have rejected important components of her analysis
The world’s finance ministers and central bank governors will gather in Washington next weekend for their annual meetings.
The meetings will have been a failure if a clearer way forward for Europe does not emerge.
Lawrence Summers, FT 18 Sept 2011 With nice pic too

Failure would be yet another example of what Churchill called “want of foresight, unwillingness to act when action would be simple and effective, lack of clear thinking, confusion of counsel until the emergency comes, until self- preservation strikes its jarring gong – these are features which constitute the endless repetition of history”.

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We are moving away from what I consider the only effective solution to the crisis.
This means, by extension, that we are moving closer towards an involuntary break-up.
Wolfgang Münchau, FT 18 Sept 2011

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"We must now face the difficult task of moving forward towards a single economy, a single political entity...
For the first time since the fall of the Roman Empire we have the opportunity to unite Europe."

Romano Prodi, EU Commission President, speech to European Parliament, 13th October 1999.

"I am sure the euro will oblige us to introduce a new set of economic policy instruments.
It is politically impossible to propose that now. But some day there will be a crisis and new instruments will be created."

Romano Prodi, EU Commission President. Financial Times, 4 December 2001


As Europe's leaders seemingly dance on the edge of disaster,
what are the real problems facing the euro?
For many onlookers, the issues may seem complicated and interconnected.
But essentially they boil down to four big dilemmas
Borrowers vs Lenders, Austerity vs Growth, Discipline vs Solidarity, Europe vs the Nations
A Higly Recommended article by Laurence Knight, BBC, 18 September 2011

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EMU - En snabbkurs

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News


European officials ended a two-day financial summit Saturday with no new concrete plans
as deep divisions remained about the best course for the coming weeks and months.
Washington Post, 17 September 2011

On Saturday, the officials discussed but failed to agree on a proposal to tax financial transactions. Greece is likely to run out of cash by mid-October if it does not receive billions of euros of bailout money, potentially setting off a financial contagion that could hop from bank to bank and country to country.

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The euro – a cross-border project supported by the political elite and by businesses
about which many ordinary Europeans had doubts because they could not see what use it was to them.
John Gapper, FT 16 Sept 2011

But they tolerated it as long as it appeared to work, just as the growth of global investment banking was regarded as irrelevant to most people’s day-to-day lives.

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"ever closer union"

News


Why is Spain — along with Italy in so much trouble?
The answer is that these countries are facing something very much like a bank run
Paul Krugman, New York Times, 11 September 2011

The run is on their governments rather than, or more accurately as well as, their financial institutions.

Investors, for whatever reason, fear that a country will default on its debt. This makes them unwilling to buy the country’s bonds, or at least not unless offered a very high interest rate. And the fact that the country must roll its debt over at high interest rates worsens its fiscal prospects, making default more likely, so that the crisis of confidence becomes a self-fulfilling prophecy.

And as it does, it becomes a banking crisis as well, since a country’s banks are normally heavily invested in government debt.

Now, a country with its own currency, like Britain, can short-circuit this process: if necessary, the Bank of England can step in to buy government debt with newly created money.

What Mr. Trichet and his colleagues should be doing right now is buying up Spanish and Italian debt — that is, doing what these countries would be doing for themselves if they still had their own currencies

But the E.C.B. immediately found itself under severe pressure from the moralizers, who hate the idea of letting countries off the hook for their alleged fiscal sins.

And the perception that the moralizers will block any further rescue actions has set off a renewed market panic.

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Elementärt, min käre Watson. Men det fordras en Krugman eller en Nils Lundgren, för att förklara det.

Att de kan förklara det så bra beror på att de förstår det så bra, inte på att de skulle vara bättre pedagoger än vi vanliga dödliga.

So grave, so menacing, so unstoppable has the euro crisis become that even rescue talk only fuels ever-rising panic.
Uunless politicians act fast to persuade the world that their desire to preserve the euro is greater than the markets’ ability to bet against it,
the single currency faces ruin. It is not just the euro that is at risk, but the future of the European Union and the health of the world economy.
The Economist editorial, Sept 17th 2011, print

Few people, least of all this newspaper, want either vast intervention in financial markets
or a big shift of national sovereignty to Europe. It is just that the alternatives are far worse.

Greece, which is unambiguously insolvent, ought to have a hard but orderly write-down.

The ECB must declare that it stands behind all solvent countries’ sovereign debts and that it is ready to use unlimited resources to ward off market panic. That is consistent with the ECB’s goal to ensure price and financial stability for the euro zone as a whole.

Third, it needs to shift the euro zone’s macroeconomic policy from its obsession with budget-cutting towards an agenda for growth. And finally, it must start the process of designing a new system to stop such a mess ever being created again.
The fourth part will take a long time to complete: it will involve new treaties and approval by parliaments and voters.

The Economist: This is not what they were promised when the euro was set up.
Completely true, and sadly irrelevant.

Rolf Englund blog 16 sept 2011

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"ever closer union"

News


Treasury Secretary Timothy F. Geithner made an unusual appearance at a meeting of euro zone finance ministries.
Mr. Geithner had been invited to offer some advice on fixing Europe’s sovereign debt and banking problems.
European leaders, who have been slow to react to the root causes of the problem, emerged from the meeting dismissive of Mr. Geithner’s ideas
and, in some cases, even of the idea that the United States was in a position to give out such pointers.
New York Times 16 Sept 2011

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dismissive


U.S. Treasury Secretary Timothy Geithner told EU finance ministers on Friday they should
end loose talk about a euro zone break-up and work more closely with the European Central Bank to tackle the debt crisis.
CNBC 16 Sept 2011

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European banks are “grossly under-capitalized”
and the debt crisis is more serious for the region than the 2008 meltdown

“The euro cannot survive in its present form, it’s going to have to be reformed dramatically.
Gordon Brown, Bloomberg 16 Sept 2011


Will the eurozone break up?
"The short-term banking crisis is the biggest concern Europe is facing,"
said the International Monetary Fund's (IMF) Deputy Managing Director, Min Zhu, second in command at the IMF
"There is no room for politicians to muddle through. They have to take decisive action today."
Well, did they? They had a teleconference at which they assured Greece it would stay in the euro,
and urged Greece to meet the conditions of the 21 July 2011 re-bailout agreement.

Paul Mason Economics editor, BBC Newsnight, 15 September 2011


Just nu är Italien och Spanien viktigast.
Det är ingen som vet hur de ska klaras, men i slutändan måste det bli ECB som kommer att göra något spektakulärt.
Det kan bli så att ECB stödjer all spansk och italiensk upplåning, det vet vi inte. Men där är vi inte i dag.
Bengt Dennis, SvD Näringsliv 13 mars 2012

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Italien - Spanien


Jag skulle bli förvånad om alla de länder som i dag har euron som valuta kommer att ha det om tio år.
Kanske kommer bara ett mindre antal av dem att behålla den

Lars Calmfors, kolumn DN 13 december 2011


Rumpnissen bleknar
Det krävs mindre hemlighetsmakeri om EU ska överleva.
Maktbalansen i EU förändras av eurokrisen.
Avgörande beslut fattas i slutna rum
Annika Ström Melin, DN, 8 december 2011

När förhandlingarna mellan 27 politiska ledare runt bordet sätter i gång på allvar är det styrkan som avgör. I teorin har varje land en röst och rätt att lägga in sitt veto, men i praktiken är det de stora länderna som har mest att säga till om.

Under EU-nämndens möte i riksdagen på onsdagen framkom att Frankrike och Tyskland ska presentera ett färdigt och mer detaljerat förslag till fördragsändringar på torsdagens toppmöte. Inte ens EU:s president hade tydligen fått läsa det förrän sent på onsdagseftermiddagen.

Då skickades det fransk-tyska utkastet i ett brev (på franska) till Herman Van Rompuy, Fredrik Reinfeldt och de andra stats- och regeringscheferna i unionen.

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Annika Ström Melin

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"Vi måste ha en åsikt på EU-nämnden på onsdag”
säger Marie Granlund (S), vice ordförande i riksdagens EU-nämnd
Men vid lunchtid på tisdagen hade de ännu inte fått något färdigt förslag att ta ställning till.
DI 2011-12-06

Vänsterpartiet säger ”blankt nej” till det fransk-tyska förslaget, meddelade Jonas Sjöstedt i en intervju med di.se tidigare på tisdagen. Han anser att förslaget är djupt odemokratiskt.

Marie Granlund säger att Socialdemokraterna ännu inte tagit ställning till förslaget och vill inte uttala sig om innehållet i Merkels och Sarkozys utkast.

”Det går inte bara att följa det här via nyheterna. Man måste ju veta vad det verkligen innebär. Man måste vara seriös när det handlar om fördragsförändringar”, säger hon.

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Att rädda euron är i fokus, men för att klara det krävs en fördragsändring.
- Vi måste behålla trovärdigheten, konstaterar Merkel. Det vi nu presenterar visar att vi är helt och fullt beslutna att behålla euron.
Förhoppningen är att det blir ett nytt fördrag, antingen för alla 27 EU stater eller bara för eurozonens länder.
Ekot 5 december 2011

Angela Merkel understryker att Tyskland och Frankrike som starka länder inom zonen har ett särskilt ansvar för att se till att krisen inte fördjupas utan blir löst.

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Ms Merkel’s scepticism also stems from bitter experience.
She followed investors’ advice and called for private holders of Greek bonds to share the burden of a second bail-out for Greece.
Those who have spoken to the chancellor say she feels duped by those investors, who urged her to agree to a restructuring of Greece’s massive debt burden
but then told the chancellor that she had also made all other eurozone bonds suspect.
Financial Times, 4 December 2011


Wolodarski och eurons hot mot demokrati och välstånd
Rolf Englund blog 4 december 2011


Lösningen, det bästa möjliga utfallet, innebär alltså en inflationsspiral i hela eurozonen, samt att Sydeuropa i realiteten blir koloniserat.
Budgetåtstramningarna som krävs kortsiktigt kommer dessutom försämra utvecklingsläget ytterligare. Därför: långvarig lågkonjunktur.
Isobel Hadley-Kamptz, Expressen, 3 december 2011

Pratar man med näringsliv och eurokrater tycker de att den lösningen är helt okej: "det finns inte tid för politiska spel", som EU-ordföranden Barroso sade.

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Mer av Isobel Hadley-Kamptz


Hur illa ställt är det egentligen?
För detta är samma åtgärder som centralbankerna genomförde i samband med Lehmankrisen.
Per Lindvall, e24, 2011-11-30

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Euron står inför ett sammanbrott
Patricia Hedelius, SvD Näringsliv 30 november 2011 kl 23:07

– Eurosamarbetet kommer inte att hålla som vi känner det idag. Antingen går man snabbt mot gemensam finanspolitik och därmed gemensam statsbildning, eller så är det är bara en fråga om när och hur EMU bryts upp, inte om, säger Royal Bank of Scotlands chefekonom Pär Magnusson.

Motsättningarna inom eurozonen talar snarare för att det är något av de rika länderna som kommer att välja att lämna. Den politiska opinionen på hemmaplan kommer sannolikt bli övermäktig. T

Tyskland ligger faktiskt nära till hands att bli det första landet att bryta sig loss. Valutaunionen var inget man egentligen önskade utan kan ses som en eftergift för att Västtyskland skulle få förenas med Östtyskland.

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Överallt sprids känslan av att undergången närmar sig.
”Överlever euron julen?” undrade tidningen Le Journal du Dimanche i en jätterubrik på förstasidan i söndags.
Annika Ström Melin på Parisbesök, signerat DN 30 november 2011


Eurokrisen, fisksoppan och elitens olidliga dumhet
Rolf Englund blog 28 november 2011


Socialism och EMU - två misslyckade fullskaleexperiment
Om det fortfarande finns någon som förnekar sambandet mellan euron och eurokrisen har jag tagit fram ett
diagram som illustrerar hur PIIGS-ländernas bytesbalans har utvecklats sedan euron infördes.
Den hälsosamme ekonomisten, 27 November 2011

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The ongoing discussions of economic policy and principles since the Great Recession
Again and again one sees people with seemingly sterling credentials
— Federal Reserve presidents, economists with Ph.D.s from good schools —
propounding views that I thought were obvious fallacies, at least to anyone who had studied the subject a bit
Paul Krugman, 11 February 2012

Maybe the idea is that the burst bubble reduces demand, and hence leads to lower production.
But at that point you’re into a Keynesian world of deficient demand, and you should be talking about ways to close the gap,
not accepting it as a fact of life.

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Economic theory discredited


Eurozone Problems
I’m giving a talk in Paris tomorrow. Here are some slides;
they won’t come as a shock to regular readers, but it may be useful to see them all in one place
First, I make the case that the overall economic crisis is driven by private debt, not public debt
Paul Krugman, New York Times, 30 January 2012

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Paul Krugman at NYT


De människor som mobbade EU till att anta en gemensam valuta,
de människor som är mobbade både Europa och USA till åtstramning är inte teknokrater.
De är istället djupt opraktiska romantiker.
Så varför drev dessa "teknokrater" på så hårt för euron, och bortsåg från många varningar från ekonomer?
Delvis var det drömmen om ett enat Europa, som kontinenten elit fann så lockande att de viftade undan praktiska invändningar.
Paul Krugman, New York Times, 20 November, 2011

Översättning av Google och Rolf Englund

De saker som de kräver för sina romantiska visioner är ofta grymma, med stora uppoffringar från vanliga arbetare och familjer.
Men faktum kvarstår att dessa visioner drivs av drömmar om hur saker ska vara snarare än av en kall bedömning av hur saker och ting verkligen är.

För att rädda världsekonomin måste vi störta dessa farliga romantiker från sina piedestaler.

Sanningen är att Europas marsch mot en gemensam valuta var från början ett tvivelaktigt projekt enligt varje objektiv ekonomisk analys.
Kontinentens ekonomier var alltför olika för att fungera smidigt med en-storlek-passar-alla penningpolitik, alltför benägna att uppleva "asymmetriska chocker" där vissa länder sjönk medan andra blomstrat. Och till skillnad från amerikanska delstater, ingår inte europeiska länder i en enda nation med en enhetlig budget och en arbetsmarknad binds samman av ett gemensamt språk.

Låt mig peka ut särskilt Europeiska centralbanken (ECB), som är tänkt att vara den ultimata teknokratisk institution, och som har varit särskilt anmärkningsvärd för att ta sin tillflykt till fantasier medan saker går fel. Förra året till exempel, bekräftade banken sin övertygelse om "the confidence fairy" - det vill säga tron att budgetnedskärningar i en deprimerad ekonomi faktiskt kommer att främja en exåansion genom att öka företagens och konsumenternas förtroende. Konstigt att säga, har det inte hänt någonstans.

Så är jag mot teknokrater? Inte alls. Jag gillar teknokrater - teknokrater är vänner till mig. Och vi behöver teknisk kompetens för att hantera våra ekonomiska problem.

Men vår diskurs snedvrids av ideologer och önsketänkande tänkare - tråkiga, grymma romantiker - som låtsas vara teknokrater.

Läs den engelska texten här


Hela Europa riskerar att få nobben när marknaderna öppnar i kväll i Asien.
Vem vill låna ut 80 miljarder till Belgien?
Rubriken på första sidan i Le Soir möter mig på ett dagsbesök i Bryssel,
surrealismens huvudstad där en morgontidning heter ”Kvällen”.
Det mesta verkar vara sig likt. Fast värre. Mycket värre.
Rolf Gustavsson, SvD 27 november 2011


Slutet för den nuvarande valutaunionen. Inte det mest sannolika, men ändå inget orealistiskt perspektiv.
Euroländerna kan bli tvungna att bryta mot reglerna för att valuta­unionen ska överleva.
EU-fördraget gör klart att Europeiska centralbanken, ECB, inte får låna ut pengar till medlemsstater.
I en verklig nödsituation är ändå detta vad som måste göras.
Johan Schück, DN 25/11 2011

Inget kan rädda Grekland
Johan Schück, DN 2011-09-16


Eurojättar varnar för total valutakollaps
Ekot 25/11, 18:35, med fin bild


Banker förbereder sig för eurokollaps
Ekot 25/11 2011, 10:47, med fin bild


Greker tömmer sina bankkonton
Under oktober plockade spararna ut omkring 10 miljarder euro, drygt 90 miljarder kronor.
DI 2011-11-03 13:13

Kontanter, guldmynt och placeringar utomlands lockar mer än pengar på banken.

Från att ha tömts på upp till 2 miljarder euro, cirka 18 miljarder kronor, per månad den senaste tiden har uttagen från de grekiska bankerna accelererat.
Under oktober försvann motsvarande cirka 90 miljarder kronor, cirka 6 procent av tillgångarna, från de grekiska bankerna, rapporterar FinancialTimes.

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Eurodämmerung
Nobelpristagaren Paul Krugman förutspår i en krönika i The New York Times
ett sammanbrott i eurosamarbetet. Krugman räknar med att det blir ett nej i den grekiska folkomröstningen
och att de italienska räntorna redan är på nivåer som på sikt kommer att förorsaka bankrutt.
DI/TT 1 november 2011

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Götterdämmerung är tyska för Ragnarök (ordagrant "Gudaskymning").

Ragnarök ("Gudarnas sista öde" refererar inom nordisk mytologi till en serie händelser, inklusive en avgörande strid, som förutspås leda till jordens undergång.


106 miljarder euro
Tyvärr är invändningen att EU-ledarna löste alla problem
utom hur allt ska gå till och var pengarna ska komma ifrån.
DN-ledare 28 oktober 2011

Europas största banker tvingas att öka kapitaltäckningen, ett mått på risknivån, från 4 till 9 procent. De har fram till sommaren på sig.

För att undvika att de smiter undan genom att krympa tillgångarna är beloppet som ska skjutas till fastställt.

Totalsumman 106 miljarder euro för rekapitalisering av bankerna reser ändå frågetecken. Nästan hälften är redan täckt av olika länders räddningspaket. EU:s stresstester har tidigare konsekvent underskattat bankernas brister, och IMF tror att det behövs 200 miljarder.

Hur det mycket större Italien ska botas är nästa mysterium.

Toppmötets svajigaste resultat gäller dock räddningsfonden EFSF, som ska skydda övriga skuldstater från grekisk smitta.
Tysklands regering har lovat väljarna att inte höja skattebetalarnas insats.
Dilemmats så kallade lösning är att låta EFSF garantera en viss procent av exempelvis nya italienska obligationslån. Dessutom ska hugade investerare från Kina till Norge lockas att satsa sina överskott.

Vips blir fondens ”effekt” fyra fem gånger större. Detaljerna tar, föga förvånande, veckor att reda ut. Konstruktionen är i bästa fall ett teoretiskt försök, i sämsta fall ett nytt risktyngt finansinstrument.

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Dagens Nyheter

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Nyheter


Angela Merkels och Nicolas Sarkozys modell, som Jacques Delors kallar Merkozy,
är ett mellanstatligt organiserat Europa dominerat av Tyskland och Frankrike.

Och för Merkozy handlar det i dag framför allt om en sak, att rädda euron.
Rolf Gustavsson SvD 23 oktober 2011

Till varje pris? Är de till och med beredda att offra gemenskapen i EU för att rädda valutan euron?

Rubriken på Philippe Ricards analys i Le Monde var illavarslande, om än försett med ett frågetecken: Europeiska Unionen är död – leve eurozonen?

...

Mercosur is an economic and political agreement among Argentina, Brazil, Paraguay and Uruguay. Founded in 1991 by the Treaty of Asunción
Its purpose is to promote free trade and the fluid movement of goods, people, and currency.
Wikipedia

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Nyheter


Det finns ingen lösning, bra eller dålig, på eurokrisen
Även om man, på något sätt, skulle kunna ta hand om medlemsländernas skulder så återstår
arbetslöshet och stagnation förorsakat av felaktigt kostnadsläge
Rolf Englund blog 21 oktober 2011


Det är obegripligt hur EU kunde blunda för att hela Europa inte är som Tyskland.
Aten och Berlin är två helt skilda världar.
Richard Swartz, Kolumn DN 1 okt 2011


War Game: Nu börjar eurokrisen bli riktigt spännande
Rolf Englund blog 25 sept 2011


Spara detta citat för framtida bruk
- Grekland är fast beslutet att uppfylla sina åtaganden. Inga grekiska papper kommer någonsin att sakna täckning, säger Greklands finansminister Evangelos Venizelos SvD/TT-Reuters 25 Sept 2011

För att lugna marknaden och för ha verktyg att hindra krisen från att spåra ur totalt arbetar Europas ledare på ett sätt att
förstärka räddningsfonden EFSF. Euroländerna beslutade senast i somras att förstärka fonden till 440 miljarder euro.
Det beslutet har ännu inte godkänts av alla euroländer, men för att fonden ska räcka för att vid behov rädda även Italien och Spanien
måste den vara minst 2 000 miljarder, enligt analytiker.

Kommentar av Rolf Englund:
2 000 miljarder, euro alltså, är i kronor 18 600 miljarder.
Det låter som väldigt mycket.

Euro-krisen
Greklands fortsatta kris får världen att skaka
Tre scenarier för Grekland
Marianne Björklund, DN 24 sept 2011

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Nyheter


IMF-chefen varnar för kollaps
"Med mörka moln över Europa och med stor osäkerhet i USA
riskerar vi en kollaps i den globala efterfrågan", säger IMF-chefen Christine Lagarde.
Den globala ekonomin behöver en inkluderande, jobbskapande, tillväxt Det sade IMF-chefen Christine Lagarde på fredagskvällen, enligt ett anförande som publicerats på IMF:s webplats.
DI 24 sept 2011

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ett anförande som publicerats på IMF:s webplats

SOU 2002:16, Stabiliseringspolitik i valutaunionen, slutbetänkande samt underlagsrapporter
Svenskt Näringsliv får härmed avge följande synpunkter på rubricerat betänkande.
Svenskt Näringsliv avstyrker det föreslagna finanspolitiska rådet.
Det finns inget behov för ett sådant eftersom vi anser att aktiv stabiliseringspolitik inte skall bedrivas.

Läs mer här

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Vilken väg tar euron?
Therese Larsson, SvD Näringsliv 24 sept 2011

Scenario 6: Status Quo – allt fortsätter som vanligt

Ett annat, inte helt omöjligt, scenario är att allt fortsätter som hittills. Politikerna fortsätter att hitta ad-hoc lösningar jagade av marknaden. Grekland kämpar på, BNP fortsätter att rasa, arbetslösheten att stiga och landet tvingas till en lång och plågsam interndevalvering med social oro som följd.

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Det minst dåliga scenariot är att krisländerna i södra Europa intensifierar sina budgetsaneringar
och att det i kombination med nuvarande EU-stöd får deras statsskuldräntor att falla.
I så fall kan länderna börja minska sina statsskulder och klara sig utan nya stöd.
Tyvärr är detta inte en sannolik utveckling
.
Lars Calmfors, DN 13 September 2011

Det andra huvudscenariot är att ett växande väljarmotstånd mot ytterligare stödinsatser i Tyskland och på andra håll leder till ett abrupt slut för dessa.
Den troliga följden blir oordnade betalningsinställelser i ett eller flera av krisländerna.

Långivarna gör då stora kapitalförluster på sina innehav av statspapper från dessa länder.
En rad banker går i så fall omkull, vilket förmodligen utlöser en ny kraftig recession.

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Charles Gave beskriver situationen i Grekland som ett ”lågintensivt inbördeskrig”.
”Och det kommer att sprida sig till Frankrike, Portugal och Spanien och andra länder”
”Många känner sig lurade. Eurokraterna försökte genomföra en politisk kupp när euron infördes, i syfte att skapa en europeisk stat.
Men befolkningen i Europa vill inte ha en sådan stat. Nu ser vi motreaktionen”
DI 23 sept 2011

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Freden

Federalism

News


”För att rädda Europa måste vi döda euron”, säger analysräven Charles Gave
Charles Gave är en av grundarna till den Hongkongbaserade analysfirman Gavekal och har följt finansmarknaderna i mer än 40 år.
Enligt Charles Gave måste euron avskaffas som gemensam valuta. Men vägen ur ut valutasamarbetet kan bli smärtsam, tror han.
”Kaos är det värsta, men mest troliga scenariot. Politikerna har varit inkompetenta i tio år, så varför skulle de plötsligt vara kompetenta nu?”
DI 22 sept 2011

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Konstruktionen kring euron har inte varit fel
Euron är numera kärnan i det europeiska samarbetet.
Utan den reduceras samarbetet till ett frihandelsområde, mindre långtgående och mindre betydelsefullt än
den politiska union som med en gemensam valuta möter globaliseringens utmaningar.
Jan Björklund, Birgitta Ohlsson, Carl B Hamilton och Olle Schmidt, SvD Brännpunkt, 9 september 2011


Den gemensamma valutan ska räddas genom exit för de stater som gör euron sjuk. I den bästa av världar kan detta ske under ordnande former.
I verkligheten är det lätt att se ett kaotiskt förlopp som inte bara skulle slå hårdare mot ett land som Grekland,
utan som i den tätt tvinnade ekonomin skulle spridas vidare likt ringar på vattnet.
Claes Arvidsson, SvDs ledarsida 9 september 2011


George Soros has warned Europe's debt crisis risks triggering another Great Depression unless euro zone leaders adopt a series of radical policy measures, including the creation of a common treasury.
Soros, in an article for the New York Review of Books and Reuters.com, says policymakers must prepare for the possibility that Greece, Portugal and perhaps Ireland will have to default and leave the euro zone.

Does the Euro Have a Future?
policymakers must prepare for the possibility that Greece, Portugal and perhaps Ireland will have to default and leave the euro zone.
radical policy measures, including the creation of a common treasury
George Soros, New York Review of Books, October 13, 2011

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News


By joining the euro, Greece and other peripheral nations lost much more than control over interest and exchange rates.
They also lost the capacity to issue debt in their own currencies.
Just as bad, they have lost the discretion to apply counter-cyclical budget policies.
The extreme mix of deflationary measures they have been forced into to regain competitiveness means t
hey may not even be able to use automatic fiscal stabilisers to fight economic contraction
.
Jeremy Warner, DT, 14 Sep 2011

A self-feeding spiral of economic destruction has established itself.

As a result, they are being progressively forced into default, a fate hitherto reserved only for developing and third world nations.

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News


Mrs Merkel told the RBB radio station:
"The top priority is to avoid an uncontrolled insolvency, because that would not just affect Greece
At the weekend Economy Minister Philipp Roesler suggested that Greece would need an "orderly default"
BBC 13 September 2011

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News


After Stark
Moody’s is likely to downgrade BNP Paribas, Crédit Agricole and Société Générale today
Le Monde: ECB buying bonds in order to avoid an explosion of the eurozone.

Eurointelligence Daily Briefing 12/9 2011


"Through stupidity, romanticism and goodness knows what, the experts — chancellors and economists — supported the idea of a currency
that has no chance of working. Even its predecessor, the Exchange Rate Mechanism, collapsed."
Tim Martin CNBC 9 September 2011

"I was one of the main spokesmen against the euro eleven years ago and said then it would not survive
… because if you want a currency you have to have a government," Tim Martin, chairman of UK pub restaurant chain JD Wetherspoon.

He added that history had shown that currencies without governments fail.

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Alla valutaunioner i historien har antingen lett till en stat eller spruckit.
Varför skulle EMU vara så annorlunda?

Anders Lindberg, Hässelby, SvD Synpunkt 14/8 2003

*

- To Be, Or Not To Be A Country - that is the question
Sir Oliver Wright, GCMG, DCVO, DSC
The European Journal, April 2001
Sir Oliver Wright was British ambassador to West Germany 1975-81 and to the USA 1982-86.


“Perhaps future historians will consider Maastricht a decisive step towards the emergence of a stable, European-wide power. Yet there is another, darker possibility ... The effort to bind states together may lead, instead, to a huge increase in frictions among them. If so, the event would meet the classical definition of tragedy: hubris (arrogance), ate (folly); nemesis (destruction).”

I wrote the above in the Financial Times almost 20 years ago.

My fears are coming true.
This crisis has done more than demonstrate that the initial design of the eurozone was defective, as most intelligent analysts then knew;
it has also revealed – and, in the process, exacerbated – a fundamental lack of trust, let alone sense of shared identity,
among the peoples locked together in what has become a marriage of inconvenience.
Martin Wolf, FT, 13 September 2011

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Freden

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News


The only way to save the eurozone from collapse
The eurozone may be only weeks away from a financial collapse.
Through a combination of short-sightedness and financial illiteracy, the European Council has now put itself in a position where it desperately needs Eurobond
Wolfgang Münchau, FT 13 November 2011

The cause of the panic attack was the European Council’s decision on October 26 to renegotiate the private sector participation of Greek sovereign debt holders.
With that decision European leaders destroyed what was left of a functioning eurozone government bond market. Investors interpreted it – correctly in my view – as a precedent.

They then dumped their Portuguese, Spanish, Italian and even French government bonds.

The introduction of a Eurobond will require a broader and deeper economic government that extends well beyond the notion of a fiscal union.

But it might not happen. The crisis is moving too fast. We may well find that the Germans, the Dutch and the Finns are not ready for this.
Their political leaders have certainly not prepared the ground for such a momentous decision.

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Eurobonds


Europe is now leveraging for a catastrophe
A leveraged EFSF is attractive to politicians for the same reason that subprime mortgages once appeared attractive to borrowers.
- the crisis ultimately vindicates the German constitutional court’s conservatism in its definition of what constitutes a functioning democracy
Wolfgang Münchau, FT October 23, 2011

The way eurozone leaders have been handling the crisis ultimately vindicates the German constitutional court’s conservatism in its definition of what constitutes a functioning democracy.

Policy co-ordination among heads of state is both undemocratic and ineffective.

A monetary union may require more than just a eurobond and a small fiscal union. It may require a formal, if partial, transfer of sovereignty to the centre – that includes the rights to levy certain taxes, impose regulation in product, labour and financial markets, and to set fiscal rules for member states.

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German constitutional court

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Unless there is a dramatic and simultaneous shift in the politics of Italy, Germany and the European Central Bank,
the collapse of the eurozone is all but certain. Neither Italy, Spain, Portugal, Ireland nor Greece will be able to maintain their membership in the eurozone,
and maintain sustainability of their sovereign debt at current interest rate spreads.
Wolfgang Munchau, Eurointelligence 9 September 2011

The author is president of Eurointelligence, and an associate editor of the Financial Times.

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Konstruktionen kring euron har inte varit fel
Euron är numera kärnan i det europeiska samarbetet.
Utan den reduceras samarbetet till ett frihandelsområde, mindre långtgående och mindre betydelsefullt än
den politiska union som med en gemensam valuta möter globaliseringens utmaningar.
Jan Björklund, Birgitta Ohlsson, Carl B Hamilton och Olle Schmidt, SvD Brännpunkt, 9 september 2011


Den gemensamma valutan ska räddas genom exit för de stater som gör euron sjuk. I den bästa av världar kan detta ske under ordnande former.
I verkligheten är det lätt att se ett kaotiskt förlopp som inte bara skulle slå hårdare mot ett land som Grekland,
utan som i den tätt tvinnade ekonomin skulle spridas vidare likt ringar på vattnet.
Claes Arvidsson, SvDs ledarsida 9 september 2011


The greatest fear is that one of the Continent’s major banks may fail, setting off a financial panic like the one sparked by Lehman’s bankruptcy in September 2008.
European policy makers, determined to avoid such a catastrophe,
are prepared to use hundreds of billions of euros of bailout money to prevent any major bank from failing.

New York Times, 7 september 2011

“This crisis has the potential to be a lot worse than Lehman Brothers,” said George Soros,
the hedge fund investor, citing the lack of an authoritative pan-European body to handle a banking crisis of this severity.
“That is why the problem is so serious. You need a crisis to create the political will for Europe to create such an authority, but there is still no understanding as to what the authority will do.”

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Lender of Last Resort

Lehman Brothers

Gunnar Hökmarks generande förslag om eurokrisen
Rolf Englund blog 7 september 2011


The worst of the euro crisis is yet to come
The most disturbing aspect about the eurozone right now is that
every crisis resolution strategy depends on a moderately strong economic recovery.
Wolfgang Münchau, FT September 4, 2011

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There is no provision in any European Treaty for a country to leave the eurozone.
That was deliberate.
It was intended to make it clear that the eurozone was forever – like the Soviet Union and the Holy Roman Empire.
Roger Bootle, Daily Telegraph 5 September 2011

But everywhere you hear the same refrain: how do you break up a monetary union? And if it cannot be broken up then surely it must hold together.

But in fact you cannot legislate for changing economic conditions or changes in peoples' attitudes.

For an exit from the euro by a single member country, or the split of the euro into two or more parts, not to be extremely messy, you need planning and careful forethought, requiring discussion and the exploration of possibilities.

Yet, to avoid precipitating a banking collapse, never mind other sorts of economic dislocation, you need absolute secrecy and surprise. After all, if people thought that such a change was coming they would try to withdraw money from vulnerable countries' banks and this could prompt a banking collapse and a serious economic crisis.

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Nu brådskar det att avveckla euron under ordnade former.
Alternativet kan bli att valutaunionen upplöses i ekonomiskt, socialt och politiskt kaos.
Jonas Sjöstedt, SvD Brännpunkt 2 september 2011

Rome, Habsburg and the European Union


Europe will not slide back into recession, and the euro remains "strong and resilient"
the president of the European Commission Barro said.
BBC 5 Septgember 2011

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Låt Grekland lämna euron
Italiens tillväxt är bland världens lägsta.
Under det senaste decenniet är det av samtliga världens länder bara Zimbabwe och Haiti som har haft lägre tillväxt.
Adam Cwejman, förbundsordförande Liberala ungdomsförbundet, SvD Brännpunkt 3 september 2011


Nu brådskar det att avveckla euron under ordnade former.
Alternativet kan bli att valutaunionen upplöses i ekonomiskt, socialt och politiskt kaos.
Jonas Sjöstedt, SvD Brännpunkt 2 september 2011


Even a joint bond might not save the euro
Two months ago, it was said the worst things that could happen were that the crisis would extend to Italy and Spain; and the economic recovery would stall.
Now the crisis has extended to Italy and Spain, and growth in the eurozone economy has slowed.
Wolfgang Münchau, FT August 28 2011

The eurozone bond is not something you can introduce in an emergency meeting at midnight tomorrow.
It requires new institutions. Eurobonds would require a change in European treaties. It would also require changes in various national constitutions.

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Eurobonds

We are near to the end of the eurozone in its present form.
Tim Congdon, Daily Telegraph 28 August 2011

The latest news from Greece is troubling. Its banks are so short of cash they have to borrow on an emergency basis from the European Central Bank, even though tens of billions of euros of special assistance has already been directed to its economy.

No one can predict the exact form or scale of the coming eurozone turmoil. However, the public debate in Germany about the cost of eurozone bail-outs suggests that a fundamental reappraisal of the single currency is under way.

We must be ready for a full-scale break-up of the monetary union.

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Tim Congdon

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Today's European leaders can't do anything about the original sin:
Creating a single currency without accompanying institutions of governance and fiscal policy.

But they repeatedly convene summits that do just enough to prevent catastrophe for another month and not enough to fix underlying problems
— and then hope the European Central Bank will rush to the rescue.
David Wessel, WSJ 25 August 2011

http://online.wsj.com/article/SB10001424053111904009304576528114076411924.html?mod=WSJEUROPE_hps_MIDDLEFourthNews

There are no cheap ways to speed the healing of housing.
Nearly every option is unfair, especially to those who didn't over-borrow.
Every big option has big drawbacks.
David Wessel, WSJ 25 August 2011

There's a lively debate about the merits of cutting government spending immediately,
but little evidence that doing so would boost U.S. growth.
"The idea that fiscal austerity triggers faster growth in the short term finds little support in the data," the IMFconcluded after a review of evidence
This is particularly true for today's U.S. economy. Interest rates can't fall much lower to offset government spending cuts.
Exports aren't as big a force as in smaller economies and thus can't compensate as much.
David Wessel, WSJ 25 August 2011

Johan Norberg varnar
Skuldkrisen i Europa är så allvarlig att vissa stater riskerar att helt kollapsa
23 Augusti 2011


Kunde vi rulla tillbaka Sovjetunionen skall vi väl kunna rulla tillbaka Europeiska Unionen
Klicka här

If the region's banks remain under pressure, however, the countries at the euro zone's core, in particular Germany and France,
will be left with no choice but to embrace the deeper fiscal union that they have rejected for more than a year.
If they don't, the common currency could collapse, thrusting the Continent into political and economic chaos.
Wall Street Journal, 19 August 2011

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In the normally quiet month of August we have seen these difficulties escalate so rapidly that little now stands between Europe and a decade of low growth, high unemployment, industrial decline and popular discontent, the nearest modern economic parallel for which is the 1930s.
It is an already lethal cocktail that becomes more deadly when mixed inside the euro, a currency created without the resilience to withstand difficult times and which has no structure for effective decision-making.
Gordon Brown, Britain’s prime minister from 2007 to 2010 and chancellor of the Exchequer from 1997 to 2007, New York Times 18 August 2011

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Readers have asked for a quick verdict on the Merkel-Sarkozy deal.
I have nothing to say. There was no deal.
No eurobonds, no fiscal union, no boost to the EFSF rescue fund, no change of policy on the ECB’s mandate. Zilch.
Ambrose Evans-Pritchard, August 17th, 2011

It was a vacuous restatement of clauses that already exist in the Lisbon Treaty, or an attempt to pass off retreads such as the Tobin Tax and harmonization of the corporate tax base as if they were new.

More fiscal austerity for laggards, without even the Marshall Plan we had on July 21. It is all a step backwards into the black hole.

The ECB can hold the line for now by purchasing €20bn of Spanish and Italian bonds each week. But once the ECB nears €150bn or so, the markets will brace for the next crisis.

Italy alone has to raise or roll-over €68bn by the end of September. You can be sure that a great number of investors will take advantage of ECB intervention between now and then to lighten their holdings, and switch the risk to eurozone taxpayers. The ECB may have to buy at least €100bn of Italian bonds alone by late September to cap the 10-year yield at 5pc.

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Italy

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Very Import Articles


French economist Jacques Delpla, who co-authored a paper proposing how eurobonds could work,
said the euro faced collapse unless leaders went beyond an agreement reached July 21
"If we just stick to the July 21 agreement then, before the end of the year,
there will be no euro zone, unless the ECB buys everything that's problematic."
CNBC 16 August 2011

See also: Trichet


The leaders of Germany and France can agree to fiscal fusion and an EMU debt union,
entailing treaty changes and a constitutional revolution.
Ambrose Evans-Pritchard, Daily Telegraph 14 Aug 2011
Nice pic of Sarkozly and Merkel

This implies the emasculation of Europe's historic nation states.

They can tear up the mandate of European Central Bank and order Frankfurt to go nuclear with €2 trillion of `unsterilized' bond purchases until the M3 money supply in Italy, Spain, Portugal, Ireland, and Greece stops contracting

Or they can try to muddle through with their usual mix of half-measures and bluster. This will lead to a rapid disintegration of monetary union and a banking collapse.

It risks a repeat of 1931 if executed badly, as it most likely would be.

What Italy has is a growth problem, rooted in currency misalignment. Having lost over 40pc in unit labour cost competitiveness against Germany since EMU, it is trapped in slump. Per capital income has contracted for a decade.

So why is Europe forcing Italy to tighten drastically and run an even bigger primary surplus within two years, and doing so just as the world flirts with a double-dip downturn?

The path of least resistance for Angela Merkel and Nicolas Sarkozy on Tuesday is surely to force the ECB to change course, by treaty power if necessary.
Or kiss goodbye to the Kanzleramt, the Elysee, and monetary union.

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Den nya beskyllningen mot Tea party-rörelsen är att den förstår samhällsekonomi i termer av hushållsekonomi.
Experterna skrattar åt denna naivitet
Poirier Martinsson, SvDs ledarsida 15 augusti 2011


The Franco-German plan is fundamentally flawed because it does nothing to address
the widening democratic deficit that has bedeviled the currency area since its inception.
Paul Hannon, Wall Street Journal 23 August 2011

If German Chancellor Angela Merkel and French President Nicolas Sarkozy get their wa y— and they almost always do — the 17 nations that use the euro will more closely coordinate their economic policies, and in particular their budgets.

This is a long overdue effort to mirror and complement the common monetary policy that has been in place since the launch of the euro in 1999.

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A new deutsche mark
Something terrible may happen,
but it's so terrible we can't even imagine what the consequences might be

Exactly how bad would things get if a significant number of the euro zone's members had to withdraw from the bloc and write off a significant portion of their debts?
Paul Hannon, Wall Street Journal 16 August 2011

Germany, Europe's strongest economy. In the wake of a break-up, it would be like Switzerland on steroids

A new deutsche mark, or a northern euro with France, the Netherlands, Belgium, Luxembourg, Austria and Finland attached—would appreciate very sharply against the now many more currencies circulating in Europe, and indeed any other currency. Which might make the Swiss happy.

Assuming the northern euro was the choice, would France, the Netherlands or anywhere else be able to endure a super-strong currency?

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More Very Import Articles


The risks of what Sir Mervyn King, the Governor of the Bank of England, on Wednesday referred to as
the “unimaginable and unmentionable”, by which he meant a disorderly breakdown of the euro,
are high and getting worse.
Jeremy Warner, Daily Telegraph 10 Aug 2011

At his Inflation Report press conference yesterday, Sir Mervyn said:
“2008 was not the end of the crisis. It was merely one stage in a bigger crisis. We are going through the next stage now.”

It will be years before the world economy cures itself of the debt overhang.

Deprived of the remedy of currency correction, and with no corresponding mechanisms to address the imbalances, creditor and debtor nations are ripping each other apart.

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Detta är skälen till att jag betraktar euron och EMU som ett felkonstruerat system.
Det som nu händer var väntat av oss euro-motståndare, valutarisken byttes ut mot en kreditrisk. Det var också anledningen till engagemanget på motståndssidan i den svenska euro-omröstningen, även om vi inte såg precis hur illa det skulle gå.
Villy Bergström har varit vice Riksbankschef. Han är socialdemokrat, Avanza bank 8 augusti 2011

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Slithering to the wrong kind of union
This time the consequence would be to threaten the collapse of the most successful project of economic integration in the history of mankind.
Otmar Issing, Financial Times, August 8, 2011


Om EMU:s föregångare, den s k Werner-planen
ur boken "Vår framtid i Europa" av Jan Brännström, Rolf Englund och Claes-Henric Siven
1971, för 40 år sedan, tänk vad tiden går

Det förutsätter en ändring av Romfördraget vilket givetvis förutsätter enighet mellan medlemsländerna. Det är knappast troligt att rapportens slutmål kommer att kunna realiseras. Allt för många sakliga skäl talar mot de föreslagna åtgärderna ...

Kravet på för evigt fixerade paritetskurser är inte realistiskt ... En låsning av valutakurserna innebär att prissystemet inte fullständigt kan fylla sin uppgift som koordinationsinstrument."

Läs mer här


Here is the statement by eurozone leaders.
http://www.consilium.europa.eu/

The agreement included new aid for Greece that embraced bondholders,
prompting Fitch Ratings to say it will put a default rating on Greek debt.
Bloomberg 22 July 2011

The risk is that the package will follow the pattern of previous agreements and eventually disappoint markets.

Leaders declined to increase the 440 billion euro ($634 billion) fund, prompting economists from Citigroup to Goldman Sachs
to question whether it’s big enough to insulate Spain and Italy from contagion.

“The European Financial Stability Facility has gone from being a single-barreled gun to a Gatling gun, but with the same amount of ammo,” Willem Buiter, chief economist at Citigroup Inc. told Bloomberg Television

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Reaktionen auf Griechenland-Paket
Der Spiegel 22 Juli 2011

Hier lesen


One step back from the abyss
Will it be enough? Of course not.
Stephanie Flanders, BBC Economics editor, 22 July 2011

The moment of no return, in any currency crisis, doesn't come when governments run out of options. It comes when governments run out of options that are politically possible - or credible. Think of the UK's own ERM crisis /1992/: the game was up when Norman Lamont raised interest rates to 15%to defend the currency peg, in the middle of the recession. Everyone knew that wouldn't wash.

nejtillemu.com/normanlamont

There is no word, yet, on whether the EFSF is going to get any bigger. It's a bit feeble to announce a major new tool for confronting market contagion, without saying explicitly that you are giving it more money as well.

Oklart var pengarna till Grekland ska tas ifrån
Den totala lånekapaciteten i EFSF ligger på 250 miljarder. Men både Irland och Portugal har redan fått lån därifrån och med det nya lånet till Grekland så är pengarna i fonden i praktiken slut.
Ekot 22 juli 2011

As the German economist, Christian Schultze, told me for my television bulletin on Thursday, Gemany is not ready for collective European bonds - or any big leap towards a full fledged Federal union. If that is really what saving the Euro requires, as George Osborne and Ed Balls have both suggested, then "the euro has a big problem"

You would think that Mr Osborne might have more sympathy for the Germans' reluctance to sanction a massive transfer of power from sovereign governments to the centre; a transfer which, by all accounts, would be expressly against the wishes of most of their citizens.

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So what's the EFSF then?
Emma Rowley, Daily Telegraph 22 July 2011

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Banks will reduce Greece’s debt by 13.5 billion euros by exchanging bonds and “potentially much more” through a buyback program still to be outlined by governments, said the Institute of International Finance, a Washington-based group representing banks.

Investors will have the option to exchange existing Greek debt into four instruments. Three will be fully collateralized by AAA-rated zero-coupon securities and have a 30-year maturity, and the fourth will be for 15 years and partially collateralized by funds held in an escrow account.

Crisis managers are aiming for a 90 percent participation rate from Greek bondholders

More at Bloomberg

Banks across Europe are braced to take as much as 17 billion euro ($24.5 billion) of
writedowns on their holdings of Greek sovereign debt within a matter of days.
Auditors have argued that the banks must take the hits now, given that almost
any scenario for dealing with Greek sovereign restructuring will impair the value of their bond holdings.

Financial Times via CNBC 22 July 2011, 12:45 AM ET

Up until now, most banks have not written down the value of the bulk of their Greek sovereign bonds. Bonds can be held in two buckets on banks’ balance sheets: trading books, which routinely mark the value of bonds to market, only hold a fraction of banks’ sovereign bond investments; the balance is in so-called banking books, which are routinely held to maturity and are therefore not traditionally marked to market, ignoring plunges in bond values as a result.

The current risk weightings for sovereign bonds under the Basel II framework for the standardised approach - used by many smaller banks - give a zero risk weighting to instruments with a AAA to a AA- credit rating. At the moment, 31 nations are rated in this bracket by Standard & Poor's, including Ireland and Spain. Italy has a A+ and Portugal carries a A- credit rating, which under the Basel rules attracts a 20% risk weighting

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Imposing capital requirements is easy, but what is capital and what are real risk assets?
Basel III wants to strengthen banks capital ratios, but seems rather slack regarding what is a risky asset.
Basel III, by categorizing sovereign debt as risk-free, is doing precisely the same thing. Except instead of the $10 trillion U.S. mortgage market, now we’re talking about the more-than $50 trillion of sovereign debt worldwide
zerohedge

Mark to market


"Det gäller bara Grekland", Mycket fiffigt,
Too clever by half, men allt var fel från början

Rolf Englund blog 22 juli 2011


Eurozone agrees new Greek bailout
In Germany, Commerzbank climbed almost 9% and Deutsche Bank rose 3.6%,
while in France Societe Generale and Credit Agricole gained about 6%.

German and French banks are the biggest holders of Greek debt.
BBC 21 July 2011


– Det är klart att när det har varit så mycket osäkerhet och så mycket problem i euroområdet så
har det ju inte varit en nackdel att stå utanför det.
Sedan är det alltid bra om Sverige sitter med vid borden.
Men euroländerna betalar ju nu ett högt pris för att de här systemen inte har fungerat bra.
DN/TT 21 juli 2012


It appears that the eurozone is forcing Greece into a selective default.
As part of such a package, short-term Greek debt will be more or less forcibly converted into long-term debt.
But the problem of the eurozone is not Greece, or some other small country on its periphery.
The existential danger is the rise in market interest rates of Italy and Spain, two large countries in the eurozone’s core.

Wolfgang Münchau, FT, 21 July 2011, Updated at 15.00 London time

This would be a default, the first by a western industrialised country in a generation.
I am not quite sure how it is possible for the European Central Bank to agree to this, or to all of this.

But I will surely be intrigued to hear how Jean-Claude Trichet will manage to be consistent with what he said a few days ago.

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How do the credit ratings agencies decide whether a Greek restructuring plan constitutes a default?
Who are the decision makers? And what criteria do they use to make such a decision?

WSJ, JULY 21, 2011, 1:30 P.M. ET


1937! So demand will be depressed in both crisis and non-crisis economies;
this will lead to a vigorous recovery through … what?
Paul Krugman, July 21, 2011, 11:51 AM


STATEMENT BY THE HEADS OF STATE OR GOVERNMENT OF THE EURO AREA AND EU INSTITUTIONS
A draft of the proposal document has been leaked from the eurozone summit in Brussels
Daily Telegraph 21 July 2011, 2:40PM BST


Preliminärt utkast från torsdagens EU-toppmöte som Reuters tagit del av.
Dagens IndustriTT 2011-07-21 15:04

Greklands lån från EFSF att förlängas till åtminstone 15 år, från dagens 7,5 år.
Räntan för de nya lånen från EFSF kommer att vara kring 3,5 procent jämfört med dagens kring 4,5 procent.

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While Merkel and Sarkozy were all smiles for the photographers when they met in Berlin last night the French president told his confidents what he really thinks of the German chancellor.
“The only ones, who totally lack all solidarity, are the Germans. The German egotism is criminal. It reinforces the crisis”,
he said according to Le canard enchainé, the always well informed French satirical weekly.

But Sarkozy also hit out at Jean-Claude Trichet’s refusal to accept any Greek government bonds should the summit solution lead to a selective default or a default.
Trichet is taking a radical position which according to Sarkozy is an easy thing to do if you are preparing to leave the scene for retirement.

“Trichet’s strategy is Belgian roulette”, he said according to Le canard enchainé.
“It is Russian roulette when there is one bullet in the revolver. It is Belgian roulette when all the bullets are there.”

Eurointelligence 21 July 2011


The accord between the two most powerful states in the euro zone
will be presented to a crisis summit in Brussels on Thursday starting at 1100 GMT
Reuters 21 July,12:46am EDT


Germany and France reach Greek accord
Germany and France appeared to settle their differences late on Wednesday
Financial Times, July 21 2011,12:03 am

No immediate details were available but Steffen Seibert, a spokesman for Angela Merkel, the German chancellor, said “a common German-French position” had been agreed.

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Merkel and Sarkozy “listened” to the views of Trichet, the statement said
without saying whether Trichet, who opposes any Greek default, shares their agreed stance.
Bloomberg, July 21, 2011 4:00 AM GMT+0200


Time is running out for salvaging Greece and, beyond it, Europe’s shared currency, the euro.
Thursday’s emergency summit meeting looms as a Lehman Brothers moment.
New York Times editorial 20 July 2011

If Europe’s leaders fail to extricate Greece from its current unsustainable debt-servicing obligations — by lowering interest rates and lengthening maturities at a minimum — the market reaction, for all of Europe, may be unforgiving, and uncontainable as investors conclude that no European sovereign debt is safe from possible default.

Chancellor Angela Merkel of Germany says bank creditors must first agree to a partial write-down of their loans to Greece. That would certainly be fair. But there’s no time for that fight right now

France’s president, Nicolas Sarkozy, has argued for swapping some of the Greek debt held by French banks for longer maturities. That offers some relief to the French banks but none to Greece, and rating agencies would likely label it partial default.

No solution is possible unless Chancellor Merkel steps back from her unrealistic insistence that Greece’s bank creditors first bear some of the cost of any debt restructuring.

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Euroledarna rådvilla som nakna kejsare
Ambrose Evans-Pritchard
Rolf Englund blog 20 juli 2011, 22:35


With Italian and Spanish debt yields ever higher, Thursday’s emergency summit offers perhaps the last chance to address it.
If a credible and comprehensive plan to do so does not result, the hour of the euro may well have passed.
FT, Lex, July 20, 2011 12:05 pm

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In an added sign of mounting anxiety ahead of a European Union summit meeting on Thursday,
borrowing from the European Central Bank rose sharply Tuesday,
indicating that many banks were having trouble raising money on open markets.

New York Times 20 July 2011

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Ingen bankskatt inom EU
Ekot 21 juli 2011, 11:16 (publicerades kl 09:45


It looks like Jean-Claude Trichet and the financial markets have scared the European negotiators,
who will tonight narrow down their list of options into a single proposal for European leaders to rubberstamp at their meeting tomorrow.
the favourite now seems to be a bank levy, imposed in such a way that it would raise the desired €30bn over three years.
Eurointelligence 20 July 2011

But a bank tax, or bank levy, is not going to be easy to implement. For a start, as the FT reminds us in its main story this morning, this cannot be implemented eurozone-wide. This has to be done country-per-country.

Germany’s experience with a bank levy, introduced last year, is not encouraging. The FT quotes a crisis as saying that the plan is unworkable, as it would require all eurozone countries to pass new tax legislation, while it would be impossible to target taxes on specific banks holding Greek bonds.

...

Ny EU-skatt fel lösning på grekiskt slöseri
Karl Sigfrid (M), SvD Brännpunkt 20 juli 2011 kl 04:45

I morgon samlas Europas finansministrar till krismöte om Grekland. På agendan finns ett förslag om att införa en EU-skatt på banker.

Sverige måste tydligt klargöra att detta är helt otänkbart

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Karl Sigfrid arbetade under folkomröstningen om EMU på Medborgare mot EMU.
Wikipedia


French President Nicolas Sarkozy was to meet Merkel on Wednesday in Berlin
U.S. President Barack Obama spoke with Merkel on Tuesday.
CNBC 20 July 2011, 3:32 AM ET

"They agreed that dealing effectively with this crisis is important for sustaining the economic recovery in Europe as well as for the global economy," the White House said in a statement.

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Stephanie Flanders, BBC Economics editor:
But how, exactly, would the euro break up?
Rolf Englund blog 20 juli 2011


European officials are considering a tax on financial institutions
according to an EU paper obtained by Bloomberg News.
The one-page document,

dated July 16, lays out three ways to construct a Greek rescue that includes the involvement of private companies.
Bloomberg, July 19, 2011, 6:23 PM EDT

In addition to a bank tax, “Option Three” could also include a voluntary rollover of Greek debt.

The other two proposals are likely to involve some form of default, the document said.

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A meeting of euro zone leaders on Thursday will not be the final step in the resolution of Greece's debt crisis
"There are other necessary steps to take and not one spectacular result that will solve all problems,"
she /German Chancellor Angela Merkel/ said at a joint news conference with Russian President Dmitry Medvedev.
CNBC 19 July 2011, 9:23 AM ET

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Either a deal is at hand and the town’s leading journalists don’t know about it – or we’re still a long way off with just 48 hours to go.
Financial Times Brussels Blog is betting on the latter July 19, 2011 9:59 am.


The euro zone's strategy for dealing with its members' fiscal problems is in tatters,
and it is far from certain that its leaders will be willing and able to come up with a more successful alternative when they meet Thursday.
If they don't, the currency area won't survive
Wall Street Journal 19 July 2011

So what went wrong? Essentially, from being a series of national crises, the fiscal problems facing some of its members became a crisis of the currency area around about October last year, with the German government's public call for private-sector participation in the resolution of any future crises.

It may have been well intentioned, but it was most certainly naive. Not for the first time, euro-zone policy makers demonstrated their lack of understanding of how financial markets work.

Having assumed that no euro-zone government would ever be allowed to default on its debts, investors quickly concluded that a default would be the only way continued support for weak members could be justified to German tax payers.

They became extremely averse to holding bonds issued by governments that might in the future need help, tipping both Ireland and Portugal over the edge.

In short, it seems unlikely euro-zone leaders will have any answer to the contagion problem.

This means Spain and Italy will lose access to bond market funding, increasing the risk that what started off as a series of fiscal problems affecting a rather small part of the euro-zone economy will end up destroying the entire currency area.

Read more here

This could even involve a country taking a sabbatical from the eurozone
in order to regain the policy flexibility needed to restore competitiveness
Mohamed El-Erian, Pimco, Financial Times 15 July 2011

Peripherals implementing courageous austerity measures have been losing the support of citizens who feel, rightly, that their sacrifices have done little to improve prospects for their country.

For too long, Europe has pretended that the crisis in its periphery was liquidity-driven rather than solvency-induced. Officials dismissed the need for debt restructuring, preferring a bail-out for Greece, Ireland and Portugal that piled new debt on top of an already unsustainable burden.

Europe could opt for greater fiscal union, first de facto and then de jure. Individual countries would sacrifice a significant amount of national sovereignty and fiscal policy discretion. If this is politically impossible to implement, and I suspect it may be, Europe should opt for a restructuring of the debt of the weak peripherals, recapitalising the ECB...

At some stage, this could even involve a country taking a sabbatical from the eurozone – but not the EU - in order to regain the policy flexibility needed to restore competitiveness.

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Det är kostnadsläget, stupid.
Mohamed El-Erian, Pimco, och Tomas Lundin, SvD Näringsliv, är ense
Rolf Englund blog 19 juli 2011


It will help if Angela Merkel and Jean-Claude Trichet end their increasingly pointless squabble over private sector involvement in a Greek debt relief package.
But it will not transform Greece’s prospects for escaping from its debt trap, and it will not touch the heart of the matter
– that Europe faces not a mere liquidity problem in a small, sun-kissed Mediterranean state, but a systemic crisis of its monetary union.
Financial Times editorial 18 July 2011

The risks to the European banking system, with its intricate patterns of multibillion-euro, cross-national loans and investments, are correspondingly high.

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Trichet:
“The governments have been warned, in no uncertain terms and using all possible means. I have said so publicly.
I have explained in detail to the Heads of State and Government and to the finance ministers, on several occasions, that, if a country defaults, we will no longer be able to accept its defaulted government bonds as normal eligible collateral.

...

For Schäuble, the euro crisis is an opportunity to finally realize his plan for a political union.

"Europe is like a bicycle. If you stop it, it will fall over," he said in a keynote speech in Paris in December, quoting the great European Jacques Delors.

Schäuble never believed that a common currency could work without political cooperation. He has been pushing Merkel in this direction behind the scenes, but she has been hesitating and dithering.

Göran Persson: Vi går mot en europeisk federation
Det kanske ligger 30 år bort, men det är inte lång tid när vi talar om den här typen av stora förändringar"
Dagens Industri 14 juli 2011

/Men varje 5-åring vet ju att det är mycket lätt att få stopp på cykeln utan att ramla.
Man bromsar och sätter ner foten.
Likadant är det med EU. Man skall bromsa och sätta ned foten.
Rolf Englund i Nya Wermlands-Tidningen 2002-03-01/

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Officials in Germany's Finance Ministry are analyzing several models for paring down Greece's debt burden to a more tolerable size. This would involve relieving the country of roughly €70 billion (SEK 648 milljarrder) in debt.
Der Spiegel 18 juli 2011

"We are searching through our entire arsenal for a fundamental solution to the problem," said one official close to Finance Minister Wolfgang Schäuble.

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Five years ago, I was among those who argued that the probability of a collapse of the eurozone was close to zero.
Last year, I wrote it was no longer trivial, but small.
I now would put the odds of a break-up of the eurozone at 50:50.
As I argued last week, a eurozone bond is the only solution to the crisis.
Wolfgang Münchau, Financial Times 18 July 2011


Europe’s political leadership has been, and still is, committing a category error in its approach.
This is not a crisis of a small country at the edge of the eurozone. Nor is this a crisis brought on by rating agencies or speculators.
This is a systemic crisis of a monetary union that refuses to be a fiscal union.
Wolfgang Münchau, Financial Times 18 July 2011

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A modest proposal
The eurozone can in theory still be saved, if two sets of conditions are fulfilled;
if the leaders of Germany, Austria, Finland, and the Netherlands accept fiscal union and a common pooling of debt, and can persuade their parliaments and courts to ratify such a revolution.
Given that these sovereign diets will not efface themselves lightly, the wise course is to prepare for an orderly break-up of monetary union.
Ambrose Evans-Pritchard 17 July 2011

Only one option can be orderly. Germany and its satellite economies must withdraw from EMU, leaving the Greco-Latin bloc with the residual euro and the institutions of monetary union. Let us call the legacy group the "Latin Union" in memory of its 19th Century forebear.

Once the dust had settled, it would become clear that Italy, Spain, Ireland, and perhaps Portugal had regained enough competitiveness to hope to grow their way out of debt traps.

The alternative is to impose austerity and debt deflation without offsetting relief – à la grecque – on a string a countries until their polities shatter, and capital flight sets off disorderly EMU exit by the weaker states, with a concomitant chain of defaults reaching Italy, the world's third biggest debtor.

As the bond jitters of the last two weeks have shown, we are already uncomfortably close to this.

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A Modest Proposal, Wikipedia

"ever closer union"


How to save the eurozone
In short, the approach of lending more and more from the official sector to countries
that cannot access the market at premium rates of interest is unsustainable
Lawrence Summers, Financial Times, 18 July 2011

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Lawrence Summers


“The governments have been warned, in no uncertain terms and using all possible means. I have said so publicly.

I have explained in detail to the Heads of State and Government and to the finance ministers, on several occasions, that, if a country defaults, we will no longer be able to accept its defaulted government bonds as normal eligible collateral.

The governments would then have to step in themselves to put things right. That would then be their duty”, he said.

Trichet reiterated that the ECB will not accept as collateral bonds from a nation that defaults.
“Naturally the Europeans can manage the issue,”
“It is not a question of technique. It is a question of will and determination.”
Bloomberg 17 July 2011

Trichet said the euro is not in danger and remains “a highly credible currency.”

He reiterated that the ECB will not accept as collateral bonds from a nation that defaults. “If a country defaults, we can no longer accept as normal eligible collateral defaulted bonds issued by the government of that country,” Trichet said. “Because, in the eyes of the Governing Council, this would impair our ability to be an anchor of confidence and stability.”

Trichet said in an interview with the Financial Times Deutschland, according to a transcript released by the Frankfurt-based ECB.

Full text at Bloomberg

As German Chancellor Angela Merkel flirts with solutions to the Greek crisis that rating companies say would amount to a default, Trichet says leaders can’t repeat the mistakes made by U.S. officials when they let Lehman Brothers Holdings Inc. fail.
“No credit event, no selective default, no default,” Trichet said at a press conference in Frankfurt yesterday.
Bloomberg 8 July 2011

Eurogruppens ledare Jean-Claude Junker och Jean-Claude Trichet, chef för den Europeiska Centralbanken ECB
SvD Näringsliv 13 juli 2011


Soon the euro zone may well have to expand the EFSF and allow it to issue jointly guaranteed “Eurobonds”.
It is not a pleasant option. But the alternative could be the end of the euro.
The Economist print editorial, July 14th 2011

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What EU leaders once ruled out — a default by a euro-zone nation — has firmly entered the sphere of the possible
Top euro-zone politicians, engaged for months in a string of meetings that have failed to bring agreement on how to provide more aid to Greece, are trying furiously to stamp out the flames of contagion licking at Italy and Spain
Wall Street Journal 14 July 2011

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The eurozone might be on the verge of a fiscal cum financial crisis that destroys not just the solvency of important countries
but even the currency union and, at worst, much of the European project.
Martin Wolf, Financial Times, 12 July 2011

In Europe, politicians are dealing with the legacy of a utopian project which requires a degree of solidarity that their peoples do not feel.

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Europas ledare möts och pratar, men någon ordning på eurokrisen får de inte.
Röran på finansmarknaderna fortsätter och gäller inte bara Grekland.
Räntetrycket hårdnar även på Italien och Spanien.
DN-ledare signerad Gunnar Jonsson, 13 juli 2011

Efter månader av villrådighet verkar eurozonens finansministrar ha fått klart för sig att Greklands skuldberg måste trimmas, men är inte överens om hur.

Italien är eurozonens tredje största ekonomi, men delar defekter med andra Medelhavsländer. Tillväxt och produktivitet har sackat efter EU-snittet sedan euron infördes. Den offentliga sektorn är överviktig, de sociala förmånerna frikostiga. Skattesmitning och svartjobb är specialiteter.

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Some of Europe's biggest banks are taking steps to shore up their defenses
should the debt crisis spiral out of control

and one or more countries leave the euro zone
Wall Street Journal 13 July 2011

Some banks recently have been reining in some cross-border lending to companies in countries like Spain and Italy, bank officials say. Others are parking more money with the European Central Bank, according to ECB data. Banks also are increasing their use of credit-default swaps as protection against their holdings of sovereign debt from shaky countries.

The moves reflect mounting concern that Europe's political leaders lack the will to adequately address the Continent's problems. The worries have shifted from concerns that Greece may default on its debts to a more dramatic scenario where Greece or another country departs the currency bloc.

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Friday emergency summit meeting
The acknowledgement of a possible Greek default marks a potential turning point
It came after two days of meetings in Brussels, and against the fierce opposition of the ECB,
which fears that such an occurrence could unleash further turmoil in financial markets and spread contagion
Financial Times July 12, 2011 9:56 pm

Herman Van Rompuy began making arrangements to summon European leaders to Brussels on Friday for an emergency summit meeting.

Several diplomats cautioned that Mr Van Rompuy’s calls were hasty, and that it remained unclear whether an emerging consensus could be translated into a binding legal agreement on such short notice.

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For the record
In the absence of a policy response, the eurozone’s financial system may implode within a few days.
Eurointelligence 12 July 2011


Very funny, Do Read!
Debt Crisis Lost in Translation. Until Now
"Ministers reaffirmed their absolute commitment to safeguard financial stability in the euro area."
Means: Thanks for hanging around until midnight, but we really haven't got anything to tell you.
Silvia Wadhwa, CNBC Europe Reporter, 12 Jul 2011

"Ministers discussed the main parameters of a new multi-annual adjustment program for Greece, which will build on strong commitments to fiscal consolidation, ambitious growth-enhancing structural reforms and a substantial privatization of state assets."

Means: Don't bother asking questions about details; we haven't agreed on any. And take your cue from ambitions, which usually means unrealistic.

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"en viss default"
"Första tecknet på att Euro-gruppen kastar in handduken"
Banker kan tvingas betala för Greklandskrisen
Ekot 11 juli 2011

Europas ledare är för första gången beredda att acceptera en viss default av grekiska statspapper. Det skulle innebära att privata finansiärer förlorar pengar på lånen till Grekland.

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Trichet says leaders can’t repeat the mistakes made by U.S. officials when they let Lehman Brothers Holdings Inc. fail.
“No credit event, no selective default, no default,” he said

Once again Europe's debt crisis has metastasized, and once again the financial authorities face systemic contagion unless they take immediate and dramatic action.

What it will take is a belated recognition by Germany that this crisis is not a morality tale contrasting virtuous, thrifty Teutons, with feckless Greco-Latins and Guinness-befuddled Celts, but rather a North-South structural crisis caused by the inherent workings of monetary union.

The implications of this are profound.

Germany must now be willing either to buy or guarantee Spanish and Italian debt,
and in doing so to cross the Rubicon to fiscal and political union,
or accept that EMU must break up with calamitous consequences for German foreign policy.
Ambrose Evans-Pritchard, 10 July 2011

Large matters, beyond the intellectual vision of Germany's current leaders.

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Tyskland

Ever Closer Union - EBU

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The cost of insuring Italian debt rose sharply after the country’s trusted Finance Minister became linked to a corruption scandal
There would be huge repercussions if Italy was badly affected because its economy makes up 16.7 per cent of eurozone GDP, compared with 2.4 per cent by Greece and 1.8 per cent by Portugal.
The Times 9 July 2011


Despite the brave efforts of their governments and people,
few serious economists now deny that Greece, Portugal and Ireland will, at some stage,
need a big reduction in the amount of debt they owe or a large cut in the interest rate that they have to pay.

The Times, editorial, 7 July 2011

It is quite understandable that eurozone governments and the European Central Bank are not hurrying to make the necessary adjustments.

Most bankers believe that the European financial system is robust enough to handle the fallout, not least because it has had plenty of time to prepare.It it most unlikely to precipitate a Lehman-style crisis.

But there is no denying that the complexity of the interconnections between eurozone government and bank debt means that nobody can really be sure.

Meanwhile, the debt adjustments will require eurozone governments to bear some of the costs, which will be extremely unpopular, not just in Germany.

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The ECB’s worst nightmare
Queues outside banks
Gavyn Davies, Financial Tmes July 7, 2011

The ECB is now financing around 20 per cent of the balance sheets of Greek and Portuguese banks, and has a total exposure to the troubled economies in excess of 400 bn euro.

The capital and reserves of the European System of Central Banks is only 81 bn euro, so recapitalisation of the central banks could easily become necessary.

As if that were not enough of a problem, there are signs of a further, and even less controllable, problem emerging. Ordinary bank depositors in Greece and Ireland are beginning to shift their money out of the retail banks.

As the UK government found in the case of Northern Rock, the appearance of queues outside banks is one of the worst nightmares which a central bank can face. It has not happened in Europe – yet.

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One Sunday in October 2008, Alistair Darling flew back from Washington to find Britain on the brink of banking meltdown. The chancellor was told by his Treasury officials that unless a rescue plan was announced by the time the City opened for business the following morning, there was no guarantee that cashpoints would work and that cheques would be honoured.

The possibility of global financial implosion concentrated minds wonderfully; bailout plans were announced that ensured disaster was averted.

Read more here

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A run on a bank occurs when a large number of depositors, fearing that their bank will be unable to repay their deposits in full and on time, simultaneously try to withdraw their funds immediately.

Bank run, Wikipedia

Nationalisation of Northern Rock, Wikipedia

Bank Runs, by George G. Kaufman

Nice pics of bank runs, Google

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Eventually, governments pursuing ever more austerity
with little or nothing to show for it throw in the towel.
WSJ 8 July 2011

In their seminal study of sovereign defaults, "This Time Is Different," U.S. academics Carmen Reinhart and Kenneth Rogoff showed that the most usual way for governments to escape crippling debt is to renege. Bond market yields suggest investors are almost certain of Greek and Portuguese defaults over the next couple of years.

Keynesian economists have long argued that the ECB's focus on inflation is wrong-headed and ultimately self-defeating. In part, that's because in seeking to pursue monetary policy to suit Germany and other core economies it is condemning the periphery to debt deflation.

Apart from their debt burdens, the fundamental problem with these economies is that they're not competitive relative to Germany.

To regain competitiveness, they need the cost of German labor and other inputs to rise faster than their own.

"This Time Is Different"

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Greece, Ireland and Portugal
The rescues are failing
Financial Times editorial 6 July 2011

The Greek rescue and the European financial stability facility were meant to tide countries over until private lenders recovered from a temporary panic.
It has turned out that the panic is chronic.

Yields on the sovereign obligations of Greece, Ireland and Portugal remain near record highs.
This does not mean that these countries’ plans for securing the sustainability of their public finances are unbelievable.

But it does mean that markets do not believe them.

In this sense, the rescues are failing.

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Nice, sort of, chart of Youth Unemployment
Sverige mellan Frankrike och Rumänien
The Economist 5 juli 2011


Moment of truth for the eurozone
Martin Wolf, Financial Times, 5 July, 2011

The biggest question in any debt crisis is whether a credible path back to solvency can be found. For Greece, this now seems very unlikely. The same is true, to a lesser extent, for Ireland and Portugal. This raises three further questions. First, how big is any required restructuring? Second, who should bear the cost? Finally, is restructuring enough? If the answer to the last question is No, then one has to ask whether the currency union will last in its current form.

At some point, the present value of the cost of debt must be drastically lowered. This does not have to happen today. But it has to happen soon enough to give people hope. In its absence, failure is not just likely. It is close to a certainty.

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Martin Wolf

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The EU authorities are attempting to muzzle free opinion, threatening Fitch, Moody’s, and S&P with vague retribution
Currency unions switch exchange risk into default risk
Agencies totally failed to signal the inherent dangers of EMU a long time ago
They handed out AAAs like confetti
Ambrose Evans-Pritchard 7 July 2011

Currency unions switch exchange risk into default risk.

States with their own sovereign currency and debt in their own currency can let the exchange rate take the strain when they get into trouble, as the US and the UK have done. Foreign investors lose money on the exchange rate.

This not the case at all for EMU laggards. They cannot devalue or inflate away debt. The stress shows up in the bond markets instead.

The more relevant comparison in this respect is between the Euroland’s Club Med states and California.
California is A- and may lose that soon enough.

My gripe against the agencies is not that they are downgrading all these semi-bankrupt states today, but that they totally failed to signal the inherent dangers of EMU a long time ago when the crucial investment decisions were being made.

They too were swept up by euro euphoria. They too failed to understand the inherent structure of monetary union, or to spot obvious warning signs as the drama unfolded and the North-South divide became ever-more apparent. They handed out AAAs like confetti.

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Trichet says leaders can’t repeat the mistakes made by U.S. officials when they let Lehman Brothers Holdings Inc. fail.
“No credit event, no selective default, no default,” he said at a press conference in Frankfurt yesterday.
Bloomberg 8 July 2011


The ECB’s worst nightmare
Queues outside banks
Gavyn Davies, Financial Tmes July 7, 2011


Jan Kees de Jager, the Dutch finance minister
wants to force participation of private bondholders, irrespective of what the rating agencies say.
“I think we have to accept that a voluntary contribution is unrealistic... If a mandatory contribution from the banks leads to a short-term and isolated rating event, that is not so bad, because Greece cannot go to the credit markets anyway now or in the near future.”
Eurointelligence 8 July 2011

Mr Trichet hardened the ECB’s line on defaults during his press conference. He said one should not presume that private sector involvement was normal.

Of course, a default rating would not affect Greece’ access to capital markets right now, but as we have seen in the last few days, fear of a default spreads like wildfire.


Möte på torsdag mellan Frankrikes nye finansminister Francois Baroin och hans tyske kollega Wolfgang Schäuble
Målet är att en fjärdedel ska komma från privata eftergifter, men kreditvärderare har hittills sågat alla förslag.
Förutom grekiska banker är det främst tyska och franska banker som via obligationer i portföljen är exponerade mot den grekiska skuldkrisen.
DN/TT 7 juli 2011

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Greece, Portugal and Ireland
Most economists, in fact, any serious observer of the situation,
says there will be no solution without a major reduction in the debt of the governments in trouble
The only question is whether private investors will bear the loss or European governments will
Stephanie Flanders, BBC Economics editor, 6 July 2011

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Wolfgang Schäuble, German finance minister, said a rethink was needed
as talks about “a quantifiable private-sector contribution... had produced no result”
Financal Times, 6 July 2011

Just as eurozone governments and banks appeared to be coalescing around a French-led plan for a piecemeal rollover into new 30-year bonds, Wolfgang Schäuble, German finance minister, said a rethink was needed as talks about “a quantifiable private-sector contribution... had produced no result”.

Wednesday’s meeting debated tweaks to that plan – extending the rollover target percentage and cutting the coupon potentially to below 6 per cent. But participants said little headway was made. “There was a lot of confusion, it was very chaotic,” said one. “A lot of people spent a lot of time just stating their opinion.”

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S&P and Moody’s
"likely a default under our criteria", Moody’s "will only comment on a scheme, once it has been decided"
not a Brady bond. It is a rollover plan
Eurointelligence 5 July 2011

S&P said in a statement: "It is our view that each of the two financing options described in the (French banks') proposal would likely amount to a default under our criteria."

Moody’s issued a terse note saying that it was not party to any ongoing discussions. Moody’s will only comment on a scheme, once it has been decided. Ewald Nowotny, the Austrian central bank governor, made an interesting comment, according to Reuters, saying that the ECB had been in discussions with the rating agencies, and found that attitudes had hardened. He said he was struck by the fact that the agencies were tougher now than they were in respect of the Latin American Brady bonds.

(But this French banking association proposal is not a Brady bond. It is a rollover plan, with an element of collateralisation.)


"Default", kallas det bland kreditvärderare, när en låntagare saknar betalningsförmåga.

Skulle Grekland brännmärkas med "default" av S & P eller Fitch kan den grekiska skuldkrisen förvärras snabbt.
Bedömare befarar en akut likviditetskris på kreditmarknaden långt utanför Greklands gränser, som när Lehman Brothers gick omkull 2008
DI 4 juli 2011

Bland annat kan Europeiska centralbanken (ECB) i ett sådant läge sluta ta emot grekiska obligationer som säkerhet för lån.

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S&P said this morning a French plan to allow Greece to voluntarily change the terms on some of its debts when they come up for repayment would, "likely amount to a default under our criteria".
Daily Telegraph 4 July 2011

French banks, which hold some of the biggest exposures to Greek government debt, want to allow the country to extend the maturity of its bonds, which S&P said could be defined as a "selective default".

The default threat came as Greece was told yesterday by the chairman of the Eurogroup of finance ministers that it must privatise assets on a scale similar to the sell-off of East German companies at the fall of the Berlin Wall to rebuild its finances.

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The Greek rollover pact is like a toxic CDO
By Wolfgang Münchau, Financial Times 4 July 2011

This isn't just a mortgage or housing crisis.
At the center of this still-unfolding disaster is the collateralized debt obligation, or CDO.
Steven Pearlstein, Washington Post, December 10, 2007


The alleged case of a successful internal devaluation — that of Latvia
Could the Eurozone Break Up?
Possible Over a Five-Year Horizon

Nouriel Roubini via John Mauldin 18/6 2011

Paradoxically, the early interest rate convergence became damaging as it allowed a severe lack of fiscal discipline in some countries (such as Greece and Portugal) and the build-up of asset bubbles in others (such as Spain and Ireland).

Moreover the lack of market discipline delayed the necessary structural reforms and led to divergences in wage growth relative to productivity growth, and thus a rise in unit labor costs in the periphery and a loss of competitiveness that led to economic divergence between the PIIGS and the core. And the straightjacket of common monetary and currency policy exacerbated the real growth divergence at a time when structural and fiscal policies diverged.

Any successful monetary union has eventually been associated with political and fiscal union. Political union in the EZ and EU has stalled and a backlash against anonymous Brussels bureaucrats imposing their views on nation states is brewing.

A fiscal union would require that a significant amount of federal/central revenues be mobilized for the provision of EU/EZ-wide public goods, but there is no mechanism or will to provide the EU with enough power to create a semi-federal system of taxation, transfers and spending.

The alleged case of a successful internal devaluation — that of Latvia —is not relevant here: Entering the crisis, its public debt was 9% of GDP, not the 100%- plus of Greece; losses from depression and deflation were taken by foreign banks dominating its banking system; and accepting a draconian 20% fall in output was politically feasible as Latvia did not want to fall into the arms of the Russian bear again.

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Latvia

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German Banks ask for state guarantees as a condition for private sector involvement
This is a quite a funny story.
The German banks are willing to share the pain for a second Greek rescue package but only it there are state guarantees,
Financial Times Deutschland reports, Eurointelligence 21 June 2011.

The bosses of the lobby groups for private and public banks (BdB and VÖB) asked for “certain assurances” adding that “waiting on purely voluntary help without conditions will not lead to success”. The request would render Wolfgang Schäuble’s request of public sector involvement (PSI) absurd because in the end it would be the taxpayer who shoulders the burden.

Financial Times Deutschland


Recent public commitments stating the EU would ensure Greece remains solvent through next year were thought to be enough to secure the backing of the IMF
But amid continuing disagreement between eurozone countries over the terms of a new bail-out, IMF officials told the emergency gathering they needed firmer commitments before making the payment
Financial Times 20 June 2011

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IMF's statutes stipulate that the organization can only lend a country money if it is certain that the state will be able to meet its payment obligations for the next 12 months.
The new report has now made it clear that Greece is not in a position to guarantee that, meaning that the IMF cannot transfer any more money
Der Spiegel, 9 June 2011

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Time for Plan B
How the Euro Became Europe's Greatest Threat
The currency union chains together economies that are simply incompatible.
SPIEGEL Staff 20 June 2011

Part 1: How the Euro Became Europe's Greatest Threat

If the current situation continues, the monetary union will invariably turn into a transfer union, a path the inventors of the euro were determined to prevent.

There is no emergency exit, and there are no rules to follow in an emergency -- only the hope that everything will turn out well in the end. This is why the crises of a few euro countries are a crisis for the euro, as well as a crisis for the European Union, its governments and its institutions.

The fact that the countries funding the bailouts are lacking democratic legitimization is now becoming the greatest impediment to joint crisis management

The euro, created with the aim of permanently uniting Europe, has become the greatest threat to the continent's future. A collapse of the monetary union would set Europe back by decades, dealing it a blow from which it might never recover

Part 2: The Euro Is a Fair-Weather Construct
Part 3: A Clear Market Reaction
Part 4: German Banks, Insurers Unload Greek Bonds
Part 5: Berlin Expecting the Worst

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USA:s president och alla vi andra borde inte bekymra oss om Liran och Drachman
Rolf Englund blog 21 juni 2011


Germany's chancellor wants "a substantial contribution" from private creditors
who are due to be repaid some €64 billion by 2014.
If those creditors baulk but are nevertheless coerced into rolling over their loans,
enter the credit agencies and the ECB, for both of whom a forced rollover is, dare we say it, a default.
Irwin Stelzer, director of economic policy studies at the Hudson Institute, WSJ 20 June 2011

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Why spend seven hours behind closed doors, only to decide to wait and see?
After seven gruelling hours in Luxembourg, which included a video conference with colleagues from G7 countries, the finance ministers of the 17 countries of the euro zone decided to delay until July the disbursement of €12 billion ($17 billion)
Charlemagne's notebook, The Economist June 20th 2011

Why spend seven hours behind closed doors, only to decide to wait and see?
Because, Mr Juncker said, figuring out how to squeeze out some funding from private creditors, without it being deemed a default, “is very complicated”.

As a result of the discussion, he said, the euro group had “cleared the way for a solution”.

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Threats are only worth making if those making the threats could actually carry them out
If this eurozone brinkmanship nudges the Greek parliament to reject the further budget squeeze,
we'll be closer than is remotely prudent or sensible to a 1930s-style financial and economic disaster.

Robert Peston, BBC Business editor, 20 June 2011

Eurozone finance ministers' overnight decision to withhold payment of 12bn euros of emergency loans to Greece, pending agreement by the Greek parliament on austerity measures and privatisations, would be rational and credible on the basis that Greece has more to lose from a disorderly Greek default than the eurozone itself.

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WarGames: Chicken-Race mellan Berlin och Frankfurt
- “The central bank equivalent of nuclear deterrence: defy us and we will blow up the world”
Rolf Englund blog 10 juni 2011

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Luxembourg Prime Minister Jean-Claude Juncker, the head of the eurozone group of finance ministers said
Germany was "playing with fire" with a plan to involve private creditors in resolving the crisis.
His comments come as finance ministers prepare to meet in Luxembourg.
BBC 19 June 2011

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"lack of discipline in countries such as Greece and Portugal was matched only by the build-up of asset bubbles in others like Spain and Ireland"
The muddle-through approach to the eurozone crisis has failed to resolve the fundamental problems of economic and competitiveness divergence within the union.
If this continues the euro will move towards disorderly debt workouts,
and eventually a break-up of the monetary union itself, as some of the weaker members crash out.

Nouriel Roubini, Financial Times 13 June 2011

Paradoxically the halo effect of early interest rate convergence allowed a greater divergence in fiscal policies. A reckless lack of discipline in countries such as Greece and Portugal was matched only by the build-up of asset bubbles in others like Spain and Ireland.

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The bail-out strategy that rescued Europe’s peripheral economies is proving insufficient.
This threatens the whole project of European integration
The Economist print Jun 16th 2011

The debate about how to deal with Greece’s debt crisis has descended into a high-stakes stand-off between Germany,
which wants the maturities on Greek bonds to be extended, and the ECB, which resists any debt restructuring.

The hope is still that Europe’s leaders will come up with a face-saving compromise at their summit on June 23rd-24th.

But the longer the confrontation continues, the greater the risk of an accident: a chaotic Greek default and exit from the euro.

Inherently, there are two conflicting economic tensions in the rescue packages.

The first is that the austerity programmes needed to cut deficits are killing the growth needed to make debt bearable. If Greece had got into trouble outside the euro, the drachma would have fallen, creating an external offsetting boost to the economy by making exports cheaper and curbing imports.

The other inherent tension is that the steps needed to improve competitiveness within the euro require prices and wages to be held down, making it even harder to cope with debt.

Though the ministers will doubtless go on talking, it is increasingly hard to see a safe way out of this crisis.

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Andes Borg å ena och å den andra sidan om eurokrisen
Ekot 17 juni 2011

Svenska Dagbladet åter i EMU-debatten!
Strukturreformerna är bra oavsett om de på sikt klarar av att blåsa tillräckligt liv i landet
Rolf Englund blog 17 juni 2011


European finance ministers will hold an emergency meeting on Tuesday in an effort to narrow differences over a €172bn ($247bn) rescue package for Greece.
FT 13 June 2011

The bail-out deal is at risk of being derailed by a growing dispute between Berlin and the European Central Bank over the role of private bondholders.

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Eurokrisen är alltså över? Fel.
Skulderna måste skrivas ned. Det är bättre att göra det
medan det finns några privata investerare kvar att dela notan med

DN-ledare 11 juni 2011


IMF's statutes stipulate that the organization can only lend a country money if it is certain that the state will be able to meet its payment obligations for the next 12 months.
The new report has now made it clear that Greece is not in a position to guarantee that, meaning that the IMF cannot transfer any more money
"The next disbursement cannot take place before this underfinancing is resolved," the report concludes.

This in turn means that Europe will have to come up with a new rescue package. German Finance Minister Wolfgang Schäuble estimates that Greece will need €90 billion /drygt 800 miljarder kronor/ to cover its funding needs between 2012 and 2014
Der Spiegel, 9 June 2011

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Today the French government is working overtime to make sure that a Sarkozy loyalist, the leader of his economic team — Finance Minister Christine Lagarde — becomes the next managing director.
Why do France and other euro-zone countries now care so much about who runs the I.M.F.?
Simon Johnson, the former chief economist at the IMF, New York Times June 2, 2011


The global fallout of a eurozone collapse
Kenneth Rogoff, Financial Times 6 June 2011

The writer is professor of economics at Harvard University and co-author with Carmen Reinhart of This Time is Different

A s many commentators have rightly observed, the euro experiment is at a crossroads. Either the eurozone will deepen into a fiscal union, or the weak members will be forced to break off.

The 1980s and 1990s taught us /Kronkursförsvaret 1992/ that for countries with open capital markets, fixed exchange rates are a mirage that cannot be indefinitely sustained.

If the euro goes the way of the Argentine currency peg, the noughts and tens – the first decades of the 21st century – will be viewed as teaching the same lesson about more radical currency marriages.

Sovereignty and currency co-habitation do not mix.

The sovereign debt crises that Europe is experiencing today are a typical aftershock of a deep financial crisis.
Nevertheless, even if the euro system was not at the heart of the crisis, it needs to be able to withstand two standard deviation shocks.

Unfortunately, as currently construed, the euro is looking very much like a system that amplifies shocks rather than absorbs them.

European leaders’ plans to achieve effective devaluation through major wage adjustment seem far-fetched.

The real question is whether common currency is sustainable politically. My guess is that if the current slow patch in global growth does not quickly subside, we will not have to wait long for an answer.

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The European Cental Bank's bailout package is just a $1 trillion fig leaf covering the problem and
a better move would have been to arrange for Greece and Portugal to leave the European Union
, Kenneth Rogoff told CNBC Friday 14/5 2010


Om euron kollapsar
Marianne Björklund, DN, 4 juni 2011

Det krävs förändringar i EU:s fördrag och därmed också nya uppslitande folkomröstningar.
Lägg till det den politiska prestige som har lagts i europrojektet och som riskerar att förvandlas till politiska slitningar om det kollapsar.

En annan, kanske troligare, möjlighet är att Grekland lämnar det eurosamarbete man bluffade sig in i och att valutaunionen som fortsätter med sexton medlemmar. Det skulle förmodligen stärka den europeiska valutan, men också smärta den europeiska banksektorn då Grekland skulle skriva av sina lån.

Politikerna lär inte ge upp europrojektet än på ett tag. Nästa steg ser ut att bli att kraven på Grekland höjs ännu ett snäpp och att mer pengar lånas ut.

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What happens when Greece defaults. Here are a few things:
Andrew Lilico, Daily Telegraph, May 20th, 2011

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Co-Founder Of Reaganomics, Paul Craig Roberts:
"There Is Probably More Democracy In China Than There Is In The West"
not in Greece, not in Ireland, not in the UK, not here, the outcomes are always to punish the innocent and reward the guilty.
Youtube via Zerohedge 23 May 2011

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Paul Craig Roberts


After the creation of the euro in 1999, European nations that had previously been considered risky,
and therefore faced limits on the amount they could borrow, began experiencing huge inflows of capital.
After all, investors apparently thought, Greece/Portugal/Ireland/Spain were members of a European monetary union, so what could go wrong?
Paul Krugman, New York Times, 22 May 2011

The answer to that question is now, of course, painfully apparent. Greece’s government, finding itself able to borrow at rates only slightly higher than those facing Germany, took on far too much debt.

The governments of Ireland and Spain didn’t (Portugal is somewhere in between) — but their banks did, and when the bubble burst, taxpayers found themselves on the hook for bank debts.

The problem was made worse by the fact that the 1999-2007 boom left prices and costs in the debtor nations far out of line with those of their neighbors.

What to do? European leaders offered emergency loans to nations in crisis, but only in exchange for promises to impose savage austerity programs, mainly consisting of huge spending cuts.

Objections that these programs would be self-defeating — not only would they impose large direct pain, but they also would, by worsening the economic slump, reduce revenues — were waved away. Austerity would actually be expansionary, it was claimed, because it would improve confidence.

But the confidence fairy hasn’t shown up. Europe’s troubled debtor nations are, as we should have expected, suffering further economic decline thanks to those austerity programs, and confidence is plunging instead of rising. It’s now clear that Greece, Ireland and Portugal can’t and won’t repay their debts in full, although Spain might manage to tough it out.

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Greece, Ireland, Portugal, Spain

News

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“Events in Greece have brought the euro area to a crossroads:
the future character of European monetary union will be determined by the way in which this situation is handled.”
Jens Weidmann, Bundesbank president and European Central Bank governing council member, Hamburg, 20 May, 2011
Financial Times, Ralph Atkins, May 24 2011 22:35

Jean-Claude Trichet, ECB president – with less than six months before his eight-year term expires – has refused to discuss any debt restructuring for the nation, storming out of a meeting of eurozone finance ministers in Luxembourg this month when it was raised.

His colleagues, including Mr Weidmann of the Bundesbank, have raised the stakes. They warn that if politicians take even a modest step towards a restructuring, the ECB will cut Greek banks off from its lifesaving liquidity supply, triggering a financial collapse that would push the country’s economy into the abyss.

It is the central bank equivalent of nuclear deterrence: defy us and we will blow up the world

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Concluding remarks at the Banque de France / Deutsche Bundesbank Spring Conference on “Fiscal and Monetary Policy Challenges in the Short and Long Run”
Dr Jens Weidmann, President of the Deutsche Bundesbank, Hamburg 20 May 2011

Bundesbank President och Grekland – “the central bank equivalent of nuclear deterrence: defy us and we will blow up the world”
Rolf Englund blog 25 maj 2011

Kaos väntar om Grekland faller
Allt fler ifrågasätter om Grekland kan undvika en statsbankrutt.
Men om landet ger upp och ställer in betalningarna hotar svåra banksmällar över hela Europa och argentinskt kaos i Aten, spår bedömare.
Dagens Industri 24 maj 2011

Simon Johnson, tidigare chefsekonom vid IMF och numera forskare vid Bostonuniversitetet MIT, varnar för ett ”Lehman moment”, en global finansiell hjärtinfarkt i stil med oktober 2008, om det blir aktuellt med en nedsättning eller tidsomläggning av Greklands skuldbetalningar, rapporterar Bloomberg.

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Grekland

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The Spanish people have finally found their voice. For over a week they have been occupying squares across the country to protest at unemployment. For 16- to 24-year-olds, 43% are without work.
What unites the protesters is a desire for a change, a sense that the "establishment has failed an entire generation". Having taken to the streets they might not accept further austerity if it was needed.
So Spain is once again troubling markets and officials. A weak government is caught between needing to enforce spending cuts and protesters demanding work.
Gavin Hewitt, Europe editor, BBC, 23 May 2011

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The endgame for Europe is approaching — and much faster than anyone expected
Italy’s bond market turbulence means the EU faces an immediate decision:
political union or scrap the euro
Anatole Kaletsky, The Times, July 13 2011

This was designed to relieve the Greek Government’s debt burden, which the EU has belatedly accepted as unsupportable — and to ensure that private investors bear some of the consequent loss. So far, so good. What the EU politicians did not seem to realise was that a plan to wipe out half the value of Greek government bonds might be seen as a warning to bondholders of other indebted EU countries.

There is only one real alternative to a break-up of the euro. This is to reinforce the single currency with an EU fiscal policy, administered by an EU finance ministry and backed by rapid progress towards a federal political union.

The creation of so-called E-bonds, jointly guaranteed by all European governments, to replace half or more of existing national debts.

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The total cost to taxpayers in Germany and other creditor countries of supporting Greece, Ireland and Portugal will be much higher than seemed likely last year
because last year’s bailout funds were largely spent on repaying private lenders to these countries and their insolvent banks.
Anatole Kaletsky, The Times 11 May 2011

Last year it was possible for EU taxpayers to share the burden of the bailouts with private investors who had foolishly lent money to the Greek Government and the bust Irish banks. Now many of these investors have been repaid in full

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The confusing debate about “reprofiling” or soft restructuring pays testimony to the sheer incompetence of eurozone’s finance ministers,
who are now effectively talking Greece into a damaging, and most likely contagious default.

The FT reports that Jean-Claude Trichet walked out of a recent meeting chaired by Jean-Claude Juncker in protest.
FT Deutschland reports this morning that Trichet told finance ministers on Monday night that the ECB would respond to a reprofiling by refusing to buy any new Greek debt instruments (meaning it will not be part of any voluntary arrangement in respect of its own Greek debt portfolio).
Furthermore, the ECB would refuse to supply the Greek banking system with any further liquidity.
Eurointelligence 19 May 2011


The ECB, which has bought about €45bn /SEK 404 miljarder/ of Greek bonds over the past year,
believes that eurozone governments should provide further loans
if Greece requires additional help.
Financial Times 18 May 2011

The European Central Bank has criticised proposals for a possible restructuring of Greek sovereign debts, laying bare a behind-the-scenes row between ECB technocrats and European Union politicians over Greece’s debt crisis.

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Om Grekland ställer in betalningarna, alternativt skriver ned värdet på sina utestående lån,
kommer den största förlusten att drabba Europeiska centralbanken.
ECB, har blivit Greklands enskilt största fordringsägare.
Gunnar Örn, Dagens Industri Papper, 12 maj 2011

Interest rate cuts work their way through to the real economy by a number of transmission channels.
Cui bono? The banks, of course. The bank-bailout channel will be the only monetary transmission mechanism to function like clockwork.

So do not be fooled by anybody who says that the central bank should cut interest rates for the benefit of innocent citizens
Wolfgang Munchau, FT January 20 2008


The eurozone, as designed, has failed.
It was based on a set of principles that have proved unworkable at the first contact with a financial and fiscal crisis.
It has only two options: to go forwards towards a closer union or backwards towards at least partial dissolution.
This is what is at stake.

Martin Wolf, Financial Times, 31 May 2011

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Federalism

More by Martin Wolf


The underlying economics of the /Euro/crises are clear
During the boom years, a number of countries were able to borrow more and on more favourable terms than ever before. They, then, ran huge current account deficits.
The latter turned out to be the leading indicator of future crises, not fiscal deficits, as Germany’s mistaken conventional wisdom would have it.
Martin Wolf, Financial Times 18 May 2011

The domestic counterparts of these external deficits could be huge fiscal deficits (as in Greece), huge private financial deficits (as in Ireland and Spain) or a combination of the two (as in Portugal).

Indeed, we now know that the distinction between private deficits and debt and public deficits and debt is far less absolute than the fiscal priesthood understands: private debt becomes public debt and private deficits become public deficits very swiftly.

In a crisis, huge external deficits also result in “sudden stops” in the inflow of external finance and so the need for official support, to finance the ongoing fiscal and current account deficits and capital flight.

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The problem with the strategy of imposing the burden on taxpayers in borrowing countries is that it is unlikely to work.
As an ever greater proportion of the financing ends up with official sources, the latter are likely to end up bearing politically explosive costs when debts are written off.
Martin Wolf, Financial Times 18 May 2011

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The eurozone’s journey to defaults
Martin Wolf, Financial Times, May 10 2011

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More by Martin Wolf

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Läget i Grekland blir allt allvarligare. Ekonomin skenar och missnöjet bland människor växer.
Vilka politiska konsekvenser får den ekonomiska krisen i Grekland? Giorgios Logothetis är författare och journalist och före detta borgmästare på Lefkas, nu på besök i Sverige.
Vår korrespondent Vladislav Savic rapporterar från gatorna i Aten
Ekot 11/5 2011


“I was told to say there was no meeting... We had certain necessities to consider”
Guy Schuller, spokesman for Jean-Claude Juncker, admitted yesterday to lying about the secret meeting of finance ministers on Friday.
Wolfgang Münchau no longer believed any statement by any EU officials in respect of this crisis.
We are in the stage of the crisis where officials are lying all the time.
Eurointelligence 10/5 2011

Skrattar bäst som skrattar först om Grekland
Rolf Englund blog 10/5 2011


Europe is running a giant Ponzi scheme
The writer was governor of Argentina’s central bank and director of the Centre for Central Banking Studies at the Bank of England
Financial Times 5/5 2011
Vem kan vara mer kvalificerad?
Länk via Rolf Englund blog 2011-05-06


In May 1931, a Viennese bank named Credit-Anstalt failed.
it occurred in a small, peripheral country, just as today's worst problems are concentrated
so far in Greece, Ireland, and Portugal
Bloomberg Businessweek's Economics editor Peter Coy, April 20, 2011

The scariest thing about the Credit-Anstalt default is that it occurred in a small, peripheral country, just as today's worst problems are concentrated so far in Greece, Ireland, and Portugal, which combined make up just 5 percent of the 27-nation European Union's gross domestic product. "Austria is a tiny, tiny little place, and you wouldn't imagine it could set off a chain of domino reactions. But it did. I do see exactly that potential now," says James.

There's a modern analogy in Greek banks' unwise loans in Bulgaria, Romania, and Serbia.

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For all Germany’s fear of becoming locked into permanent support for the Irish and others,
the irony is that it is already providing involuntary ‘bailouts’ via the eurosystem that carry similar risks.
In the Irish case, this is both larger than the EFSF bailout , €146bn as against €67bn,
and much cheaper, 1% interest as against 5.8 %.
John Whittaker, Eurointelligence 7/4 2011

Pushing the Irish and Greeks into official EFSF-style bailouts thus worsens their finances and makes default more likely.

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Trichet/ECB

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After the Latin American debt crisis in the 1980s, US regulators lied about the health of American banks until they were in a position to take a voluntary haircut on their bad loans.
The Brady Plan holds important lessons for euro-zone governments looking for a way out of the current debt crisis.
Jacob Funk Kirkegaard, Der Spiegel 14/4 2011

Jean Monnet, the French economist and public official who is regarded as one of the architects of European unity, once famously stated that "Europe will be forged in crises and will be the sum of the solutions adopted for those crises."

Gone is the politically expedient "no bailout" clause of the euphoric early period of the monetary union.

Jean Monnet

THE BRADY PLAN

Full text at Der Spiegel

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Greek, Portuguese Bonds Slump as Schaeuble Proposes Restructure
Bloomberg, Apr 14, 2011

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RE: "Tsunamani sinks all the boats"
Eurozone banks need to address serious weaknesses in their funding, the report argued,
citing a $3,600bn “wall of maturing debt” coming due in the next two years across the globe,
with Irish and German banks facing the greatest difficulties in rolling over funding.
about IMF global financial stability report, FT 13/4 2011

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A rising tide lifts all boats


Many European banks need bigger capital cushions to restore market confidence and help reduce the risk of another financial crisis,
according to the IMF's Global Financial Stability Report

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A day after Portugal formally requested aid from the European Union to help ease ongoing debt problems,
Madrid on Friday insisted that it was "out of the question" that Spain would be next.
German commentators aren't so sure, and say that it's time for European leaders to reveal the true extent of the problems.
Der Spiegel 8/4 2011

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ECB and The Taylor Rule - a difference of 9 per cent
President Trichet’s European Central Bank again faces the conundrum that its monetary policy rarely suits all 17 members of the euro area
Spain, Portugal, Ireland and Greece would need an average rate of minus 4.6 percent, according to estimates by Credit Suisse equity strategists.
Germany requires a rate of 4.5 percent, they say.
Bloomberg Apr 4, 2011

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The Taylor Rule, devised by Stanford University economist John B. Taylor, is a measure of where rates should be set given inflation and growth projections.

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Bara en floskelavtrubbad EU-byråkrat kan kalla en blyväst för en livboj och förvänta sig att bli trodd.
Politikernas räddning av krisande euroländer ser i själva verket ut att vara en enkelbiljett till den undergång de påstår sig vilja undvika
Andreas Cervenka, SvD Näringsliv 1 april 2011

Istället för sanering har länder med skuldproblem försetts med nya kreditkort, i form av nödlån från EU och IMF, för att kunna betala sina räkningar.

Matematikintresserade ekonomer påpekade redan ifjol att idén inte var allt för briljant. För ett land ska kunna banta sin statsskuld krävs att den ekonomiska tillväxten är minst lika hög som räntan på lånen.
Om inte måste mellanskillnaden sparas in genom stora överskott i statsbudgeten.

I djup lågkonjunktur tvingar det fram så masochistiska besparingar att ekonomin riskerar att krympa ytterligare.

Fallande BNP och stigande räntor gör att landet riskerar att hamna i en hopplös skuldfälla.

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The risk is roughly one in seven that Europe's ongoing debt crisis will push member nations to abandon the shared currency,
raising the spectre of the "effective end of the euro area,"
The Economist Intelligence Unit has warned
Daily Telegraph 4 Apr 2011

The pressure on politicians from voters at home to leave the shared currency could then become "irresistible", resulting in either stragglers like Portugal or Ireland or a robust economy such as Germany deciding to leave, before other members follow suit.

"This scenario posits that sooner or later, the cement that has held European countries together for decades cracks and the progression towards ever-closer union comes to a spectacular halt,"

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ever-closer union

State of the union: Can the eurozone survive its debt crisis?
Economist Intelligence Unit

State of The Union
Rolf Englund Internet 20/1 2003

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They’re bust. Admit it.
Greece, Ireland and Portugal should restructure their debts now
Angela Merkel called the euro-zone summit on March 24th-25th a “big step forward” in solving the region’s debt crisis.
Something between a fudge and a failure would be more accurate.
The Economist print March 31st 2011

The leaders fell short on almost every task they set themselves. They agreed on a “permanent” rescue mechanism to be introduced in 2013, but couldn’t fund it properly, because Mrs Merkel refused to put up money her finance minister had pledged. The Brussels gathering did little to help Greece, Ireland and Portugal, the zone’s most troubled economies.
Their situation is getting worse—and Europe’s leaders bear much of the blame.

At the EU’s insistence, the peripherals’ priority is to slash their budget deficits regardless of the consequences on growth.

But as austerity drags down output, their enormous debts—expected to peak at 160% of GDP for Greece, 125% for Ireland and 100% for Portugal—look ever more unpayable, so bond yields stay high. The result is a downward spiral.

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The total exposure of foreign banks to the struggling quartet of
Greece, Ireland, Portugal and Spain tops $2.5 trillion
once all forms or risk are included, according to the latest data from BIS
Ambrose Evans-Pritchard 14 Mar 2011

The BIS, the central bank of central banks, said in its quarterly report that Germany had $569bn of exposure to the quartet, France $380bn, and the UK $431bn.

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Three numbers stand out: 12.4, 9.8 and 7.8
Those are the interest rates currently paid on 10-year government bonds for Greece, Ireland and Portugal
CNBC/New York Times 25 March 2011

That they remain so high — compared with just 3.24 percent on German bonds — shows that investors remain unconvinced that Europe’s haphazard strategy for bailing out troubled, highly indebted countries has succeeded a year after it began.

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Kommentar av Rolf Englund:
Svenska staten betalar 3,463 procent

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EU bailar inte ut någon, EU lånar ut
Rolf Englund blog 25/3 2011

Vad säger Annika Ström Melin, som borde veta bättre?
Vad säger Carl Bildt, som inte vet bättre?
Vad säger Anders Borg, som vet mer än han låtsas?

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The divisiveness pact
Plans for closer economic integration in the euro zone could cause trouble
Charlemagne, The Economist print March 10th 2011

Euro-zone leaders have pursued two objectives: first, rescue those on the brink of collapse, such as Greece and Ireland, with temporary loans (not grants);

and second, try to impose Germanic rigour to prevent future crises.

None of this has convinced the markets.

It is still fair to ask if the pact is aiming at the right problems.

One cause of market turmoil is fear of contagion because of the fragility of Europe’s banks. But Germany is cagey about new stress tests and reluctant to recapitalise its institutions.

This blocks any sensible debate about restructuring Greek and Irish debt in the near term even though, confusingly, Germany insists that bondholders must in future bear more of the burden.

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Comment by Rolf Englund
The German banks have a lot of bonds from Ireland, Greece and Portugal, not to mention Spain...

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"Europakten är bra för Sverige"
Sverige bör föregå med gott exempel och på frivillig basis åta sig att uppfylla de krav som europakten ställer.
Annika Lundius, vice vd Svenskt Näringsliv, Europaportalen 23/3 2011

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The flawed economics of the Competitiveness Pact:
Daniel Gros, director of the Centre for European Policy Studies, Eurointelligence 10.03.2011

The macroeconomic imbalances of the GIP(S) (Greece, Ireland, Portugal and Spain) were caused by domestic demand booms, in turn driven or simply abetted by capital flows. The countries with the strongest increases in housing investment and consumption were also those with the highest measured loss of competiveness.

A restoration of competitiveness in Southern Europe needs ultimately a macroeconomic cure: a contraction in demand leading to adjustment in wages.

This ‘market based’ adjustment pattern needs time, but it works. It worked also for Germany between 1995 and 2005. It is difficult to see how regular meetings of the Heads of State and Governments could somehow override the wage setting process in labour markets.

The basic assumptions of Competitiveness Pact are thus flawed.

The real problem at present is that a debt overhang in GIP(S) has created financial market instability. In this sense Chancellor Merkel has been right to observe that we have a ‘debt crisis’ not a ‘euro crisis’.

But the appropriate corollary should be that we should fix the debt crisis, not add another layer of policy coordination.

http://www.ceps.eu/

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The Finnish problem

Peter Spiegel in the FT has a good article about the Finnish problem.

Finland is blocking the increase in the EFSF’s effective lending capacity because of the April 17 elections.
Finland’s PM Mari Kiviniemi said she had no mandate from the outgoing Finnish parliament to accept a deal,
and would need to call an emergency session of the parliament to get approval, which may be difficult, if not impossible.
Eurointelligence 23/3 2011

Her party, the centre party, has fallen to third place in a recent poll, as the eurosceptic True Fins is surging ahead, capitalising on the public’s opposition to increasing Finland’s liability in the eurozone rescue mechanism.

Läs mer i Hufvudstadsbladet


Riksdagens finansutskott beslutade i dag att Sverige inte ska gå med i den så kallade europakten,
när EU:s stats- och regeringschefer möts i Bryssel nästa vecka.
Ekot 17/3 2011

Folkpartiet däremot driver på för att Sverige ska gå med i europakten så snart som möjligt.
– Senast inom ett år bör Sverige gå med, säger Carl B Hamilton. Om vi inte är med kommer vi att ha svårt att skydda oss själva mot beslut som inte ligger i vårt intresse.

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Jean-Claude Trichet is upping his war against the European Council when he decried yesterday’s Ecofin agreement as poor and insufficient.
Eurointelligence 16/3 2011


"The fundamental problem is in the banking system "I think this whole thing is a Ponzi scheme in which governments that are already in deep red ink are trying to generate more red ink,"
Niall Ferguson, history professor at Harvard University, told CNBC 15/3 2011.

"The fundamental problem is in the banking system, and Europeans - now for how many years, four since this began? - have been in denial about the problem of insolvent banks and this, it seems to me, kicks the problem down the road and puts off the day of reckoning," Ferguson added.

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The European stability mechanism, which will be the permanent crisis mechanism from 2013
The agreement reached on March 11 not only appeared comprehensive, it also came as a surprise. Unfortunately, when you look more closely, as I did last week, it begins to look smaller. By the end of the week, it had crumbled.
Wolfgang Münchau, FT March 20 2011


These days no European summit is complete without a new deal to solve the eurozone debt crisis. It is always interesting to see how long it takes for the markets to lose faith in the latest solution. Sometimes the fix lasts for months, sometimes for weeks, sometimes just for days.

The deal reached to strengthen the bloc’s €440bn rescue fund will be overshadowed by the horrors in Libya and Japan.
That may delay the sceptical reaction in the markets and buy Europe some time.
But, have no doubt, the European debt crisis will return.

Gideon Rachman, FT March 14 2011

That is because the fundamental European problem is now not economic – it is political. Euroscepticism is rising across the European Union, both in countries that have received bail-outs and in the countries that have funded them.

That is sowing ill-feeling between nations and making it all but impossible for leaders to make necessary compromises.

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Right now Europe may be embarking on a path that could tilt the union away from economic liberalism,
risking a split and, ultimately, even a British exit.

Mrs Merkel seems to be sleepwalking into this danger.
The Economist print 10/3 2011

For all her sound instincts and skills as a politician, she appears to have no vision for the EU. She has been woefully slow to get to grips with the euro zone’s troubles, largely because German voters do not want to bail out weak countries such as Greece, Ireland and potentially Portugal. And, in her efforts to assure her countrymen that she is imposing Teutonic discipline on the profligate peripherals, she is allowing the euro zone’s role in forming the EU’s economic policies to be greatly enlarged.

Experience shows that formal votes and veto rights in EU summits do not offer complete protection. The EU is a club, not a parliament. When proposals get to a summit, they have momentum: you can fight one or two, but not the whole lot.

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Nobel Prize-winning economist Joseph Stiglitz said the European Union may face a “lost half-decade” similar to that experienced by Japan
as governments implement budget cuts that may undermine the economic recovery.
Joseph Stiglitz, Bloomberg Mar 8, 2011

“In Japan -- where they tried to balance the budget too early -- in 1997 and 1998, Japan went in for another lost half- decade,”

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Japan

Will the dam break in 2007?
Joseph Stiglitz, The Guardian 27/12 2006

More by Joseph Stiglitz at IntCom

Joseph Stiglitz at Bloomberg

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Why the eurozone will survive
Martin Wolf, FT March 8 2011

An interesting new report: “Europe will work”, published by Nomura Global Economics under the direction of John Llewellyn and Peter Westaway makes the case.

The eurozone is the product of a process of European integration that began in the aftermath of the second world war. Even for today’s leaders, this remains an existential project

The consequences of even a partial break- up of the eurozone are unknowable and frightening. Only in extreme circumstances would European leaders contemplate this step.

This does not mean that some form of break-up is inconceivable: Germany would exit if the body politic concluded that membership was incompatible with monetary stability; peripheral countries would also exit if they concluded that membership was incompatible with prosperity. Neither is close to that decision, as yet.

The convergence of perceived risks stimulated accelerated convergence of incomes. In the euphoria of the time, incautious lenders lent borrowers the rope with which the latter could hang themselves, be they irresponsible governments (as in Greece) or foolish private entities (as in Ireland and Spain). The result was huge indebtedness.

500 punkter är fem procent, naturligtvis



When private lenders tighten the noose, notionally private debt tends to turn into public debt, as governments try to rescue imploding financial systems and sustain activity in collapsing economies. Even countries with sound public finances, such as Ireland and Spain, find themselves in such difficulties.

As the Nomura report notes, the manageability of public debt depends on just three things:
- the primary fiscal deficit (before interest);
- the “snowball” – the relationship between the interest rate and prospective growth;
- and the impact on public debt of “stock-flow” adjustments – the need to bail out banks or “debt deflation” (jumps in the burden of debt due to falling domestic prices or currency devaluations, when debt is denominated in foreign currency).

It is in the nature of crises that they make all three of these far worse.

I find it unforgivable that the last Irish government guaranteed bank debt so insouciantly
and that the rest of the European Union has supported this decision.

For a sovereign to destroy its own credit, to save creditors of its banks, is plainly wrong.
It does not make it better, but worse, that it is doing so largely to protect financial systems in other countries.

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Grekland

Irland

Spanien

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Euro breakup revisited
I would take Germany’s limited liability as given, both for reasons of domestic politics and constitutional law.
It is inconceivable that the German constitutional court would accept an unlimited burden sharing.
And even a change of government in 2013 would not fundamentally Germany’s position.
If any politicians tried to raise Germany’s burden, the country would revolt.
Wolfgang Münchau 24.03.2011

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Egentligen strider det mot EU:s grundlag att låta EMU-länderna gå i borgen för varandras skulder,
men finansmarknaderna har länge satsat på att unionen ändå aldrig skulle låga ett euroland gå i konkurs.
Men det är just vad EEAG:s sjuhövdade råd av tunga europeiska ekonomiprofessorer föreslår som krislösning.
/The Group is chaired by Jan-Egbert Sturm and includes Giancarlo Corsetti and John Hassler (Stockholm University/
DI 9/3 2011


It is twelve years since the launch of EMU.
There has been no meaningful convergence of the disparate economies since then. The one-size-fits-all monetary policy continues to cause havoc. All that changes with the evolving economic cycle is a rotation in the locus of stress, and a change in its features.

Meanwhile, everything is tilted to meet the German imperative, but not enough to satisfy Germany. Nobody is satisfied.
Membership of monetary union as currently constructed is like walking with a sharp stone in your shoe, forever. You can put up with it, or take the stone out.

Ambrose Evans-Pritchard 7 March 2011


For the benefit of our readers, we thought we’d post a copy of the Barroso-Van Rompuy plan’s four-page outline,
which was distributed to eurozone “sherpas” – the economic officials in each country responsible for negotiating the deal
– at a closed-door meeting Monday (click here to see the pdf).
FT Brussels blog March 1, 2011


Eurokrisen är inte över
Detta kan visa sig vara lugnet före, om inte stormen så åtminstone det stora braket.
Mars kan bli riktigt rörigt och återigen sätta det finansiella systemet inom eurozonen under press
- liksom det inte helt transparenta politiska beslutssystemet.
Per Lindvall, e24, 2011-02-18

Om det brakar kommer det inte längre att räcka med att låtsas att det är ett likviditets- och budgetdisciplinsproblem, som Euroföreträdarna har gjort så här långt.

Det kommer att vara uppenbart att det handlar solvensproblem, det vill säga att det finns stora förluster i systemet som någon måste betala.

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"I dag försöker finansministrarna till varje pris hindra en omstrukturering av statsskulderna,
men mycket talar för att man till slut tvingas till en sådan ändå.
Och det blir en enorm prestigeförlust eftersom man har kopplat ihop det med eurons framtid, vilket det egentligen inte finns någon anledning till"
Lars Calmfors, Dagens industri 18/2 2011

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Use of marginal lending facility spikes to €15bn
In the money markets, this headline is the equivalent to “fire in the theatre”.
Eurointelligence 18/2 2011

Take-up of the ECB’s marginal lending facility – an overnight emergency facility with an interest rate of currently at 1.75% - has suddenly spiked to €15bn in the previous night. A normal take-up rate is below €1bn, so this increase could signal that a bank is in serious funding trouble. It could also mean that it was a mistake – a bank accidentally tapping the facility, something that has happened before. The statistic alone is not sufficient proof of another banking crisis, but money market traders have learned to be sceptical. The key moment to watch is today’s release of the MLF.


First, low interest rates, especially in real terms, which resulted from the single monetary policy, and encouraged risk-taking behaviour;
Second, fiscal policies assessed on the basis of nominal variables (deficit as a percentage of GDP) turned out to be pro-cyclical and contributed to excessive domestic demand growth and the accumulation of external imbalances
Speech by Lorenzo Bini Smaghi, Member of the Executive Board of the ECB, 14 February 2011

The expectation of higher levels of income led to excessive consumption and investment compared with the supply capacity of the economy. As a result, cost and price increases in the non-tradable sector exceeded productivity gains. [3] Higher inflation differentials in the catching-up countries could partly be attributed to Balassa-Samuelson effects [4]. However, the divergences in nominal developments were further fuelled by four pro-cyclical factors:

First, low interest rates, especially in real terms, which resulted from the single monetary policy, and encouraged risk-taking behaviour;

Second, fiscal policies assessed on the basis of nominal variables (deficit as a percentage of GDP) turned out to be pro-cyclical and contributed to excessive domestic demand growth and the accumulation of external imbalances;

Third, supervisory policies in many countries did not counteract excessive risk-taking and the related excessive credit growth, which fuelled a housing boom and/or an overheating process;

Fourth, financial markets and rating agencies failed to differentiate sufficiently between euro area countries with different risks, contributing to the significant compression of risk premia in the sovereign debt securities markets. Ten-year government bonds were almost equally priced across all euro area countries between 2001 and 2007, while economic fundamentals continued to be very different.

Let me now expand briefly on some of these points.

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Comments at The Irish Economy

We have been presented with the same data over and again:
since 1999 when the euro was introduced, unit labor costs have risen by 25% to 30% relative to Germany in Greece, Spain, Portugal and Italy.
This is impressive, but well short of a proof. First, is 1999 a good base to make comparisons?
We know that Germany mistakenly converted deutschemarks into euros at an inflated value, thereby knocking off its competitiveness.
Wage moderation was needed and impressively achieved over the first decade of the euro.

Charles Wyplosz, Eurointelligence 17.02.2011


Why Angela Merkel's Competitiveness Pact is a bad idea, and what else she should do
Charles Wyplosz, Eurointelligence 17.02.2011

We have been presented with the same data over and again:
since 1999 when the euro was introduced, unit labor costs have risen by 25% to 30% relative to Germany in Greece, Spain, Portugal and Italy.
This is impressive, but well short of a proof. First, is 1999 a good base to make comparisons?
We know that Germany mistakenly converted deutschemarks into euros at an inflated value, thereby knocking off its competitiveness.
Wage moderation was needed and impressively achieved over the first decade of the euro.

Charles Wyplosz, Eurointelligence 17.02.2011


Rädda euron första punkten på finansministrarnas lista
Av de 500 miljarder euro som ska finnas i den nya fonden ska hela summan vara lånbar.
Hur man då ska bevara AAA-värderingen valde de 17 euroländerna att skjuta på framtiden.
Teresa Küchler e24, 2011-02-16

För att komplicera de redan spretiga diskussionerna något mer så har Nicolas Sarkozy och Angela Merkel presenterat ett eget förslag om EU:s konkurrenskraft.

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For months, financial markets and policymakers from Wall Street to Frankfurt have been begging European leaders to do something – anything –
to address the short-term needs of struggling, debt-laden countries on the periphery of the eurozone.
Instead, Europe’s presidents and prime ministers have proposed plan after plan to deal with the continent’s economic problems over several years.
FT, February 15 2011

Of all the short-term measures that once appeared likely, only two have achieved any semblance of consensus: strengthening the bail-out fund’s financial firepower – ensuring that €440bn is really €440bn – and an extension in loan maturities for Greece.

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Dangers lurk in Franco-German plans for a more tightly integrated euro zone
The Economist print Feb 10th 2011

On the face of it, the pact is about bolstering the economic bit of Europe’s economic and monetary union (see Charlemagne).

But the pact does little to resolve the euro’s current sovereign-debt crisis.
First Greece and then Ireland have been bailed out. Portugal may be next. Yet though this may buy time, it fails to recognise that Greece and maybe the other two as well are insolvent (see article).

The pact also includes ideas that are not just unhelpful, but also damaging. One is to impose constitutional amendments to enforce balanced budgets, which are too rigid in a system without a big federal budget.

This should also worry EU countries outside the euro, including Britain, Poland and Sweden.

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Sarkozy in Davos
'Mrs. Merkel and I Will Never, Never Allow the Euro To Fail'
Der Spiegel 27/1 2011

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James Bond Never say never again
The title is based on a conversation between Sean Connery and his second wife, Micheline Roquebrune. After initially retiring from the role following Diamonds Are Forever (1971) he told the press he would "never again" play James Bond; her response was that he should never say "never" again.
Read more here


It is hard to estimate the exact amount it will cost to recapitalise the European banking sector. I have heard a credible estimate of €100bn-€200bn.
Last year’s bank stress tests came up with a puny €3.5bn – a deliberate attempt by Europe’s regulatory authorities to misrepresent facts and mislead the public.
Everything I hear about the next round of stress tests tells me they will once again try to hide the truth.
Wolfgang Münchau. FT February 6 2011

This is the biggest push of German political hegemony in my lifetime. It is the price the German chancellor commands for her acceptance of an increase in the lending ceiling of the EFSF.

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The key issue in Europe now is not the merits of the single currency but the parlous state of its banking system.
Philippe Legrain, Eurointelligence 11.01.2011

Too much was lent too cheaply to American subprime borrowers and Spanish property developers, Icelandic and Irish banks, Dubai and Greece. Among the biggest lenders were European banks.

At heart, the “euro crisis” is a wrestling match over who will ultimately bear these bank losses.

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Finanskrisen

EMU Collapse

Cui Bono?

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Roubini says it is absurd to focus on 2013
“ What the euro countries decide for 2013 is completely inconsequential. Forget 2013!
The important thing is what will happen in the next three months in Portugal, Spain, Italy, and France.
I can’t fathom how the EU member states can hold a summit entirely preoccupied with what will happen after the present rescue package runs out,
without once mentioning what they intend to do now to help Portugal and Spain.”
Eurointelligence 12/1 2011

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Europe is now facing what Edwin Truman of the Peterson Institute for International Economics calls
“a collective run on the financial institutions and governments of the euro zone countries.”
This contagion, says the former head of the Federal Reserve’s international finance division, makes it essential that euro zone members and the European Central Bank devise “a Plan B,
a structured process for writing down debts,” in case the current safeguards — the country by country bailouts — don’t hold.
MaketWatch Dec. 17, 2010

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Let us assume for the sake of argument that Europe succeeds in containing the immediate EMU debt crisis, with help from Asia, and that Germany’s fractious coalition actually agrees to a bail-out fund big enough to make any difference.
What does this achieve, other than allowing banks to buy time by offloading liabilities onto European and Chinese taxpayers?
Ambrose Evans-Pritchard, 16 Jan 2011

The 30pc gap in labour competitiveness that has built up between Germany and Club Med since the eurozone currencies were locked together in perpetuity will remain.

Greece, Portugal, Spain, and Ireland will stay trapped in structural depression through this year, and well into next, rotating from a liquidity crisis to a chronic political and social crisis that exposes the inability of elected governments to counter 1930s job wastage. Unemployment is 28pc in Andalucia, and 30pc in Cadiz.

Chancellor Angela Merkel can choose to save monetary union, first by doubling the size of the EU bail-out fund and halve the interest rate charged so that the debt-stricken states can recover; and then by acquiescing in fiscal federalism and a pooling of debts -- what McKinsey’s chief in Germany calls a "spiral into a Transferunion" – entailing a regime of subsidies for years to come.

That is to say, Germany must be prepared to do for Southern European what it has already done for its own kin in East Germany, but on six times the scale.

Or she can pull the plug, by quietly signalling to the Verfassungsgericht that Berlin would not be too angry if the eight judges declared the EU’s rescue machinery to be unconstitutional, ending EMU as we know it.

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The dam breaks in Portugal
As Wolfgang Munchau wrote in the FT on Monday,
the essential problem is that Spain and other Club Med states cannot both deflate to regain lost competitiveness within EMU and at the same grow fast enough to control debt dynamics.
They can do one or the other, but not both at the same time.

The EU strategy is simply unworkable.
Ambrose Evans-Pritchard, January 11th, 2011

The EU strategy is simply unworkable. It relies on hope and a prayer, and the misguided belief that the North-South imbalances are “self-correcting” to pinch from Wolfgang’s excellent column once again.

All we can do is stand back and watch in pain as the Euro-Hegelians ruin one country after another.

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At the December summit, the European Union missed a historic chance to get on top of this crisis.
We will do whatever it takes, they swore, and went home.
Nobody believed them, but the panic did not start until last week, when bond yields rose, and the euro slumped.
Wolfgang Münchau, FT January 9 2011

The most glaring manifestation of this lack of leadership is the EU policy consensus
that this crisis will eventually be self-correcting, and that a robust liquidity backstop is all that is needed.
This is a tragic error.

What makes this crisis self-sustaining is the presence of two interacting components:
a combined private and public sector solvency crisis, and a competitiveness crisis.

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Vad finns det egentligen för ekonomiska argument för att EU eller EMU ska låna ut pengar till de medlemsländer som inte har ordning på sina statsfinanser? Vad skulle hända om vi inte ställde upp, utan i värsta fall lät exempelvis Grekland göra en ensidig nedskrivning av sina skulder med kanske tjugo eller trettio procent?
för skattebetalarna vore det naturligtvis billigare om staten bara räddar bankerna från konkurs, och om man dessutom gör det på ett sådant sätt att man inte räddar dessa bankers aktieägare, utan bara den systemviktiga verksamheten.
Mats Persson, DN Debatt 2011-01-09

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So do not be fooled by anybody who says that the central bank should cut interest rates for the benefit of innocent citizens
Wolfgang Munchau, FT January 20 2008


Greece has become the world's riskiest borrower in the fourth quarter of 2010, surpassing Venezuela,
while Spain, Portugal and Ireland were riskier than Iraq

CNBC 7 Jan 2011

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Irish 10-year yields have been climbing to 9%, Greek 10-year yields to over 12%,
well into territory where investors are factoring in a non-trivial default risk.
Eurointelligence 6/1 2011


Euron är "världens mest stabila valuta".
Eurogruppens ordförande Jean-Claude Juncker i en tidningsintervju på fredagen, rapporterar Bloomberg News.
DI 2011-01-03

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Jean-Claude Juncker dismissed concerns about the future of the euro, calling it
“the most solid currency in the world,”
“We are not facing a crisis of the euro, but a debt crisis in individual euro nations,”
“The euro’s existence and its essence are not at risk.”
Bloomberg Dec 31, 2010

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The foreign owner of a Greek, Irish or Portuguese bond, for example, faces two specific dangers
One is the risk of a eurozone break-up.
The other is a default risk – in which case the debtor defaults but stays inside the eurozone.
Wolfgang Münchau, FT December 29 2010

You can make a useful distinction between risks that are positive, but too small to bother about, and those that are small, but non-trivial. Three years ago I would have described the risk of a eurozone break-up as trivial. Now I still think it is small, but non-trivial.

Risk awareness is something that shifts suddenly. For a long time you may see no risk; when you do, it is time to seek insurance. For the first 10 years of the eurozone, investors considered the risks trivial and sought no insurance whatsoever. They treated the bonds of eurozone member states almost identically. But once this changed, sovereign bond yields began to diverge rapidly.

What we saw last year was not a speculative attack on the euro, as continental European politicians would have us believe, but a perfectly normal response to a change in risk perception

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Europe preview of 2011
In 1931 the collapse of the Creditanstalt, an Austrian bank, heralded the Great Depression.
Eighty years later could the end of the euro set off a catastrophic chain reaction
tearing down the world’s financial institutions and states?
Bruno Waterfield, Daily Telegraph 24 Dec 2010

The unthinkable is being thought in chanceries, cabinets, treasuries and central banks across Europe as the year begins after market doubts over the ability of euro zone governments to pay back their debts resulted in two countries, Ireland and Greece, going into receivership in 2010.

Despite the gloom, 2011 will begin with Estonia, an economically challenged East European state, joining the euro. It will be the single currency’s 17th member and a triumph of optimism over pessimism - or reality, as many will see it.

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Joschka Fischer om en ny allians mellan Paris och Berlin
Den irländska krisen har kommit mig att för första gången undra om euron – och därmed EU – kan gå i stöpet.
Trenden går i riktning mot ett ”tyskt Europa”, som aldrig kommer att fungera.
Joschka Fischer, Kolumn DN 28/12 2010

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The euro’s struggles could become more pronounced in coming months as traders increasingly use the beleaguered currency to fund so-called “carry trades.”
That may sound surprising, given the yen and the dollar’s singular appeal as currencies is that they cost next to nothing to borrow.
But the euro is perceived to be so vulnerable to further declines on the foreign exchange market that big market participants are zeroing in on trades to bet against it.
Stephen L. Bernard, WSJ Real Time Economics, 21/12 2010

Carry Trade

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The crisis was caused – except in Greece – by large and persistent intra-eurozone private sector imbalances between the centre and the periphery,
which gave rise to large financial flows and bubbles. The European response is not to address the problem directly
but to insist on fiscal discipline and structural reforms.
Wolfgang Münchau, December 19 2010

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If Germany and its hard-money allies genuinely wish to save the euro – which is open to doubt –
they should stop posturing, face up to the grim imperative of a Transferunion, and
desist immediately from imposing their ruinous and reactionary policies of debt deflation on southern Europe and Ireland.
Ambrose Evans-Pritchard, 19 Dec 2010

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Mechanics of a European capital flight
$107bn outflow from Greece, Ireland, Portugal and Spain in Q2
FT Alphaville Dec 13 2010

It’s a nine-page note oozing with detail about how — precisely — capital flight amongst eurozone members impacts the eurosystem.
And it’s timely stuff given that the Bank for International Settlements just reported a (very rough)
$107bn outflow from Greece, Ireland, Portugal and Spain in the second quarter of this year.

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Trichet

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Most economic historians and international economists I know believe a monetary union would fail unless it develops into a fiscal union.
Yet, almost all political and legal experts who specialise in the European Union believe a fiscal union is Utopian.
If both are right, a fiscal union is simultaneously necessary and impossible.
And that would mean – again if both are right – that the euro is doomed to fail.
Wolfgang Münchau, FT December 12 2010

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a defining moment for Europe
I make no apologies for repeatedly taxing the reader with commentary on the future of the single currency,
for its crisis is without doubt the most important European story of the decade.
We are fast approaching a defining moment.
Jeremy Warner, Daily Telegraph 9 Dec 2010

"Un-European" though it might be – that's what Luxembourg's prime minister, Jean-Claude Juncker, called it – Germany is not about to yield on the "no bail-out" clause.

This is the bit of the Stability and Growth Pact that forbids fiscal transfers between members of Europe's monetary union.

It is hard enough to get west Germans to subsidise east Germans, or Englishmen to support the Scots.

If you couldn't contain Germany, you might at least be able to give it common cause with the rest of Europe by integrating it. For a while, this seemed to work.

Monetary union was the quid pro quo for allowing a re-united Germany, a way of further binding Germany's national interest into that of the rest of Europe.

Does Europe press on down the road of ever closer union, which means debt sharing and fiscal homogenisation, or do nations retreat back into the pursuit of narrow self-interest?

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Former British Prime Minister Gordon Brown has said he
fears the euro will face a "high noon" moment of reckoning early in the New Year.
BBC 8 December 2010


Nils-Eric Sandberg och sökandet efter EMU:s Holy Grail
Rolf Englund blog 9/12 2010

Euro-Krise
Vergiftete Staaten von Europa
Es wird gelästert und kritisiert. Es ist eine paradoxe Situation
- die Währung, die Europa eigentlich aneinander binden soll, spaltet den Kontinent zunehmend.
Der Spiegel 9 december 2010

Freden - Peace in our time

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Doubts are growing as to whether the euro has a future
Europe needs a far-reaching debt restructuring mechanism - but strangely,
politicians have shown a preference for issuing yet more mountains of debt. The euro has never been popular with Germans.
But now that they might have to atone for the financial sins of other EU countries,
the number of euroskeptics has been swelling dramatically.
Der Spiegel 7/12 2010


Konstruktionen av den fond som sattes upp efter Greklandskrisen i våras har en inneboende svaghet.
Den garanteras av samtliga EMU-medlemmar, men ett land som själv använder fonden faller bort som garant.
Det innebär att ju större behovet är av fonden desto mindre pengar har den att låna ut.
Viktor Munkhammar, DI 2010-11-30

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One of the hallmarks of the unfolding financial crisis is that even “experts” quickly concede that
they do not have answers to most of the really important questions

Gideon Rachman, FT December 6 2010

How do you balance the moral hazards of propping up the banks, with the practical hazards of letting them default?
Even if you wanted to break up the European single currency, how, technically, would you do it?
Would it be possible even to discuss breaking up the euro, without provoking capital flight and renewed banking crises in the weaker economies?

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Desmond Lachman, now a research fellow with the American Enterprise Institute:
Most people continue to underestimate the severity of the problem. The euro zone could be in disarray by this time next year
Fortune 13/12 2010

Next year could bring a crisis that will likely end with weaker countries streaming for the euro zone's exits.
Ireland, Greece, Spain and Portugal desperately need to devalue their currencies to restore competitivenes

Once you're in a fixed exchange rate system and you allow internal and external imbalances to start building, it's impossible to fix without a massive recession. But a deep recession undermines the political will to make the needed changes, and it erodes the tax base, which means the government ends up collecting less money even with taxes going up.

You said last month at a conference that there's no way this will go on for three years. Now you're saying 12 to 18 months. But why not next Tuesday, say?

Oh, there will be a fight. The stakes are so high.

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Why Greece will have to leave the eurozone
Desmond Lachman, FT January 11 2010

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Any bank requires a continuous flow of funds and the question ceases to be whether it is solvent and becomes simply whether it will be able to refinance maturing debt at an acceptable price.
The worry that it won’t becomes self fulfilling.
The euro area is standing on the brink of such a meltdown today.
Sir John Gieve, Daily Telegraph 7 December 2010

Sir John Gieve is senior adviser to GLG Partners, part of Man Group, and a former deputy governor of the Bank of England

It only needs a small level of risk to make it sensible to steer clear. So now it is Portugal and Spain issuing the denials while Italy, Belgium and even France try to dismiss any threat as absurd.

Although for the present, banks and sovereigns can turn to the European Central Bank for funding, the ECB is wary of being drawn into providing fiscal transfers through the back door (by buying sovereign and bank debt which will in time be written down).

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Trichet

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How Close Did Europe Come to Lehman-Style Crisis?
Before the European bailout package the European banking sector was awash with rumors of an
impending liquidity crunch as interbank lending rates spiked
Many banks with the highest Tier 1 Capital Ratio were struggling to raise money
for more than a 30-day time horizon on the Friday afternoon before the bailout
Patrick Allen, CNBC Senior News Editor 17 May 2010

When the European Central Bank's nearly $1 trillion package was announced on the following Monday, banks were able to raise 12-month funds again, Browne said.

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Time for Plan B
The euro area’s bail-out strategy is not working.
It is time for insolvent countries to restructure their debts
The Economist print 13/1 2011

This newspaper does not advocate the first rich-country sovereign defaults in half a century lightly. But the logic for taking action sooner rather than later is powerful.

The only plausible long-term alternative to debt restructuring—permanent fiscal transfer from Europe’s richer core (read Germany)—seems to be a political non-starter.
Some of Europe’s politicians favour closer fiscal union, including issuing euro bonds, but they are unlikely to accept budget transfers big enough to underwrite the peripheral economies’ entire debt stock.

The burden on the countries that have been rescued is enormous.
Despite the toughest fiscal adjustment by any rich country since 1945, Greece’s debt burden will, on plausible assumptions, peak at 165% of GDP by 2014.

The Irish will toil for years to service rescue loans that, at Europe’s insistence, pay off the bondholders of its defunct banks.

At some point it will become politically impossible to demand more austerity to pay off foreigners.

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The financial storm has reopened the debate on the euro’s flawed design
The political commitment to the euro may be strong enough to bail out excessive debtors and even to survive a partial default. But it may not be so strong that it can support closer fiscal integration.
Charlemagne, The Economist print Dec 2nd 2010

In between the two is just prayer and improvisation. The EU will try to make its fixes hold long enough for the storms to subside. But all know that if the jet engine and the biplane came apart, the result would be a horrible, fiery crash.

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Hur många euro går det på en tulpanlök? Rätt svar är: minst en.
Den gemensamma valutan har alla förutsättningar att tillsammans med 1600-talets holländska tulpaner
kvala in på fortsättningen av den framlidna professorn Charles P Kindlebergers klassiska lista över historiska finans- och spekulationskriser.
Per Lindvall e24 14/1 2011

Det finns en lång rad finansiella kriser genom historien: tulpanlökarna i Holland (1630-talet), brittiska South Sea Company och franska La compagnie du Mississippi (1720-talet), kanal- och järnvägsbyggande samt nya banker och finansinstitut (1800-talet), amerikanska aktier (1929), havererade europeiska banker med österrikiska Credit Anstalt i spetsen (1931).

Bland de mer närliggande finns amerikanska Savings & Loans-krisen, Japankraschen och den skandinaviska finanskrisen (slutet av 80- och början av 90-talet), samt Asien-, Ryssland- och Internetbubblan (före och efter millennieskiftet).

Med införandet av euron ”konvergerade” riskpremierna på alla euroländernas upplåning mot den ”riskfria” tyska räntan.

Att lånen var emitterade i denna gemensamma valuta gav uppenbarligen omvärlden och i synnerhet de som köpte statsobligationerna en övertygande känsla av att länder och marknader som Grekland, Spanien, Portugal och deras historiska betalningsbekymmer var just bara historia.

Det gällde även Irland, Estland, Lettland och Litauen som knöt sina valutor till euron för att i framtiden gå med i valutaunionen. Det gav samma övertygande känsla till dem som lånade ut pengar till grekiska, irländska och spanska banker.

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Tulipmania in the Netherlands in the 1630s

South Sea Bubble (1720)

Finanskrisen

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Det osannolika och omöjliga med en uppdelning eller ett sönderfall av euron i en ny monetär flora,
blasfemiskt tal i politiska kretsar men livligt diskuterad i akademiska,
har blivit allt mer sannolikt.

Per Lindvall 10/12 2010

Visserligen låtsas eller hoppas det breda och okoordinerade ledargarnityret inom den europeiska centralbanken, ECB, eurozonen och EU att krisen inom de så kallade PIIGS-länderna i grunden bara är en likviditetskris, som uppstått på grund av en neurotisk, alternativt spekulationsdriven, kapitalmarknad.

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For sceptics the question has always been how robust a currency union among diverse economies with less than unlimited mutual solidarity can be.
Only a crisis could answer that question. Unfortunately, the crisis we have is the biggest for 80 years.
Will what the eurozone is able to agree to do be enough to keep it together? I do not know.
We all will, however, in the fairly near future.
Martin Wolf, FT December 7 2010 19:48

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Can Europe save the euro?
Slowly, people are beginning to realize that the eurozone's debt problems are structural.
And that means adding more debt to countries like Ireland,
already struggling to repay creditors, is a recipe for disaster

Anthony Mirhaydari, MSN Money 1/12 2010

-- a disaster that could pull the global economy into the double-dip recession that was so feared earlier this year. And it could potentially undermine the euro.

On Monday, Wall Street traders watched in horror as the euro plunged beneath its 200-day moving average for the first time since January

You probably realize by now that this debt-deflation death spiral merely shifts the risk of losses from bank investors to taxpayers

The blame doesn't rest solely with spendthrift politicians in Greece or spendthrift bankers in Ireland.
The troubles go to the very heart of the union behind the euro -- the European Economic and Monetary Union.

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Anthony Mirhaydari is the founder and publisher of the Edge, a new investment advisory newsletter. Previously, he was a senior research analyst with Markman Capital Insight, an advisory and money management firm, and a business consulting analyst with Moss Adams focusing on the financial-services industry. He studied finance at the University of Washington's Foster School of Business, graduating magna cum laude. Mirhaydari lives in the Seattle area with his wife and two children.

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2011 will see the first member of the European single currency starting to talk seriously about
leaving the euro zone.
That country will be Germany.
Guy Johnson, CNBC "European Closing Bell" Anchor 29 Nov 2010

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Under a floating exchange rate, some of the pressure would be relieved by a rising exchange rate in the boom and a falling rate in the bust.
With a pegged rate, the collapse in the currency would normally restore competitiveness and growth.
In a currency union, these safety valves are lost. Instead, we have a joint credit and competitiveness crisis.
The solution for the loss of competitiveness is a sharp fall in prices.
But that worsens the credit crisis: this, then, is debt deflation, as Ireland knows
Martin Wolf, FT November 30 2010

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What about the spectre of “debt deflation”?
This was invented by the leading US economist, Irving Fisher,
after he had bankrupted himself in the 1929 stock market crash.
Samuel Brittan, Financial Times January 29 2009

EMU - en snabbkurs

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European finance ministers have in effect announced that the risks of lending to financially stretched eurozone countries would increase in two and a half year's time
- which is no time at all for many investors.
Robert Peston BBC 29 November 2010

In practice this means that the eurozone has set itself a deadline of two and a half years to persuade investors that its finances are in order. If it fails to do so, a whole host of weaker eurozone states could find they are confronted with punitive borrowing terms or even a strike by lenders.

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Endgame
The same pattern again. The EU agrees a pact, and the markets are panicking.
This time it took them only a few hours. The EU’s credibility is sinking with each agreement.
We are now fast approach default time. Yields have been rising in Spain and even Italy yesterday afternoon,and the situation continued to deteriorate overnight.
We at Eurointelligence consider a default of Greece, Ireland, and Portugal a done deal.
Eurointelligence 30/11 2010

The markets attention shifted from the immediate funding problems to the underlying solvency issues.
Ireland’s interest rates under the EFSF will average 5.8%, and investors realised that this rate is too high to be sustainable.
As the country’s nominal growth is almost certain to lie well below that number for many years to come, Ireland’s debt will be on an explosive trajectory.
The markets have come to recognise that Ireland is insolvent. This morning, the yields on 10 years were close to 9.5% - which entails a high default probability.

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Despite an €85 billion bail-out for Ireland, the euro zone’s debt crisis is getting worse.
Our first article looks at why politicians’ attempts to stem the crisis are failing.
Our second examines what a break-up of the euro zone might look like
The Economist print Dec 2nd 2010

“The speculation on international financial markets can’t be explained rationally at all,” declared Wolfgang Schäuble, Germany’s finance minister. But it can, and there are three reasons why.

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Breaking up the euro is not unthinkable, just very costly.
Because they refuse to face up to the possibility that it might happen,
Europe’s leaders are failing to take the measures necessary to avert it.
The Economist print Dec 2nd 2010

Deep down lurks the sullen suspicion that this is a drama that the euro zone may be condemned to relive time and again. So why not get out now?

However much countries may now regret joining the euro, leaving it does not make sense. But the fact that it ought to survive does not mean that it will. And unless Europe’s leaders move further and faster, it might not.

Europe’s leaders have been slow and timid in response to market pressures.

Only belatedly have they recognised that some countries are not just in need of bridging loans to tide them over, but may be unable to repay their debts. That means that some pain will have to be inflicted on bondholders.

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I become nervous when Angela Merkel says the future of the euro and that of the EU are inextricably linked.

What worries me is that, on the evidence so far, Berlin does not have the political will to rescue the single currency.
Philip Stephens, FT December 2 2010


Europe is edging towards the unthinkable
The eurozone is manoeuvring itself into a position where it confronts the choice between two alternatives considered “unimaginable”:
fiscal union or break-up.
Wolfgang Münchau, FT November 28 2010

Let me assure you that my proposal stands no chance of success.
For a start, Angela Merkel, the German chancellor, would not allow it.
The German constitutional court would not allow it either.
The proposed treaty change would almost certainly be defeated in some referendum if it were agreed.
And member states would never countenance ceding control of their banking sectors.

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Fear is spreading in Europe. How many countries are going to need bailouts
-- and how many billions of euros will that take?
And is the entire euro alliance at risk?
Der Spiegel 11/26/2010

But what scares those who deal with euro policy the most is the situation in Spain. The €750 billion program set up by the European Union and the International Monetary Fund for dealing with the euro crisis may be enough to cover Greece, Ireland and Portugal without problems, but there could be problems if a bailout is needed for Spain, which is Europe's fourth-largest economy.

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Allra störst exponering har det svenska banksystemet mot Estland och de baltiska grannländerna. Jan Häggström, chefekonom på Handelsbanken, varnar för att den baltiska finanskrisen kan förvärras igen om Estland inför euron som planerat, nästa år.

How to solve the financial crisis?
Let me tell you a little secret, folks.
Play for time. A few years of nice profits will help offset the big losses from past blunders

Allan Sloan, senior editor CNN, August 18, 2008

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The euro crisis
Spreading from Ireland to Iberia
To stop the euro’s meltdown, Zapatero must revive Spanish reform
Europe’s rescue plan is based on the idea that Ireland and the rest just need to borrow a bit of cash
to tide them over while they sort out their difficulties.
The Economist print Nov 25th 2010

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Probably one of the best pieces of analytical commentary we have yet read on the eurozone situation
Once the dust finally settles Europe will either be a unified country
with fiscal sovereignty firmly established in Berlin or Brussels,
or it will be fragmented with little chance of reunion.

Michael Petis via Rolf Englund blog 24/11 2010

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Credit default swaps (CDS) measuring risk on German, French and Dutch bonds have surged over recent days,
rising significantly above the levels of non-EMU states in Scandinavia.
Ambrose Evans-Pritchard 26 Nov 2010

"Germany cannot keep paying for bail-outs without going bankrupt itself," said Professor Wilhelm Hankel, of Frankfurt University. "This is frightening people. You cannot find a bank safe deposit box in Germany because every single one has already been taken and stuffed with gold and silver. It is like an underground Switzerland within our borders. People have terrible memories of 1948 and 1923 when they lost their savings."

While Germany's public and private debt is not extreme, it is very high for a country on the cusp of an acute ageing crisis. Adjusted for demographics, Germany is already one of the most indebted nations in the world.

Europe's fate may be decided soon by the German constitutional court as it rules on a clutch of cases challenging the legality of the Greek bail-out, the EFSF machinery, and ECB bond purchases.

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Eurozone borrowing costs hit record
Don Smith, economist at Icap, said: “Wildfire can be very difficult to put out.

The contagion could eventually spread all the way to France. The markets are very nervous.”
FT 25/11 2010

“The moment you have even a flicker of a doubt about default risk, it becomes rational to reduce positions in a larger country like Spain purely on grounds of diversification,” he said.

Some traders warned that contagion could even spread to the core eurozone debt markets of France and the Netherlands.

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Martin Wolf refers me /Clive Crook/ to this new paper by Paul De Grauwe,
The Governance of a Fragile Europe.

It very well argued and, I /Clive Crook/ think, entirely convincing.
FT 2011-04-22

Comment by Rolf Englund
De Grauwe asks why the market treats Spain worse than England/UK despite better economic figures for Spain.

Text of De Grauwe Paper


The road to self-destruction of the eurozone
Paul de Grauwe, Eurointelligence 18/11 2010 Highly Recommended

In the end the ERM collapsed.
The proposed sovereign debt default mechanism for the eurozone introduces a similar incentive structure for speculators and national authorities as in the ERM.

When governments solemnly declare that in times of payment difficulties they will devalue the government bonds, that’s what a haircut means, it will introduce a speculative dynamics in the eurozone similar to the one that destroyed the ERM.

Once investors expect payment difficulties of a particular government, they will sell the bonds, thereby raising the interest rate on these bonds.

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Lord Lamont was UK chancellor of the exchequer 1990-93 and is co-chairman of the Bruges Group
The problem with the EU is that at times its very nature exacerbates internal tensions.
That is why the euro may eventually break up
Norman Lamont, Financial Times, June 22 2005

RE: They say that he was singing in the bath the morning after UK left ERM.

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The Irish bailout is not, after all, what one normally thinks of as a bailout
— it’s not like the Texas S&L bailout, where national taxpayers assumed the losses of failed Texas banks.
It’s simply an agreement to lend Ireland funds at more or less safe market rates.
We can also see why the bailout isn’t likely to succeed. The basic situation is that given the cost of rescuing Ireland’s banks
and the damage harsh austerity is inflicting on Ireland’s economy,
investors are understandably skeptical that the Irish government will actually be able to meet its commitments.
Paul Krugman New York Times November 23, 2010

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"There is zero danger"
"It is inconceivable that the euro fails"

Klaus Regling, chief of the European Financial Stability Facility (EFSF)
CNBC 25/11 2010

The real Bagdad Bob


Det allmänna stödet för EU förblev intakt, även om stödet för euron störtdök, utropar Sieps som en regeringens Bagdad Bob
Sieps var en gång en förhållandevis aktad organisation med viss akademisk prägel
Nu är budskapen mer i Gunnar Hökmarks anda
Rolf Englund blog 25 maj 2011

Leaving the euro: how would it work?
BBC 25/11 2010


EU:s "Bagdad Bob"
Europeiska rådets ordförande Herman Van Rompuys retoriska skönmålning av de finansiella krishärdarna i euroländerna
Grekland, Irland, Spanien och Portugal blir alltmer verklighetsflyktiga.
I hård konkurrens med andra EU-höjdare gör han anspråk på titeln EU:s "Bagdad Bob"
Per Lindvall e24, 24/11 2010 med bra bild

The real Bagdad Bob

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EMU är inget experiment. EMU är ett vågspel.
Ett experiment kan avbrytas. EMU är som att göra fisksoppa av ett akvarium.
Om man ångrar sig är det svårt att göra ogjort.
Rolf Englund 13/7 2003

Läs mer här


Den irländska krisen är långt ifrån över och läget för euron är "exceptionellt allvarligt",
enligt Tysklands förbundskansler Angela Merkel. Hon tillägger att hon inte kommer backa från kravet på att
den privata sektorn, i första hand banker och pensionsfonder, är med och tar smällen i det system för
stödåtgärder som 2013 ska ersätta euroländernas stödfacilitet EFSF.
VA TT-Reuters 23/11 2010

Om Spanien får akuta problem att hantera sina statsfinanser.
"Det kommer troligen att bli det avgörande testet för euron som långvarig institution och om Tyskland kommer att stanna kvar som euro-medlem", skriver SEB i ett marknadsbrev.

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"Can the Euro Still Be Saved?"
The countries of the euro zone are hopelessly divided over the question of how to save the currency in the long term.
Bailouts for individual countries like Ireland and Greece can only be a temporary solution.
Meanwhile, an internal paper drawn up by the German government has revealed Berlin's plans for
forcing private-sector investors to take their share of losses in future crises.
By SPIEGEL Staff, 22/11 2010

Euro-zone governments have spent months trying to end the crisis facing their common currency, but the danger has not been averted. On the contrary, the crisis meetings have returned and billions in emergency funds are needed once again. And there is still no end in sight to the crisis.

The plans, and the horror stories about Irish banks, caused a stir in the financial markets, pushing up risk premiums for the government bonds of all the ailing countries. "Merkel and Sarkozy apparently didn't think about the second act," comments Luxembourg Foreign Minister Jean Asselborn.

The yields on Irish government bonds rose as high as 8.6 percent at times -- 6.2 percentage points higher than the rate Germany pays to borrow money. This prompted Irish Prime Minister Brian Cowen to angrily note that Merkel's actions were "not helpful."

The German plan to automatically force bondholders to pay up when financial aid packages are approved "might seem attractive from a theoretical point of view," says ECB executive board member Lorenzo Bini Smaghi, but it would "in practice destabilize markets and have severe effects on economies in the euro area."

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The conservative Die Welt writes:
"The unthinkable has happened. The euro, the common currency and pride of the Europeans, is suspiciously close to the abyss."
"Europe is in the deepest crisis since its foundation. The community began as a project for peace and reconciliation. Its credo was: The whole is more important than the individual country. Little remains of that sentiment. The EU of today is like a club of 27 egotists, that are somehow connected through technocratic procedures and the competition for the biggest slice of the European wealth cake.
Europe is exhausted. It lacks strength, ideas, a common purpose and an indentity."
Cit by Der Spiegel 17/11 2010

The center-right Frankfurter Allgemeine Zeitung writes:
"The euro, which was supposed to make European integration 'irreversible' could become its undertaker.

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This is the most important eurozone news today, much more important, and alarming, than anything that happens in Ireland.
The OECD forecasts that Germany’s current account surplus will rise back to 7% of GDP by 2012.
This means that the forces that driving the eurozone apart, are gathering speed again.
Eurointelligence 19/11 2010

Tyskland

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When the euro was launched, it was a big bet that sharing the same currency would make a group of very different economies converge, and so allow the European Central Bank to operate a single monetary policy for all of them.
It was an interesting theory, but it turned out to be wrong.
Matthew Lynn Bloomberg 16/11 2010

The economies are just too different to allow a single central bank to manage all of them.

The euro has turned into a bankruptcy machine. Once the markets have finished with Ireland, they will simply move on to Portugal and Spain, and after that to Italy and France.

Matthew Lynn is a Bloomberg News columnist and the author of “Bust,” a forthcoming book on the Greek debt crisis.

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Mr Van Rompuy said he was "very confident" the problems could be overcome. But he added:
"We all have to work together in order to survive with the eurozone,
because if we don't survive with the eurozone we will not survive with the European Union."

BBC 16/11 2010

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Europe heads back into the storm
Ireland’s basic problem is that it now has to choose between its own sovereign solvency and the solvency of its banks.
Other European countries – in and out of the eurozone – may soon face the same choice.
In such a world, keeping banks afloat with public capital risks sinking the sovereign
– and with it, the whole banking system.

Financial Times editorial November 17 2010

The banks find it increasingly hard to fund themselves anywhere else than the European Central Bank’s liquidity facilities.

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The exposure of banks /in Greece, Portugal, and Ireland/ is around $1.5 trillion
Let's assume, which is reasonable, that a meaningful portion of that $1.5 trillion can never be repaid
What would be a disaster would be a disorderly, piecemeal process of public and private sector defaults
Robert Peston, the BBC's business editor, 16/11 2010

(£930bn) in total, twice the value of the aggregated economies of Greece, Portugal and Ireland, or three-quarters of Britain's GDP.

Let's assume, which is reasonable, that a meaningful portion of that $1.5 trillion can never be repaid, because some part of the collateral backing those loans has been lost forever (property prices, for example, simply won't recover fast enough) and the earning capacity of the Greek, Portuguese and Irish economies isn't enough to meet the difference.

Even so, the potential loss on that $1.5 trillion exposure for banks would be manageable (if painful) so long as there is an orderly process of establishing what can be repaid - and then reconstructing the quantum and payment schedule of the debts on that basis.

What would be a disaster - and this is reflected in the emotional comments of Mr van Rompuy and of Portugal's finance minister, Fernando Teixeira dos Santos - would be a disorderly, piecemeal process of public and private sector defaults, especially since that would be bound to undermine the financial credibility of other much bigger eurozone economies, such as Spain and Italy.

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Euro under siege after Portugal hits panic button
'If the euro fails, then Europe fails,'
warned the German Chancellor Angela Merkel last night
DT Tuesday 16 November 2010 with nice pic

Portugal became the latest European nation to suggest it was on the brink of seeking help from Brussels after Ireland confirmed it had begun preliminary talks over its debt problems.

Greece also disclosed yesterday that its economic problems are even worse than previously thought. Last night, the German Chancellor Angela Merkel raised the spectre of the euro collapsing as she warned: “If the euro fails, then Europe fails.”

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...

EU:s president och Tysklands förbundskansler pratar strunt
Rolf Englund blog 16/11 2010

...

It is not an exaggeration to say that there would not be a banking system in Ireland - and therefore not an economy in any conventional sense for the generosity of the European Central Bank in providing loans to Irish banks that the markets won't provide.
Robert Peston, the BBC's business editor, 15/11 2010


Europas stabilitet är inte längre given
Om boken Peer Steinbrück, tidigare Tysklands finansminister, Unterm Strich
Rolf Gustavsson, SvD 6 november 2010

Han hävdar att vi inte vill inse vad vi egentligen vet, för då skulle vi förstå att vi begår självbedrägeri och gör dumheter. Insikten borde framtvinga omprövningar av våra övertygelser, men sådana kan leda oss ut på krävande och slingriga vägar som vi helst vill undvika. Då är det bekvämare att välja den föråldrade visshetens raka och utslätade väg, även om den leder vilse. Omprövningar är ansträngande och därför ägnar vi oss hellre åt verklighetsflykt.

Ingenting garanterar att vi i Europa om tio år har kvar vårt hyggliga välstånd. Djupgående ekonomiska, sociala och demografiska förskjutningar skakar grundvalarna i vårt välfärdsbygge. De processerna påskyndas av den ekonomiska och finansiella krisen, som långt ifrån är över. Alla hoppas på ekonomisk tillväxt som en mirakelmedicin, men ingen vet varifrån den skall komma. Därför varnar Steinbrück uttryckligen för den stora nästan oemotståndliga frestelsen att släppa loss litet mer inflation för att ta ner de väldiga statsskulderna. På sikt hotar en ny världsomspännande inflationsvåg, skriver han.

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Doom

Realräntor

Unterm Strich

Verlag

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So why are the possibility of sovereign default, persistent imbalances and lack of a fiscal union incompatible?
Wolfgang Münchau, FT November 14 2010

You can have a system in which two of the three are present, for example by allowing default and large imbalances. But then you would require a fiscal union that acts as a systemic shock absorber. That is the case in the US, where a common fiscal superstructure makes intra-state divergences sustainable.

However, without a single state, in the presence of imbalances and of default, it is hard to see how an economically integrated single currency area could survive a severe crisis.

Imbalances produce large cross-country financial flows. In the absence of central financial regulation, these flows lead to distortions in the financial sector that end up as a liability of governments.

In the absence of a common fiscal shock absorber, and without the possibility of devaluation, countries can find themselves in a situation from which they cannot escape without outside help. That may be happening in Ireland now.

In a monetary union with dispersed debt ownership, such crises are also highly contagious.

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The futile attempt to save the eurozone
Samuel Brittan, FT November 4 2010

The fundamental instability of the present eurozone has been exhaustively analysed by the economist Christopher Smallwood in a Capital Economics paper. (“Why the euro needs to break up”).

I have linked to it via Stumbleupon

My name there is medborgarenglund, if that may be of any help

I am learning how to be perfectly legal

Full text at FT

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Angela Merkel consigns Ireland, Portugal and Spain to their fate
Germany has had enough. Any eurozone state that spends its way into a debt crisis
or cannot adapt to a monetary union set for Northern rhythms will face “orderly” bankruptcy.
Ambrose Evans-Pritchard 31 Oct 2010

Debt relief will be enforced, either by interest holidays or haircuts on the value of the bonds. Investors will pay the price for failing to grasp the mechanical and obvious point that currency unions do not eliminate risk: they switch it from exchange risk to default risk.

What were investors thinking when they bought Greek 10-year bonds at 26 basis points over Bunds in 2007, below the spread between British Columbia and Quebec?

A treaty change will be rammed through under Article 48 of the Lisbon Treaty, a trick that circumvents the need for full ratification. Eurosceptics can feel vindicated in warning that this “escalator” clause would soon be exploited for unchecked treaty-creep.

One might argue that bondholders should have been punished for their errors long ago. The stench of moral hazard has been sickening, on both sides of the Atlantic. An orderly bankruptcy along lines routinely engineered by the International Monetary Fund is exactly what Greece needs. It makes no sense to push Greece further into a debt compound spiral by raising public debt from 115pc of GDP at the outset of the “rescue” to 150pc at the end of the ordeal.

If you strip out the humbug, the Greek package allows banks and funds to shift roughly €150bn of liabilities onto EU governments, or the European Central Bank, or the IMF. Greek citizens are being subjected to the full pain of austerity under false pretences, without being offered the cure of debt relief.

It is in reality a bail-out for investors.

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Moral Hazard

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Calmfors: EMU klarar inte ytterligare en kris
Blir den stor måste IMF kallas in.
Men det är inte säkert att ens IMF skulle räcka till i en situation
där exempelvis Grekland tvingas ställa in betalningarna och effekterna sprider sig till andra EMU-länder.
E24 29/10 2010

Euroområdets ekonomier skulle klara av att hantera en ny kris inom kort under förutsättning att den inte blir för stor.
Blir den stor måste Internationella valutafonden, IMF, kallas in. Men
det är inte säkert att ens IMF skulle räcka till i en situation där exempelvis Grekland tvingas ställa in betalningarna och effekterna sprider sig till andra EMU-länder.

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Lars Calmfors

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Euro disintegration was never a great risk.
The real danger was and remains a collapse of Europe’s financial system
and the slump this would trigger. A sovereign default could easily have repercussions exceeding even those of the Lehman bankruptcy two years ago.
The fact that the aid to Greece was a surreptitious /Obtained, done, or made by clandestine or stealthy means/ rescue of German banks was an important, if unmentioned, reason for Berlin’s willingness to play along.
Financial Times editorial October 12 2010

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ECB loans to banks down to 514 billion euros (USD 716 billion),
the least since Lehman Brothers Holdings Inc.’s collapse in September 2008,
Greek, Irish and Spanish banks took 61 percent of the loans supplied
Bloomberg Oct 29, 2010

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Political upheaval rocks eurozone debt markets
Hopes of a budget deal in Portugal collapsed
Ireland has announced fiscal retrenchement of €15bn over the next four years,
twice the original plan. It is already cutting public wages by 13pc.
Ambrose Evans-Pritchard, 27 Oct 2010

As members of the eurozone, Portugal, Ireland, Greece cannot devalue or resort to monetary stimulus offset fiscal tightening. They must each pursue a policy of "internal devaluation", meaning deflation within the currency bloc to regain lost competitiveness.

This is risky for economies with total debt levels above 300pc of GDP, as is the case in Ireland and Portugal. Ireland’s nominal GDP has already contracted by over 20pc of GDP, yet the debt burden has not diminished.

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Ireland

Portugal

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Europe is the region in the world most at risk of losing a currency war.
Unlike normal nation states, the eurozone lacks a legal and institutional framework to deal effectively with such a situation.
The most likely outcome would be a further large real appreciation of the euro,
which would ultimately lead to a significant slowdown in exports and growth.
One of the numerous toxic effects likely to occur in such a scenario is the imminent failure of the European bank rescue strategy.
Wolfgang Münchau, FT October 10 2010

Without strong growth, it simply cannot work.
So it is hard to understand, why policymakers, who are otherwise generous in their liquidity support, want to take such enormous risks, especially given an almost total lack of inflationary pressures.

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The euro:
Dinner on the edge of the abyss
On a spring evening, a group of the world’s most powerful policymakers sat down to dinner at 501 Pennsylvania Avenue.
Eleven days earlier, European leaders and the International Monetary Fund had promised Greece a €45bn ($62bn) bail-out. But the discussions at 501 Pennsylvania Avenue, hosted by Jim Flaherty, Canada’s finance minister, established that this was likely to be far too little.
Tony Barber, FT October 10 2010

Using a chart that illustrated how financial markets were driving interest rates on the bonds of weaker eurozone governments to unsustainably high levels, Mr Trichet announced that the crisis was no longer limited to Greece. One participant recalls: “Trichet said: ‘This isn’t only a problem for one country. It’s several countries. It’s Europe. It’s global. It’s a situation that is deteriorating with extreme rapidity and intensity.’”

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Part 1 of our series on the spring’s sovereign-debt crisis.
On the Secret Committee to Save the Euro
Two months after Lehman Brothers collapsed in the fall of 2008, a small group of European leaders set up a secret task force—one so secret that they dubbed it "the group that doesn't exist."
Wall Street Journal September 24, 2010

The euro zone's near death had stakes for people around the world. A wave of government defaults on Europe's periphery could have triggered a new crisis in the international banking system, with even worse consequences for the global economy than the failure of Lehman.

Europe eventually did establish a rescue fund in May. By then the price of calm had soared, requiring a pledge of €750 billion. It defused the panic but hasn't snuffed out the crisis: Unsustainable borrowing still poses huge challenges, especially in Greece and Ireland.

The task force met in the shadows of the EU's many councils and summits in Brussels, Luxembourg and other capitals, often gathering at 6 a.m. or huddling over sandwiches late at night. Participants kept colleagues in their own governments in the dark, for fear leaks would trigger rampant speculation in financial markets.

Ms. Merkel put her foot down, insisting that only the IMF had the necessary experience. Mr. Sarkozy, recognizing that Germany's financial muscle was essential for any bailout, reluctantly gave way.
On April 11, with the crisis of investor confidence spreading from Greek government bonds to the country's banking system, the EU finally put money on the table. As Germany wanted, the €30 billion for the first year would come in the form of 15 separate government-to-government loans, while the IMF would lend another €15 billion. Officials hoped the sum, enough to cover Greece's borrowing needs for less than a year, would be enough to calm markets.
It wasn't.

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Part 2 of our series on the spring’s sovereign-debt crisis.
The next day, a Friday, euro-zone leaders were due in Brussels for a quick meeting to approve the Greek package. Events were overtaking them: Lending between European banks was freezing up; investors were fleeing weaker euro nations' bonds.
Wall Street Journal 27 September 2010

At 3:45 p.m., Mr. Schäuble's deputy, Jörg Asmussen—a civil servant without the authority to sign off on €500 billion—told the other finance ministers Mr. Schäuble wasn't coming back.

The ministers looked "horrified," according to one participant, knowing that without Germany's financial muscle, the meeting would come to nothing. Christine Lagarde, France's cool-headed 54-year-old finance minister, feared Europe was heading for failure

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Den ekonomiska politiken i EU måste utvecklas och det kan bara ske gradvis.
Den nationella budgeten är ett slags kärna i alla medlemsstaters självbestämmande och demokrati.
DN-ledare 26/9 2010

Det finns gott om bekymmer inom EU. Arbetslösheten ökar inte längre, men är i snitt 10 procent i hela euroområdet. Nya siffror från Irland visar att landets tillväxt föll kraftigt under årets andra kvartal. I Spanien fortsätter tillväxten att vara negativ. Inte heller Frankrike har fått riktig fart.
De gigantiska budgetunderskotten är också fortsatt oroväckande. Grekland, Portugal, Irland, Spanien, Frankrike och Storbritannien har underskott på mellan 8 och 12 procent.

Professor Lars Calmfors, ordförande för Finanspolitiska rådet, har nyligen publicerat en läsvärd rapport, ”Fiscal policy coordination in Europe”.
Lars Calmfors anser att alla regeringar behöver oberoende finanspolitiska råd och att det dessutom bör inrättas en sådan instans på EU-nivå.

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Kommentar av Rolf Englund:
Gradvis skall medlemsstaternas själbestämmande och demokrati minskas. Det skall ske steg för steg. Precis som Gunnar Sträng lär ha sagt: "Steg för steg skall vi socialisera detta land, men vi skall inte basunera ut det på gator och torg".

Ur Rolf Englund, Rosornas Krig, Timbro, 1984
Efter kriget skedde i stora delar av västvärlden, med Sverige som ett av länderna i spetsen, en uppbyggnad av det s k välfärdssamhället samtidigt som näringslivet trots stigande skattetryck lyckades producera ett växande och av de flesta aldrig anat välstånd. Steg för steg utan att det basunerades ut på gator och torg ökades statens inflytande, socialismen var på väg att införas och socialismens motståndare talade om värdet av samförstånd och Harpsundsanda. Utvecklingen uppfattades som självklar och oundviklig. Reformer skulle inte rivas upp, de skulle slås vakt om.... mer

Det är målsättningen om ett ständigt fastare förbund
- "ever closer union" -
som är själva grundbultsfelet med EU.

Rolf Englund 7/6 2005

Robert Schuman och Jean Monnet

Lars Calmfors

Dagens Nyheter om EMU

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Open Europe’s Chairman Lord Leach
“I’m not against European cooperation…A complete free trade area would be perfect, that brings about prosperity.
But a monetary union is also a political union and there it goes wrong.
The European system of supranationality comes at the cost of democracy.”
Open Europe press summary: 23 September 2010

When asked about the future of monetary union, Lord Leach said,
“Politicians must understand that this isn't a temporary crisis, but a permanent problem.
It is no banking or debt crisis, but a problem of competitiveness. The South of Europe is too far behind on the North and will never be able, within one monetary union, to close the gap…
I can not think of any satisfactory solution which does not lead to a breaking up of the eurozone as it is now.
That could however be either controlled or uncontrolled. Controlled means that vulnerable countries would be led to the exit...
An uncontrolled exit means that financial markets force a break-up.”
Open Europe press summary: 23 September 2010

Lord Leach of Fairford is a Director of Jardine Matheson Holdings.
A former Oxford don, Rodney Leach was one of the first non-family partner of Rothschilds.
He is also a former Director of the British Library.
Rodney is Chairman of Open Europe.

Open Europe

Jardine Matheson

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Dr. Irwin Stelzer, senior fellow and director Hudson Institute
"When you pay about four points over Bunds
People are very nervous about the ability of those economies /countries such as Greece, Ireland, Portugal or Spain/ to bear this kind of debt burden," he added.
"I don't see any way that continuation of this, at these interest rates, can go on without some sort of restructuring… the math is very simple: it can't happen,"
CNBC 22 Sep 2010

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The extra yield that investors demand to hold 10-year Irish bonds over German bunds today exceeded 400 basis points for the first time Portugal is also being punished by investors, with the spread on its bonds also touching a record today.
Bloomberg 20 september 2010

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En form av ohelig allians, där problemtyngda stater garanterar problemtyngda banker,
som i sin tur köper statsskuld med finansiering från den europeiska centralbanken

minskar risken för misslyckade emissioner,
men frågan är hur långt det går att driva detta reptrick innan bubblan spricker.
Martin Enlund, senioranalytiker på Handelsbanken, DI 2010-09-09

I början av sommaren riktades starkt fokus mot ett omfattande lånebehov i Spanien, och finansmarknaderna reagerade då positivt på varje fulltecknad emission, oavsett hur hög räntan blev.
Senare har det dock kommit uppgifter om att det i första hand var lokala banker som köpte obligationerna och finansierade detta med lån hos ECB.
Det är troligt att detta också kommer att vara lösningen på det ökade lånebehovet i september.

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A eurozone banking crisis left unresolved
As long as you make sufficiently optimistic assumptions about future income growth, you can pay off any amount of debt.
Wolfgang Münchau, FT September 12 2010

If you assume a post-reform Greece will miraculously turn into a Aegean tiger, or that Ireland will generate another housing price bubble, the present rate of indebtedness will be no big deal.

It all rests on your assumptions about growth. In the summer, it looked as though the strategy might work, as the economic data came in better than expected.
That was then.

We know from economic history that countries enter into longish phases of stagnation after a financial crisis.

The safe assumption to make for Ireland – and Greece – is that there will not be much nominal growth in the next five years. If you make that assumption, you realise Greece will almost certainly not be in a position to repay its debts.

While Ireland’s situation is marginally better, there are justified doubts about the country’s long-term solvency.

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Joachim Fels, chief global economist at Morgan Stanley, said strains had reached a point where "one or several governments" may soon have to tap soon the rescue mechanism.
"Neither the European sovereign debt crisis nor the banking sector crisis has been resolved and both continue to mutually reinforce each other," he said, adding that the EU's stress tests for banks had failed to restore confidence.
Ambrose Evans-Pritchard, 08 Sep 2010

Investors are bracing for a flood of fresh bond issuance, while concern is mounting that austerity measures in Ireland, Greece, and Spain have left these countries trapped in a downward spiral.

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It is worrying that European policymakers have not created a mechanism for dealing with an insolvent state in the European Monetary Union.
Sushil Wadhwani, FT September 8 2010

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Markets are starting to panic about the eurozone periphery
Sovereign bond spreads rose to new records. Here are the latest ten year spreads:
Ireland 372bp, Greece 944bp, Portugal 355bp, all up substantially yesterday,
in the case of Portugal and Ireland to new record levels.
The FT reports that Portuguese banks borrow a record amount from the ECB in August because
they could not access capital markets.
Eurointelligence 8/9 2010

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Belgian’s deputy prime minister, Laurette Onkelinx, who is close to Mr Di Rupo, is quoted as saying:
“We have to prepare for the end of Belgium. Not wish for it, but prepare for it nonetheless. We cannot ignore that it is what is wanted by a large swathe of the Flemish population.”
Eurointelligence 6/9 2010

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While the Europeans are celebrating the end of the financial crisis, something strange is happening in the bond markets.
The gap in the yields – the spread – between the 10-year bonds of peripheral eurozone countries and Germany has been growing at an alarming rate.
It is now close to the level that prevailed in the days before the European Union decided to set up its bail-out fund in May.

Wolfgang Münchau, FT September 5 2010

Last Friday, the spreads were 3.4 per cent for Ireland, 9.4 per cent for Greece, 3.4 per cent for Portugal, and 1.7 per cent for Spain.

The yield on 10-year German bonds is currently ridiculously low, about 2.3 per cent. The financial markets somehow regard Germany as a paragon of virtue, stability and sound financial management, and are happy to demand virtually no return on 10-year investments. If the bond markets were ever returned to normal, and if the spreads were to persist, peripheral Europe would find itself subject to an intolerable market interest rate burden.

We can either dig our head in the sand or prepare for the inevitable – that one day a eurozone state will either default, or, more likely, be forced to restructure its debt. It is important not merely to accept the principle, but also to make the institutional preparations for an orderly default of a eurozone member. It is going to happen.

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The intra-eurozone imbalances will not only persist, but probably increase.
This will make the economic adjustment for Spain, Portugal or Greece even more difficult than it already is.
Those persistent imbalances, much more than the build-up of debt, are my deep cause of concern about the long-term health of the eurozone.
Wolfgang Münchau, FT August 29 2010

The improvement in Germany’s economic growth is driven not by productivity gains but by real devaluation.

Germany

EMU - en snabbkurs

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The European economy is at risk of sliding back into a recession as governments cut spending to reduce their budget deficits.
Nobel Prize-winning economist Joseph Stiglitz, Bloomberg 24/8 2010.

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As Raghuram Rajan of the University of Chicago Booth School of Business and former chief economist of the International Monetary Fund notes in a thought-provoking new book, the underlying “fault lines” are still with us.
This is a threat to survival of the eurozone and even the open world economy.
Martin Wolf July 13 2010


The new Slovak government remains opposed to a rescue package for Greece, Prime Minister Iveta Radicova said Monday, after a meeting with European Union Council President Herman van Rompuy.
Wall Street Journal 13 July, 2010

"The position of our minister of finance and also my personal and our political party [position] is as it was before, that we really do not agree," Ms. Radicova said when asked about her view of the Slovak contribution to aid for Greece.

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Slovakia stalls €440bn bail-out fund
Slovakia's incoming government is also determined not to pay the country's €800m contribution to a €110bn IMF-eurozone rescue plan that was activated in May for Greece. But this has not prevented disbursement of loans to Athens.
FT July 2 2010

At about €4.4bn, Slovakia's contribution to the fund is relatively small. But the centre-right parties that won its June 12 election and are forming a government campaigned on a platform of no bail-outs.

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Staring into the abyss
As the euro-zone crisis spooks governments, opinions are diverging dramatically
about what the union is for
Jean-Claude Juncker, prime minister of Luxembourg, said memorably in 2007:
“We all know what to do, but we don’t know how to get re-elected once we have done it.”

The Economist print July 8th 2010



Europa befinner sig i den värsta situationen sedan andra världskriget,
kanske till och med sedan första världskriget.
Det säger chefen för den Europeiska centralbanken Jean-Claude Trichet
Ekot 16 maj 2010

ECB-chefen Jean-Claude Trichet gör sitt uttalande i en intervju i det kommande numret av den tyska tidskriften Der Spiegel.

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Jean-Claude Trichet tells us the world faced a second Lehman crash in the days and hours before EU leaders launched their €720bn defence fund.
If the European Central Bank’s president is correct, we are in trouble.
The EU-IMF package is already unravelling. What will the West do for its next trick?
Ambrose Evans-Pritchard 16 May 2010

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The president of Germany's central bank, the Bundesbank, Axel Weber, his Dutch counterpart and the ECB's chief economist, Jürgen Stark, voted against this move. Seldom is there so much dissent within the highest decision-making body for the euro.
Jean-Claude Trichet Spiegel On-line 15/5 2010

Jean-Claude Trichet


For some of us writing at the time of the Eurozone's formation just over a decade ago, the current crisis has been all too predictable.
Other currency unions, we pointed out, had been tried in history and always fallen apart.
Andrew Alexander, Daily Mail 12th February 2010


"Risken är att EU plötsligt ger upp andan"
Europeiska unionen är döende, skrev Charles Kupchan i en tankeväckande krönika i söndagens Washington Post.
Det finns tyvärr en del som tyder på att han har rätt.
Annika Ström Melin, Kolumn DN 1 september 2010

Europeiska unionen är döende, skrev Charles Kupchan i en tankeväckande krönika i söndagens Washington Post. Nationalismens återkomst kommer att leda till EU:s fall, förklarade han. Det är ingen plötslig eller dramatisk död, utan ett utdraget försvinnande, hävdade Kupchan och fortsatte: Snart kommer vi att vända oss mot andra sidan Atlanten och inse att den europeiska integrationen, som vi under de senaste femtio åren tagit för given, är borta.

Det finns tyvärr en del som tyder på att han har rätt. Viljan att hålla ihop Europa har blivit svagare, både bland ledande politiker och medborgare.

Den senaste Eurobarometern visar vad som har hänt. I undersökningen, som genomfördes i somras, svarar bara 49 procent att medlemskapet är ”något bra”.

Under ytan pågår också en annan utveckling, som inte syns lika väl.
Eurosamarbetet har faktiskt stärkts av den senaste tidens kriser,
brottsbekämpningen har blivit mer gemensam och
en gemensam asyl- och flyktingpolitik håller sakta på att växa fram.
Europas länder fortsätter att växa ihop, även när det inte märks.

Europeiska unionen flämtar, och behöver hjälp för att kunna börja andas igen. Utan politisk vilja att fortsätta samarbetet kan det gå fort. Risken är att EU plötsligt ger upp andan. Medlemsstaternas uppslitande arvsskifte skulle inte bli en trevlig tillställning.

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Annika Ström Melin

Charles Kupchan i Washington Post

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Only a closer union can save the eurozone
I am aware that, at a time of rising nationalism and regionalism throughout the EU, there is no consensus for such sweeping reforms
Wolfgang Münchau, FT, June 27 2010 19:52

At some point the markets will realise that large parts of the German and French banking systems are insolvent, and that they are going to stay insolvent.

You might think that Europe’s policy elites cannot be so stupid as to commit themselves to stress tests without a resolution strategy up their sleeves. But I am afraid they probably are. Europe’s political leaders and their economic advisers are, for the most part, financially illiterate.

Beyond this restructuring, the eurozone will need to commit itself to a full-blown fiscal union and proper political institutions that give binding macroeconomic instructions to member states for budgetary policy, financial policy and structural policies. The public and private sector imbalances are so immense that they are not self-correcting.

There is no point in beating about the bush and issuing polite calls for the creation of independent fiscal councils or other paraphernalia. This is not the time for a debate on second-order reforms.

I am aware that, at a time of rising nationalism and regionalism throughout the EU, there is no consensus for such sweeping reforms.

But that is the choice the EU’s citizens and their political leaders will have to make – a choice between reverting to dysfunctional and, as it transpires, insolvent nation states, or jumping to a political and economic union.

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"ever closer union"
Det är målsättningen om ett ständigt fastare förbund - "ever closer union" -
som är själva grundbultsfelet med EU.

EMU:s Ja-sägare förorsakar Världsdepression
Rolf Englund blog 2010-06-28

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Contrary to general belief, Germany’s eurosceptic professors have not abandoned their legal efforts to block the EU rescues for European banks exposed to Greek debt,
Should they succeed, of course, the eurozone risks disintegration within days, and perhaps hours.
Ambrose Evans-Pritchard July 8th, 2010


Hungary's IMF revolt augurs ill for Greece
"Austerity is extremely hard to sell to electorates.
The risk is that this moves from a wider financial and economic crisis to a European political crisis as governments are punished by voters.
The approval rating for Lithuanian's prime minister has fallen to 7pc."
Ambrose Evans-Pritchard, 19 July 2010

The country /Hungary/ cannot easily devalue to claw its way out of its debt-trap
because 63pc of loans from mortgages, households, and companies are in foreign currencies,
much of it in the ever-soaring Swiss franc.
"A weaker currency will crush households.

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Forex lending represents around 91 per cent of the total in Latvia, 87 per cent in Estonia and 72 per cent in Lithuania and over 50 per cent in Hungary, Romania and Bulgaria a senior official at the European Bank for Reconstruction and Development
FT 19/1 2010

Carry trade

Lettland

Satsa på en hästkur av samma kraft som Lettland!
PJ Anders Linder, SvD 2 maj 2010


The rebellion against the 1930s fiscal and monetary policies of the Euro-complex is gathering pace.
Il Sole has published a letter by 100 Italian economists warning that the austerity strategy imposed by Brussels/Frankfurt risks tipping Europe into a self-feeding downward spiral.
Ambrose Evans-Pritchard, June 16th, 2010

Far from holding the eurozone together, it will cause weaker countries to be catapulted out of EMU.
Others will leave in order to restore sovereign control over their central banks and unemployment policies.
At worst it will blow the EU apart, leading to the very acrimony that the European Project was supposed to prevent.

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Doom


John Makin is one of my Gurus
For more gurus, click here


It is fitting that on September 15 Japan, the world's only major economy battling actual deflation, initiated what has come to be a global round of quantitative easing.
Quantitative easing involves a central bank creating money to buy securities, adding reserves to the banking system, and hoping to increase lending and economic activity in the process.
By John H. Makin AEI Online October 2010

John Makin is one of my Gurus
For more gurus, click here

"Can countries inside a fixed exchange-rate system like the euro grow and tighten budget policy at the same time?
I don't think so. It didn't work in Argentina,"

Andrew Bosomworth, head of Pimco's portfolio management in Europe,said.
Daily Telegraph 20/12 2010

Pimco also gave warning that the bond vigilantes have lost faith in the policy and are trying to liquidate their holdings of peripheral EMU faster than the European Central Bank (ECB) can buy the debt, causing a relentless rise in yields, and a vicious circle.

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Argentina

Pimco


The Folly of Currency Pegs
Notwithstanding the highly touted Greek rescue package
Greece will probably default on its debt sometime within the next year

John H. Makin (May 2010)

The current flap over the sustainability of Greece's membership in the European Economic and Monetary Union (EMU) is reminiscent, in many ways, of the events leading up to the collapse of the Bretton Woods system--another ultimately untenable currency regime--which was put into place after World War II and terminated by the break of the dollar's link to gold after August 1971.

For example, Greece should not share a currency with Germany (or have a currency pegged to Germany's) as it has done by joining the EMU, unless it is willing to adopt what are essentially German monetary policies as expressed by the ECB. The only way to avoid this and maintain a shared currency would be for Greek labor to move freely to Germany as pressure for currency depreciation rises, just as California labor can move to Colorado or any other U.S. state under the same circumstances.

Notwithstanding the highly touted Greek rescue package of €45 billion unveiled on April 12 by European governments in conjunction with the IMF, Greece will probably default on its debt sometime within the next year, just as Argentina defaulted on its debt in December 2001 after a decade-long peg to the dollar that suffered from the same flaw as Greek membership in the EMU. The United States and Argentina were not part of an optimal currency area for much of the same reason that Greece and Germany are not.

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More by Makin
http://www.aei.org/outlooksBinder?page=1&bid=100003
http://www.aei.org/scholar/40

Makin mosar Bildt
Rolf Englund blog 2009-03-11

Amerikanska ekonomer om EMU

EMU - en snabbkurs
http://www.nejtillemu.com/snabbkurs.htm

Comment by Rolf Englund:
I have been reading John Makin for some twenty years I guess, and still become more and mor impressed by him.
June 26, 2008


"I was opposed to the euro, I think it was a great mistake to have monetary integration,"
"We are stuck there and to break up would be the second-biggest mistake to do now, it would generate a huge amount of panic and concern,"
Amartya Sen, winner of the Nobel Prize for Economic Sciences in 1998, told CNBC

Markets, and to great extent economic policy, are "held hostage" by forces that are "to a great extent moved by herd behavior" and policy makers will have to take that into account when addressing the issue, he added.

"Complete break-up would have effects that dwarf the post Lehman Brothers collapse," ING analysts wrote in a market research.

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As Amartya Sen, the Nobel-laureate, pointed out in the Financial Times ("The diverse ancestry of democracy", June 12 2005), democracy is "government by discussion". Elections are only part of that discussion. A discussion that absorbs an elite of politicians, bureaucrats, intellectuals and interests does occur at the European level. Its house newspaper is the FT. But there is no European-wide discussion that includes the public at large. Nor could there be in an EU with 460m people and 25 countries divided by history, culture, values and, above all, language.
Martin Wolf Financial Times June 15 2005


SPIEGEL: Despite all of these efforts, the central problems with the euro remain. Strong economies belong to the same currency union as weak ones like Greece. Is the euro not doomed to failure?
Thomas Mirow, head of the European Bank of Reconstruction and Development:
There are also big differences between the states in the US.
The question is, to what degree are the states there for each other and if there are effective balancing mechanisms. That was kept from the public for a long time.

Der Spiegel 6 July 2010

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Stabilitetspakten

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The creation of the euro resulted in the disappearance of intra-area exchange rate risk and an expectation of fiscal and macroeconomic convergence among the euro member countries.
This was reflected in a significant narrowing of regional sovereign spreads until very recently.
On the heels of Greece’s fiscal troubles, investors are now re-pricing these risks across the region.
This highlights the need for policymakers to continue to pursue credible fiscal consolidation plans and strengthen economic governance in the euro area.
IMF Global Financial Stability Report, July 7, 2010

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In the US, stress test forced weaker institutions to raise capital and turned round sentiment
But politicians in Europe are balking at making public the results of stress tests, because of worries that releasing details of what lies on balance sheets may be counter-productive and create the very crisis that everyone is trying to avoid.
David Oakley, FT June 14 2010


The case against the euro
Travelling between Germany and Spain a disturbing question formed in my mind.
Has the euro been not just bad for some countries but damaged them perhaps for a generation?
Gavin Hewitt, BBC's Europe editor, 11 June 2010

What prompted this thought was my reading of an in-depth analysis of the crisis in the eurozone. It has been put together by the Carnegie Endowment for International Peace. It is called Paradigm Lost - the Euro in Crisis. It features a series of reports by economists such as Uri Dadush, Sergei Aleksashenko, Vera Eidelman and Paola Subacchi.

The focus of the report is the so-called PIIGS - Portugal, Ireland, Italy, Greece and Spain

In Greece, Ireland and Spain credit increased by an average of 155%, but in countries like Germany and the Netherlands, the core, it increased by only 27%.

That is one of the key conclusions of the paper. Since adopting the euro Greece, Ireland, Italy, Portugal and Spain have become increasingly uncompetitive. That and the slowdown in productivity is the heart of the crisis in the eurozone, rather than debt.
Debt is a symptom.

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Paradigm Lost - the Euro in Crisis
Carnegie Endowment for International Peace


The eurozone’s tragic small-country mindset
One of the most important characteristics of a small open economy is that its own actions have little impact on the rest of the world.
Wolfgang Münchau, FT 13 June 2010

Mr Van Rompuy, like the majority of EU leaders, hails from a small country – in his case, Belgium. When small-country politicians talk about economics, they naturally talk within the framework of a small open economy. One of the most important characteristics of a small open economy is that its own actions have little impact on the rest of the world.

Governments now implement austerity packages without any consideration of the effect on other countries. Austerity started in Greece, spread to Portugal, Spain, Italy and Germany.

The rush to austerity creates a formidable dilemma for France. The strategic alternative is either to accept it or risk a break with Germany, thus reversing more than 25 years of Franco-German monetary and fiscal convergence. It is a deeply serious choice.
Nicolas Sarkozy, the French president, last week criticised the European austerity policies as recessionary. He is right.

The prevailing view in Brussels and Frankfurt is that the growth problem is 100 per cent structural.
I do not deny the presence of structural obstacles to growth, but the EU’s strategy is likely to fail for two reasons.

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So far, so good. But here is my question: what is your “plan B”?
I have been fascinated – if appalled – by the pre-Keynesian approach you and the prime minister have taken to the UK’s fiscal challenges.
What Keynes called “the Treasury view” – that fiscal policy has no effect on activity, even in a deep recession – is alive and well in Downing Street.
Martin Wolf, 10 June 10 2010

- Visst beror dagens problem i ekonomin i någon mån på missgrepp i slutet av 80-talet och början av 90-talet.
Men i grunden har Sverige inte hamnat i en stabiliseringspolitisk kris. Underskottet i statsbudgeten beror djupare sett på att vi försöker överbrygga en konjunkturnedgång när det i själva verket handlar om en grundläggande strukturell förändring.
Mats Svegfors 1994-09-10 i SvD

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I en ovanligt öppenhjärtig intervju i måndagens Financial Times förklarade EU:s president Herman Van Rompuy att euroområdet var ”på gränsen till ett sammanbrott” i våras.
I motsats till många andra hävdar han också att eurons kris delvis beror på valutasamarbetets konstruktion.
”Euron blev en stark valuta i ett område med små ränteskillnader. Det blev ett slags sömnpiller. Vi var inte medvetna om de underliggande problemen.”
Det är ett anmärkningsvärt uttalande.
Annika Ström Melin, DN 16/6 2010

En rimligare förklaring till krisen är de enskilda medlemsländernas bristande budgetkontroll

När EU:s stats- och regeringschefer samlas för att ha förtroliga samtal om Europas politiska vägval skrivs inte ens protokoll. Herman Van Rompuy leder den minst öppna av EU:s institutioner. Genom intervjuer öppnar han dörren på glänt, men priset för den förändrade maktbalansen i EU är ökat hemlighetsmakeri.

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Annika Ström Melin, president Van Rompuy och EMU
Rolf Englund blog 17/6 2010

Annika Ström Melin

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I Grekland beror problemen på underskotten. I Spanien och på Irland på vilda lånepartyn som blev värre av euron. Det går inte att analysera krisen som ”om alla bara hållit ordning och följt reglerna skulle allt vara bra”.

Folkpartiet bryr sig inte om ekonomiska argument.
Folkpartiet vill gå med i euron, helt enkelt eftersom folkpartiet vill gå med i euron.
Katrine Kielos, Aftonbladet 21 maj 2010


“What went wrong wasn’t what happened this year. What went wrong was what happened in the first 11 years of the euro’s history. In some ways we were victims of our success. “The euro became a strong currency with very small interest rate spreads [on government bonds].
It was like some kind of sleeping pill, some kind of drug. We weren’t aware of the underlying problems.”
Herman Van Rompuy, president of the European Union, FT June 13 2010

In an interview with the Financial Times, Mr Van Rompuy said that the 16-nation bloc had been on the edge of a breakdown last month that could have caused a world crisis. But European leaders now understood that the way forward was to implement politically unpopular but necessary economic reforms, such as opening up labour markets and raising the retirement age, he said.

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Herman Van Rompuy, non-combatant
Charlemagne, The Economist Feb 15th 2010


German and French officials tend not to mention that it was lending by their domestic banks and investors that helped Greece, Spain and others to live so long beyond their means.
Stephanie Flanders, the BBC's economics editor,14 July 2010

The biggest economies in the eurozone are rallying round the big support package agreed in early May, because they think a default by a European government could be bad for everyone. But it's also because they know it would be particularly bad for the French and German banks who are sitting on a large amount of Greek and other sovereign debt.

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It was the banks and other financial institutions (e.g. pension funds, insurance companies) that facilitated the boom at the periphery of the eurozone by lending huge sums to Spain, Greece, Ireland and Portugal under virtually the same conditions as those applicable to Germany and the Netherlands.
In doing so they failed to charge a realistic risk margin. One of the consequences was that European leaders were lulled into a false sense of security. After all, if the financial markets didn’t envisage any problems, why would Europe’s leaders – themselves mere mortals – be troubled? Surely the markets are always right?
Heleen Mees, Eurointelligence 10 June 2010

Globalisation has brought instability to the global economy. Banks and other financial institutions have played a key role in this respect by taking massive risks without pricing them properly. They must not be allowed to emerge from the carnage unscathed.

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Heleen Mees

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CDS prices are over 721bp for Greek five-year bonds, Portugal 345bp, Ireland 260bp, Spain 247bp, and Italy 234bp.
CDS spreads are back to where they were right before that fateful summit May 7, when EU leaders met to work out the mother of all rescue packages
Eurointelligence 3 June 2010

The reasons for the return of mistrust are doubts about the package itself, doubts about the future governance of the eurozone, the cacophony of European governments, the persistent criticisms of Axel Weber.

Germany insists that the SPV does not borrow at average eurozone market rates, but at the market rates of the recipient country (which would rendered the whole project ad absurdum).

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In its financial stability review, the European Central Bank predicted €195bn in bank writedowns in 2010 and 2011, and warns of dangerous financial contagion as a direct result of the sovereign debt crisis.
Specifically, the ECB warned about “a number of hazardous contagion channels and adverse feed-back loops between financial systems and public finances.”
Eurointelligence 1 june 2010

financial stability review


El Pais spoke of a "perverse spiral" in its editorial.
Fitch has not downgraded Spain for lack of austerity
Spain's unemployment was already 20.5pc even before this latest dose of shock therapy.
There are 4.6m people without work.
Dole payments alone account for half the budget deficit
Ambrose Evans-Pritchard, 30 May 2010


Parkinsons lag och ECBs nya skyskrapa, forts.
Rolf Englund blog 2010-05-29


The single currency was created by eurocrats, foisted upon its people and bound to end in tears.
Liam Halligan Daily Telegraph 29 May 2010

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An ABC of financial shocks and fiscal aftershocks
“But they bailed out Greece,” said the boy. “So why all the turbulence?”
The big point is that investors are not altogether stupid: they know these are temporary patches; they know Greek indebtedness is going to worsen; they know that other countries in peripheral Europe will find it hard to grow out of their plight
Martin Wolf, May 28 2010
Highly recommended

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The eurozone’s crisis has blown sky-high the idea that developed countries are 100 per cent safe.
A bank can buy all the Spanish debt (current rating: AA) it likes without having to back it up with a cent of capital
Lex, FT May 27 2010


The possibility of a break-up of the eurozone.
Six months ago such a scenario was unthinkable. The political drive behind the euro was formidable and the possibility of its failure was nil. But discord and lack of solidarity over Greece have damaged the credibility of the bloc’s governance. The chance that the eurozone will break up is tiny but it is no longer zero.
Lex FT 23 May 2010

Then there is the question of whether Greece will – or should – default. Such an event would dwarf any sovereign default since 1983. The two most significant – Russia in 1998 and Argentina in 2001 – amounted to a combined $155bn in defaulted debt, according to Barclays Capital. Greece’s outstanding debt is some $350bn. A default would be massively painful but it remains a viable option for Athens.

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The euro, in its current form, is finished.
The game is up for a monetary union that was meant to bolt together work-and-save citizens in northern Europe with the party animals of Club Med.
No amount of pit props from Berlin can save the euro Mk I from collapsing under the weight of its structural dysfunctionality.
You cannot run indefinitely a single currency with one interest rate for 16 economies, when there are such huge fiscal disparities.
Jeff Randall, Daily Telegraph 20 May 2010

By announcing a ban on the activities of short-sellers she /Angela Merkel/ is hoping her decoy will avert German attention from the small print of Berlin's support for Greece, which talks of developing processes for "an orderly state insolvency". This sounds ominously like a softening-up process for a form of default.

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Merkel and Cameron disagree on EU treaty change
"wouldn't agree to any treaty that drew us further into the euro area"
EU Observer 21/5 2010

UK Prime Minister David Cameron on Friday (21 May) rejected the the idea of a new EU treaty change to accommodate German chancellor Angela Merkel's vision of stronger economic co-ordination in the EU.

"There is no question of agreeing to a treaty that transfers powers from Westminster to Brussels. Britain is obviously not in the eurozone and is not going to be joining, so it wouldn't agree to any treaty that drew us further into the euro area," Mr Cameron said on Friday (21 May) during a joint press conference with Ms Merkel in Berlin.

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Gnisslet mellan Tyskland och övriga euroländer ger underlag för spekulationer om att tyskarna skulle vara på väg att tröttna på euron och i stället söka sig tillbaka mot gamla D-marken.
Förmodligen rör det sig om helt ogrundade gissningar, men de öppnar ändå för ett dystert scenario där valutaunionen spricker och Europa hotas av ekonomiskt kaos.
Johan Schück, DN 2010-05-21

Här finns historiska spår som förskräcker, från 1930-talets konkurrensdevalveringar som fördjupade depressionen och banade väg för ännu större katastrofer.

Ingen vill ta ansvaret för att något liknande ska hända. Det är ett avgörande skäl till att Tyskland och de andra euroländerna kan väntas ta sig samman och söka lösningar som räddar valutaunionen.

Det räcker inte att återupprätta EU:s stabilitets- och tillväxtpakt. Om man vill verka förebyggande, så behövs även kontroll över euroländernas ekonomiska utveckling i stort. Annars går det inte att förhindra fastighetsbubblor såsom i Irland och Spanien eller väldiga underskott mot omvärlden såsom i dag i Portugal.

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Might the eurozone break up? Until recently I would have answered: absolutely no.
This is not because I thought the currency union a wise idea. But the commitment to make it work seemed fundamental to the policies of Europe’s principal powers.
Martin Wolf FT 18 May 2010

Is that still true? I do not know.
So what has gone wrong? What is happening now? What happens next? What does it mean for both the eurozone and the world economy?

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It was no accident that the eurozone created a special purpose vehicle to manage this bail-out.
It is not just the name that reminds us of those notorious financial structures that brought us the subprime crisis.
Wolfgang Münchau, FT May 23 2010

The credit team at Credit Suisse pursued this question to the bitter end. Before the start of monetary union in 1999, EU countries borrowed at different interest rates, the spreads reflecting expectations about future exchange rate realignments and default probabilities.

With the arrival of the euro, spreads almost disappeared. Just as subprime CDOs enjoyed triple A ratings because of the way they were constructed, the entire eurozone enjoyed a triple A rating on the back of Germany’s.

This produced a massive credit boom in Spain and Portugal, and those credits were recycled through the eurozone banking system. Bankers in Düsseldorf, Munich and Paris bought those Spanish mortgage obligations and Greek sovereign bonds, proudly adding them to their fine collections of subprime CDOs.

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The eurozone came extremely close to a breakdown 10 days ago.
What is completely missing in Brussels – and even more so in Berlin – is an understanding of the urgency of the situation.

Wolfgang Münchau, FT May 16 2010

While fiscal profligacy was the root cause of the problems in Greece, it is not the root cause of the problems in Portugal and Spain - a defunct labour market and massive indebtedness of the private sector.
But instead of solving those structural problems, the two countries last week responded with a fiscal tightening.

What makes the economic problem in the Iberian peninsula so difficult is the simultaneous need to reduce debt and improve competitiveness.

Spain cannot maintain a large price differential with Germany forever. If you add fiscal retrenchment into this toxic debt-deflation mix, the result is bound to be a self-sustaining depression, especially in the absence of structural reforms.

What is completely missing in Brussels – and even more so in Berlin – is an understanding of the urgency of the situation.

So when the European Union’s programme of credit guarantees ends in three years, the same combination of factors that led to the most recent crisis will still be present.

I thought it was ironic that a special purpose vehicle had been chosen to save the eurozone, given our most recent experience with those toxic structures.

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How can a loan guarantee solve a problem of excessive indebtedness?
We should remember that, unlike in Greece, the issue in Spain and Portugal is not primarily fiscal, but an excessively indebted private sector.
So unless José Luis Zapatero, Spain’s prime minister, is going to present the mother of all economic reform packages, it is hard to see how the mother of all bail-outs is going to work.
Wolfgang Münchau May 10 2010

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IMFs dödsdom över Grekland och EU:s räddningspaket
Rolf Englund blog 2010-05-12


Inte vår bästa stund
Den europeiska situationen nu är inte alldeles bekväm.
Den grekiska krisens drama går från den ena akten till den andra.
Carl Bildt, blog, 25 april 2010

Finanskrisens härjningar. Kronans svängningar. Greklands ekonomiska kaos.
Plötsligt har euron blivit het inför valet.
Sydsvenskan har talat med alla de fyra borgerliga partiledarna.
De är djupt oeniga i fråga om folkomröstning.
Fredrik Reinfeldt anger två villkor för att han ska lova en folkomröstning.
Sydsvenskan 3 april 2010


Varje dag kan vi nu via medierna se hur konflikterna och problemen med EMU tydliggörs.
EMU-tvångströjan kommer bara i en storlek och den passar uppenbart inte alla.
Den här sortens förkeynesiansk deflationspolitik provades under 1920- och 1930-talen och var antagligen den främsta enskilda orsaken till depressionen.
Lars Pålsson Syll, Newsmill 2010-05-08

Den mycket prekära utveckling som vi idag ser i Grekland, Portugal, Italien och Irland visar på den hämsko som EMU utgör när dessa kristyngda ekonomier ska försöka hitta en väg ut ur krisen. Förmågan att ta sig ur finanskrisens efterdyningar blir onödigt långdragen och låg. Att inte fullt ut ha möjlighet att bedriva en egen ekonomisk politik skapar ett hårt tryck på statsbudgeten och bäddar för de missnöjesyttringar som vi ser rada upp sig i land efter land.

Historien borde förskräcka. Den här sortens förkeynesiansk deflationspolitik provades under 1920- och 1930-talen och var antagligen den främsta enskilda orsaken till depressionen. Ekonomierna tog sig inte ur moraset förrän dåtidens dårskap - guldmyntfoten - kastades på historiens gravhög. Och är det egentligen inte också där EMU hör hemma?

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Vägen till Hitler

1929

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Frankrikes president Nicolas Sarkozy hotade med att dra Frankrike ur eurosamarbetet
om inte Tyskland gick med på det räddningspaket som ska hjälpa Grekland ur krisen.
Det uppger den spanska tidningen El País enligt DN 14 maj 2010

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Frankrike - Tyskland

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The European Cental Bank's bailout package is just a $1 trillion fig leaf covering the problem and
a better move would have been to arrange for Greece and Portugal to leave the European Union
, Kenneth Rogoff, professor of economics and public policy at Harvard, told CNBC Friday 14/5 2010

“It was nuts to let Greece and Portugal in (to the EU) as quickly as they did,” he added. “They just looked the other way and decided to let them in. Greece had high inflation, default risks. Portugal had an IMF program early as 1984."

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Greece - Portugal

More By Kenneth Rogoff


”Centralbanker dumpar euron”
- Det finns trots räddningspaketet i helgen
stora frågetecken kring om euron kommer att finnas kvar som valuta om ett par, 3—4 år
Carl Hammer, chefsstrateg på SEB, DN/TT 14 maj 2010

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Klas Eklund

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The End of the Beginning for the Euro
Parallels between Europe's sovereign-debt crisis and the global financial crisis are manifold
Marc de Vos, WSJ,May 12, 2010

First off, there is the self-contented hubris.
Prior to 2007, the demigods of finance and economics had convinced themselves and the rest of the world of the wonders of efficient markets, and applauded the so-called Great Moderation, while housing prices and financial risks skyrocketed around them.

A little over a year ago, as the European Monetary Union entered its second decade, Europe's elite marvelled at how the euro, in the words of the European Commission, "has clearly become the second-most important currency in the world"; how "it has brought economic stability"; and how "its framework for sound and sustainable public finances helps ensure that future generations can continue to benefit from the social systems that Europe is justly famous for."
What a difference a year makes; how bitter the taste of irony.

Next consider the immediate causes of the calamity.
As with the housing market and the derivatives craze, the euro tale is one of easy money, excessive leverage, bad accounting, and failed supervision.

Euro-membership allowed profligate southern European countries to borrow cheaply and beyond their economic means. The euro's Stability and Growth Pact, meant to restrain budget deficits and national debt, was violated in its application and ignored in its supervision. In short, this was a bubble of public excess waiting to be pricked.

European politicians such as Swedish Finance Minister Anders Borglambast financial markets for "wolfpack behavior." Speculation is a factor, but you cannot blame the coal mine disaster on the canary.

Countries should get their act together and follow the German example

Mr. De Vos is a professor at Ghent University and the general director of the Itinera Institute, a Brussels-based non-partisan policy institute.
He is the author, most recently, of "After the Meltdown: The Future of Capitalism and Globalization in the Age of the Twin Crises," (ShoehornBooks.com, 2010).

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The global financial crisis

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The euro was supposed to lubricate faster economic growth by eliminating the cost and confusion of constantly converting between national currencies. More important, it would promote political unity. With a common currency, people would feel "European."
Their identities as Germans, Italians and Spaniards would gradually blend into a continental identity.
None of this has happened.
Robert J. Samuelson Washington Post May 10, 2010

What we're seeing in Greece is the death spiral of the welfare state.
This isn't Greece's problem alone, and that's why its crisis has rattled global stock markets and threatens economic recovery. Virtually every advanced nation, including the United States, faces the same prospect. Aging populations have been promised huge health and retirement benefits, which countries haven't fully covered with taxes. The reckoning has arrived in Greece, but it awaits most wealthy societies.
Americans dislike the term "welfare state" and substitute the bland word "entitlements." Vocabulary doesn't alter the reality.

A single currency could no more subsume national identities than drinking Coke could make people American. If other euro countries (Portugal, Spain, Italy) suffer Greece's fate -- lose market confidence and can't borrow at plausible rates -- there would be a wider crisis.

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The End of the Euro
How the crisis in Greece could lead to the demise of Europe's most ambitious project.
Alarming is the exposure of other EU banks to Greek debt, which totals $193 billion
Niall Ferguson NEWSWEEK May 7, 2010, From the magazine issue dated May 17, 2010

It was far from clear that the 11 countries that initially joined up constituted an "optimal currency area." A single monetary policy would likely amplify, rather than diminish, the fundamental differentials between highly productive Germany and the less efficient periphery.

But the worst defect in the design of the EMU, we argued, was that it was uniting Europe's currencies but leaving its fiscal policies completely uncoordinated. There were, to be sure, "convergence criteria," which specified that a country could join only if its deficit was less than 3 percent of gross domestic product and its public debt was less than 60 percent. But even when these were turned into a permanent set of fiscal rules in the Stability and Growth Pact, there was no obvious way they could be enforced.

A confidential Bank of England paper circulated in 1998 speculated about what would happen if a country—referred to only as "Country I"—ran much larger deficits than were allowed. The result, the bank warned, would be a colossal mess.

Why? Because the new European Central Bank (ECB) was prohibited from bailing out a country with such an excess deficit by lending money directly to the government.
Yet, at the same time, there was no mechanism for Country I to exit the monetary union. T
his rigidity was one reason Harvard economist Martin Feldstein foresaw the single currency leading not to greater harmony in Europe, but to conflict.

For nearly nine years after Greece became the 12th EMU member on Jan. 1, 2001, the Cassandras appeared to have gotten it wrong. The euro was a triumphant success... Between 1999 and 2003, international banks issued more bonds priced in euros than in dollars. The countries that had stayed out began to wonder if they'd missed not just the bus but a luxury coach.

Then, in October 2009

This Greek tragedy has several more acts to come.

The first will be a Greek default. It's simply not credible that the government will be able to deliver such severe fiscal tightening at a time of deep recession.

The next act will be even more dramatic... the contagion effect

Even more alarming is the exposure of other EU banks to Greek debt, which totals $193 billion,

When the euro was launched back in January 1999, it was worth less than $1.20, and for most of its first three years it was down below parity with the dollar. So its recent slide from close to $1.60 before the global financial crisis to $1.27 last week is far from unprecedented. But the way this crisis is unfolding, further declines seem likely. It will surely be at least a year before investors wake up to the fact that the fiscal predicament of the United States is actually worse than that of the euro zone.

The difference is, of course, that the United States has a federal system, while the euro zone does not. In America, Texas automatically bails out Michigan via the redistribution of income and corporation tax receipts. What the Greek crisis has belatedly revealed is that such fiscal centralization is the necessary corollary of a monetary union.

Europe now faces a much bigger decision than whether to bail out Greece. The real choice is between becoming a fully fledged United States of Europe, or remaining little more than a modern-day Holy Roman Empire, a gimcrack hodgepodge of "variable geometry" that will sooner or later fall apart.

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Niall Ferguson

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The euro is in danger, German Chancellor Angela Merkel
said in a speech to parliament
CNBC 19 May 2010

"Every one of us here can feel that the current crisis of the euro is the greatest challenge that Europe has faced for decades, since the signing of the Treaty of Rome," she said. "This challenge is existential. And we have to rise to it.

"I'll boil it down to its core:
The euro is the foundation for growth and prosperity, along with the common market -- also for Germany. The euro is in danger.
"If we don't deal with this danger, then the consequences for us in Europe are incalcuable."

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Tyskland

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Mrs Merkel made a moving plea to the Bundestag to support the €110bn (£93bn) rescue for Greece.
"Nothing less than the future of Europe is at stake. The happy tale of German history since World War Two and our emergence as a free, united, and strong country cannot be separated from the European Union.
We owe decades of peace and prosperity to the understanding of our neighbours," she said.
Daily Telegraph 6/5 2010


People worry that if Greece is Bear Stearns, Portugal is Lehman and Spain AIG,"
BNP Paribas said during the past week, a phrase that gained much circulation.
Reuters 7/5 2010

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Paul Krugman: "Grekland kommer att lämna euron"
E24 6/5 2010


”Euron är en domedagsmaskin”, menar Junilistans före detta ordförande Nils Lundgren,
men bemöts av Folk partiets Carl B Hamilton, som skyller krisen på Grekland.
SvD/E24 2010-05-04

– Grekland är det mest eklatanta exemplet på hur det kan gå. Jag menar att det här är ett extremt tydligt bevis för att vi som var skeptiska inför omröstningen hade rätt, säger Nils Lundgren.

Folkpartiets Carl Hamilton menar dock att krisen i Grekland inte beror på eurosamarbetet som sådant, utan på Greklands oförmåga att följa gemensamma regler.
–Med tanke på den vettlösa politik som Grekland har fört så spelar valutasystemet ingen roll, det går åt skogen i vilket fall som helst. De hade inte varit räddade av drachmern. Problemet är att euroländerna har haft en för slapp kontroll, dels vad gäller insamling av statistik, men också i kontrollen av ländernas finanspolitik.

– I slutändan tror jag att krisen kommer att leda till att det blir nödvändigt med en större samordning av finanspolitiken. Det kanske tar ett par år, men det kommer att leda till en överstatlighet på finansområdet, säger folkpartiets Carl Hamilton.

Nils Lundgren, vars Junilistan länge motsatt sig en ökad överstatlighet, ser en liknande utveckling och är kritisk.

– En viktig del av det vi ser nu är att man inte kan ha en självständig finanspolitik och en gemensam penningpolitik. Det är ingen ny lärdom, utan något vi lärt ut till studenter sedan 60-talet.

Nu finns det en del federalister som tycker att det här är bra, och som vill överföra finanspolitiken till Bryssel, säger han.

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Carl B Hamilton

Nils Lundgren

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Why should money be poured into Greece to "save the euro"?
Besides the moral hazard effects of the intervention, it makes little sense to prolong a monetary regime which is actually one of the reasons why these Eurozone countries are in trouble.
Gilles Saint-Paul, VoxEU.org, 5 May 2010

The Eurozone was formed and it was largely accepted as an irreversible fact. The sceptics refrained from questioning its soundness as an institution for fear of being perceived as unrealistic or extreme. Mentioning that a member country might leave the monetary union some day was considered a political non-starter, so that pragmatic economists who insisted on making a difference in the policy arena did not see the point in ruining their credibility by making such suggestions.

The reason why the Eurozone does not work is not asymmetric shocks but asymmetric trends.

Take the example of Spain. It has enjoyed strong growth after its accession to the Eurozone, but this growth was not sustainable. It was mainly driven by a construction boom, itself the outcome of a housing bubble. As construction is not a traded good, the result has been a massive trade deficit, which reached 9% of GDP.

As the boom heated the economy (relative to its equilibrium level which involves a rather high level of unemployment), Spain has experienced consistently greater inflation than the average of the Eurozone. This inflation has in turn deteriorated its competitiveness, which has further added to its trade deficit, while making it quite painful to reallocate resources to the export sector now that the construction industry is gone. Greece has experienced similar inflation differentials and its competitiveness is even more crippled than Spain's.

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Spain

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The “c” word: Contagion
Is Europe facing a ‘Bear Stearns’ moment?
Gillian Tett, FT May 5 2010 19:18

Since € 110bn - $ 143bn - many policymakers thought – or prayed – it would be big enough to smother the market fear.

Instead, the fear seems to be worsening. The price of bonds issued by Portugal and Spain slumped on Wednesday amid rumours that those countries might soon be forced to tap the IMF for aid too.

Tales also circulated that some Greek, Spanish and Portuguese banks are being shut out of the interbank markets due to concerns about counterparty risk. Even normally sanguine officials could be heard uttering the “c” word: contagion.

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Gillian Tett

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Greek crisis exposes default lines running through the eurozone
Initially, it was thought that the eurozone would not be subject to such market brutality /as in 1992/ because, in complete contrast to the ERM, once countries have joined the euro, there is no exchange rate against which speculators can take out positions.
Roger Bootle, Daily Telegraph 2 May 2010

On the morning of September 16 1992, the UK was in the Exchange Rate Mechanism (ERM); by the evening it was out. No politician decided this – it just happened.

Initially, it was thought that the eurozone would not be subject to such market brutality because, in complete contrast to the ERM, once countries have joined the euro, there is no exchange rate against which speculators can take out positions. As we now know all too clearly, there is still a means through which pressure can be exerted – namely the bond markets.

But at first it was not thought that the bond market could stage anything as spectacular as the events of September 1992. There was a subliminal belief that, whatever the treaties might say, if a eurozone member ever got into trouble, somehow or other the rest of the eurozone would bail it out. Anyway, this was well before the collapse of Lehman Brothers.
This demonstrated that markets must now think the unthinkable – and that includes default by a eurozone member.

Greece is now the risk, just as happened with Lehmans.

But, Greece, trapped inside the sluggish eurozone, these would condemn her to years, and perhaps decades, of depression and deflation.

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Acropolis now
Europe's sovereign-debt crisis
The Greek debt crisis is spreading
The Economist print 29/4 2010


The eurozone’s economic governance
Superficially, the reform is about ensuring the dispensation of good economic policy.
Fundamentally, it is about the sensible allocation of sovereignty in a core area of our democracies.
This highly political task should be a matter of vital concern for all politicians and engaged citizens.
Thomas Klau, Eurointelligence 3/4 2011

governments continue to elude the fact that the sovereign debt crisis results from the crisis of the European banking industry...

The choice must ultimately be between discarding the euro or taking the plunge into a federal structure
complete with Eurobonds, a common set of core policies, a bigger and more flexible EU budget, and so on.

This is definitely not the kind of argument today’s wobbly cast of political leaders are prepared to put to the public.

Thomas Klau is a senior policy fellow with the European Council on Foreign Relations.
Together with François Godement and Jose Ignacio Torreblanca, he has co-authored “Beyond Maastricht: a new deal for the eurozone

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Is a European banking crisis next?
The FT reports that “many European banks have become shut out of the international lending markets because of continuing concerns over Greece, sparking fears that some could collapse as they run out of cash.
Greek and Portuguese banks cannot borrow in the international money markets, while weaker European banks are also struggling to raise money as fears of counterparty risk have grown sharply.”
Even French and German banks have difficulties because of their exposure to Greek debt.
Eurointelligence 30/4 2010

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Finanskrisen

Från ECB till EBC
Eurointelligence, en utmärkt källa till kunskap, ställer i dag frågan om Greklandskrisen kommer att utvecklas till en European Banking Crisis, som lämpligen kan förkortas EBC.
Rolf Englund blog 30/4 2010

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Bryssel, Belgien och fullskaleexperimentet EMU
Rolf Englund blog 29/4 2010


Proud nations such as France, Germany, Britain or Spain would not surrender their identities; but they would pursue their interests collectively. Maddening as it could often be, “Europe” would always be around.
That is what I used to think.
Philip Stephens, FT April 29 2010

Europe no longer carries the stamp of inevitability. Quite suddenly, it has become almost as easy to foresee a future in which the Union fractures. The risk is not so much of a great rupture – though if Greece defaults the immediate shocks will be profound – but of the atrophy that flows from the absence of political leadership.

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Det är målsättningen om ett ständigt fastare förbund - "ever closer union" - som är själva grundbultsfelet med EU.
Rolf Englund Barometerns website 7/6 2005

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– Den stora risken i ett krisscenario är att bankerna i Tyskland och Frankrike får en rejäl smäll och att vi får en ny vända av finanskris,
säger Handelsbankens chefekonom Jan Häggström.
Ekot 28/4 2010

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So do not be fooled by anybody who says that the central bank should cut interest rates for the benefit of innocent citizens
Wolfgang Munchau, FT January 20 2008


This is going to be the most important week in the 11-year history of Europe’s monetary union.
By the end of it we will know whether the Greek fiscal crisis can be contained or whether it will metastasise to other parts of the eurozone.
What we are seeing here is Europe’s equivalent of the US subprime crisis. Unless we hear some implausibly good news from Athens by Friday, it will soon blow up.
Wolfgang Münchau, FT April 25 2010


Germany
Four professors will launch a legal challenge in early May at the Verfassungsgericht (high court).
Should they secure an injunction, EMU may fly apart.
EMU shut the warning signals, disguising risk.
What investors overlooked is that currency risk mutates into default risk in a monetary union
The EU-IMF "therapy" of deflation for Greece repeats the catastrophic errors of Chancellor Heinrich Bruning in the early 1930s and must lead to a depression
Ambrose Evans-Pritchard, 25 Apr 2010

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Friday will be remembered as the day the euro needed rescuing.
Sure it is Greece that has asked to be bailed out but it was still a day that the architects of the single currency had never envisaged.
For when it came to it, there were no plans to save a euro member in trouble.
Gavin Hewitt, the BBC's Europe editor, 24 April 2010

The last few months have been a long, agonising drama. It is the financial markets that have been in the driving seat. The politicians, the eurozone countries, the European Central Bank, the European Union have all played catch-up, scrambling to put together a rescue plan. Now Europe is faced with what is potentially the biggest ever bail-out of a country.

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Poland should not rush to sign up to the euro
Slawomir Skrzypek, FT April 12 2010
The writer, late president of the National Bank of Poland, submitted this article before he died in the Smolensk air crash on Saturday. It is published by agreement with Mr Skrzypek’s wife, Dorota, and the Bank

Because Poland’s currency is not bound by the Exchange Rate Mechanism II, we have been able to adjust the value of the zloty in line with domestic requirements. Between 2008 and 2009, Poland’s real effective exchange rate, allowing for differences in unit labour costs, fell by nearly 20 per cent – a significant factor behind the narrowing of the current account deficit. During this process, we brought about a significant catch-up in GDP per capita, now at 60 per cent of the EU average compared with 49 per cent in 2004 when Poland joined the EU.

The necessary structural reforms will, over the longer term, improve Poland’s ability to meet euro entry criteria. But we must temper the wish to adopt the euro with necessary prudence. We should not tie ourselves to timetables that may prove counterproductive. Solid economic growth and sensible policies on debt and deficits are possible both within and outside the eurozone.

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The Glory of Poland
My first thought, hearing of the Polish tragedy, was that history’s gyre can be of an unbearable cruelty,
decapitating Poland’s elite twice in the same cursed place, Katyn.
Roger Cohen, New York Times April 12, 2010

“Katyn is the place of death of the Polish intelligentsia,” Michnik, now the soul of Poland’s successful Gazeta Wyborcza newspaper, said when I reached him by phone. “This is a terrible national tragedy. But in my sadness I am optimistic because Putin’s strong and wise declaration has opened a new phase in Polish-Russian relations, and because we Poles are showing we can be responsible and stable.”

Michnik was referring to Prime Minister Vladimir Putin’s words after he decided last week to join, for the first time, Polish officials commemorating the anniversary of the murder at Katyn of thousands of Polish officers by the Soviet Union at the start of World War II. Putin, while defending the Russian people, denounced the “cynical lies” that had hidden the truth of Katyn, said “there is no justification for these crimes” of a “totalitarian regime” and declared, “We should meet each other halfway, realizing that it is impossible to live only in the past.”

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Katyn
Wikipedia

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Mr. Van Rompuy and many investors fear a sovereign default would start a chain reaction of panic and failures, perhaps breaking up the euro zone.
The worries are certainly not groundless, even if Greece’s debt of 270 billion euros is only 4 percent of all euro zone sovereign obligations. A write-down could reduce Greek banks to insolvency.
EDWARD HADAS, NYT April 5, 2010

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Roubini:
Europe needs growth to prevent a disorderly collapse of the euro area.
Der Spiegel 11/1 2011

The stringent cost-cutting measures that the EU and the International Monetary Fund are imposing on countries such as Greece and Ireland are, in principle, the right way to get a handle on their debt.

However, these measures also strangle an economy. Higher taxes mean people have less money to spend. If the government cuts spending it cannot make investments to stimulate growth.

This creates huge difficulties for the governments concerned: If people cannot see the light at the end of the tunnel they will start to withdraw their support for reforms.

In the interests of Europe as a whole, Germany should do all it can to bolster growth -- at home and in Europe. Germany should, therefore, postpone its austerity strategy.

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The Portugal page has moved here


This remains for some time

EMU bollar Gris med Europa
Rolf Englund blog 7/4 2011


Portugal ger upp, ber om krislån
DN/TT 2011-04-06

Det finansiella läget för Portugal är nu så pressat att landet inte klarar sig utan den typ av stödpaket som Irland och Grekland fick av EU och IMF i fjol.

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Mr Socrates did not say how much aid Portugal would ask for.
BBC's business editor Robert Peston said rescue loans could amount to as much as 80bn euros ($115bn; 725 miljarder kr).

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Portugal will follow Greece and Ireland to failure
IMF and EU appear set to do so by prescribing for Portugal the same failed policy approach of savage fiscal retrenchment in the most rigid of fixed exchange rate systems that has had such dismal results to date in Greece and Ireland.
Desmond Lachman,FT March 31 2011

The Portugal page has moved here

One has to wonder how much deeper the economic recessions in Greece, Ireland, and Portugal will have to become for the IMF and the EU to recognize that the countries in the periphery suffer from solvency rather than liquidity problems, that are not amenable to correction by fiscal retrenchment alone in a fixed exchange rate system.

The risk is that, before they do, the electorates in Greece, Ireland, and Portugal will revolt against seemingly endless economic hardship to which they are being subjected for the sake of keeping them current on their debt obligations to foreign financial institutions.

The writer is resident fellow at the American Enterprise Institute

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More by Desmond Lachman at nejtillemu.com

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Standard & Poor’s downgrading of Portugal’s sovereign debt made clear that the primary cause
was the concluding statement of the European Council meeting of March 24-25.

Jeremy Warner, Daily Telegraph March 29th, 2011

This is what the European Council said after its meeting last weekend:

"If, on the basis of a sustainability analysis, it is concluded that a macro-economic programme cannot realistically restore the public debt to a sustainable path, the beneficiary Member State will be required to engage in active negotiations in good faith with its creditors to secure their direct involvement in restoring debt sustainability."

So that’s it. Greece, Portugal and Ireland are all heading for a big debt restructuring, which means that private investors are going to have to bear the costs of a considerable part of the fiscal adjustment. It’s what bond markets have been saying for more than a year now, and of course it is what the political left has been demanding too.

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The Portugal page has moved here


The total exposure of foreign banks to the struggling quartet of
Greece, Ireland, Portugal and Spain tops $2.5 trillion
once all forms or risk are included, according to the latest data from BIS
Ambrose Evans-Pritchard 14 Mar 2011


Portuguese debt yields soared to new records. The 10y bond hit 7.9%
El Pais writes that even the ECB, which returned to secondary markets after three weeks of absence to buy €432m in government debt last week, could not halt this.
Portugal needs to repay or rollover €4.3bn of bonds maturing on April 15
and another €4.9bn in June
Eurointelligence 29/3 2011


Though unconfirmed, only substantial liquidity support from the European Central Bank is keeping the financial systems and, indirectly, the governments of peripheral states such as Ireland, Portugal and Greece alive,
their banks often acting as conduits to supply funds for nations effectively locked out of private capital markets
The Independent 1 April 2011

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For some time, Portugal's government has been borrowing from its banks by selling them bonds, which in turn have been swapping the bonds for cash from the ECB (see my earlier notes on this).
And the ECB has also been endeavouring to put a floor under the price of Portuguese bonds, by buying them in the secondary market.
Robert Peston, the BBC's business editor, 24 March 2011

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The Portugal page has moved here

William White, chairman of the Organization for Economic Cooperation and Development's Economic and Development Review Committee,
talks about Portugal's debt and budget and the outlook for a possible international rescue.
Bloomberg March 24 2011

William White, until recently economic adviser to the Bank for International Settlements
He has resisted heroically the temptation to say: “I told you so.”


To cover Portugal’s deficit and bond repayments for three years,
the bail-out would have to be between €60bn and €70bn.

Open Europe 24/3 2011

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Portugal PM Socrates' resignation overshadows EU summit
BBC 24 March 2011

Pressure on Portugal's economy intensified on Thursday as the interest rate on the country's 10-year bonds climbed to a new high of 7.91%.
Portugal faces bond repayments of 4.3bn euros on 15 April

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Abril en Portugal - Julio Iglesias
Youtube


Skuldkrisen i EMU är av allt att döma på väg in i ännu en kritisk fas.
Det stora orosmolnet är inte Portugal utan Spanien.

Viktor Munkhammar, DI 24/3 2011

Upptakten till helgens EU-toppmöte kunde ha varit bättre.
På onsdagen avgick Portugals premiärminister José Socrates efter att regeringens senaste åtstramningspaket röstats ned i parlamentet.
Och på fredagen sänkte kreditvärderingsinstitutet Moody's betygen för 30 spanska banker.

Tanken var att helgens EU-toppmöte skulle innebära ett slut på den improviserade brandsläckning som hittills präglat EMU:s hantering av skuldkrisen. I stället skulle eurozonen börja blicka framåt och ta itu med grundläggande problem som bristande konkurrenskraft.

Tyvärr verkar det som att det blir brandsläckning igen. Men med tanke på hur lågt förväntningarna har sjunkit finns potential för positiva överraskningar.

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Ekot om samma Portugals regeringskris

Spanien


The opposition parties appeared to be responding to the public mood in Portugal, which had turned against the belt-tightening.
Der Spiegel 24/3 2011

The government's efforts to sort out the country's finances with tax increases and cuts in welfare spending had led to a wave of strikes. Tens of thousands of people recently held protests against precarious working conditions, unemployment and the austerity measures.

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Portugal väntas i april be om ett stödpaket från EU och IMF, rapporterar Reuters med hänvisning till källor i eurozonen.
– Det är redan en utbredd uppfattning på finansmarknaden, men nu har även EU:s finansministrar börjat inse detta, säger en källa.
DN/TT 18/2 2011

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ECB intervened in the markets on Friday to prevent Portugal’s borrowing costs spiralling to “danger levels”
that could force Lisbon to seek international assistance.
FT February 18 2011

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Portugal
Åtstramningarna som har framtvingats av marknaderna gör saken inte bättre, i alla fall inte på kort sikt. Medan länder som Tyskland och Sverige växer så det knakar väntas Portugals BNP sjunka i år,
precis som investeringarna, sysselsättningen och den offentliga och privata konsumtionen.

Hur Portugal i det läget ska klara av att sänka budgetunderskottet är för många en gåta.
Tomas Lundin, SvD Näringsliv 12/1 2011

I fredags meddelade visserligen att premiärminister Sócrates att budgetunderskottet gått ner till 7,3 procent. Men han undvek noga att berätta att regeringen plundrat halvstatliga telebolaget Portugal Telecoms pensionskassa för att klara sina utfästelser gentemot EU.

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Stabiliseringspolitik

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Portugal planerar i år att låna upp 18-20 miljarder euro med nya obligationslån
Totat löper portugisiska obligationer för 9,5 miljarder euro ut 2011, varav 4,5 miljarder i april.
SEB:s ekonomer ser onsdagens försök i Portugal att ta upp obligationslån för sammanlagt 1,25 miljarder euro (cirka 11 miljarder kronor) som "ett viktigt test".
Ekot 10/1 2011

"Om den auktionen går dåligt ökar risken rejält för att Portugal inom kort måste följa Irland och söka hjälp", skriver SEB i ett marknadsbrev.

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Yep, Portugal’s 10-year debt is yielding more than 7 per cent
Neil Hume FT Alphaville Jan 06 2011

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Irish 10-year yields have been climbing to 9%, Greek 10-year yields to over 12%,
well into territory where investors are factoring in a non-trivial default risk.
Eurointelligence 6/1 2011

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Portugal is the next example of a country to demonstrate that austerity in the middle of a financial crisis is a sure recipe for disaster.
The mood in the bond markets is deteriorating sharply, as Portuguese, and Spanish, spreads reach new records,
amid expectation that the crisis is very certain to spill over to Portugal, and possibly even to Spain.
FT Deutschland makes the remark the Portuguese spreads are about as high now as the Greek spreads
were ahead of the rescue.
Eurointelligence 24/11 2010

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Stabiliseringspolitik

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Portugal’s minority government is to unveil a tough austerity budget on Friday
amid fears that opposition parties will fail to provide the necessary support
FT October 15 2010

The 2011 budget proposals are designed to reassure financial markets that Portugal, one of the eurozone economies most vulnerable to a sovereign debt crisis, will meet its ambitious deficit-reduction targets.

But a political crisis sparked by the budget vote would destroy the positive impact on Portugal’s borrowing costs of planned austerity measures, including a 5 per cent cut in public sector pay and a pension freeze.

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Portugal
That is what happens when you cut interest rates suddenly from 16 to 3 per cent
yields back to May crisis levels when the EU faced its "Lehman moment"
Ambrose Evans-Pritchard, 19 Sep 2010

Portugal was a net foreign creditor in the mid-1990s. EMU has turned it into a net foreign debtor to the tune of 109pc of GDP. That is what happens when you cut interest rates suddenly from 16pc to 3pc.

Be that as it may, the comments struck a nerve. Yields on 10-year Portuguese debt surged to 6.15pc, back to May crisis levels when the EU faced its "Lehman moment" and launched a €750bn (£625bn) rescue blitz.

The brutal truth is that Portugal lost competitiveness on a grand scale on joining EMU and has never been able to get it back.
Convergence never came.

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The European Cental Bank's bailout package is just a $1 trillion fig leaf covering the problem and
a better move would have been to arrange for Greece and Portugal to leave the European Union
Kenneth Rogoff, professor of economics and public policy at Harvard, told CNBC Friday 14/5 2010


Help Portugal Help Greece
The real fun begins if Spain’s cost of borrowing rises above the pooled loan rate.
It has to lend €9.8 billion to Greece.

Charles Forelle, Real Time Brussels, WSJ 5/5 2010

As of a few minutes ago, the yield on a two-year Portuguese bond stood at 5.66% and the yield on a 10-year at 6.13%. Both yields are up substantially from yesterday. It now seems clear that Portugal’s cost of borrowing the €2 billion it is putting toward the Greek bailout now exceeds the interest rate Greece will pay. (We earlier detailed the rate calculations; three-year Euribor is 1.73% today, so the bailout rate is 4.73%, plus a 0.5% service charge in the first year.)

But European Commission officials say a special clause in the bailout deal prevents any country from taking a loss on its Grecian lending. So the other 14 countries will cede a small bit of their profit to Portugal.

Some back-of-the-envelope math:

If we assume Portugal’s cost of borrowing for three years is around 5.75%, it will need a subsidy of about 0.5% in the first year and 1% annually thereafter, or €50 million over three years on its €2 billion loan.
We figure Germany and the rest can afford that.

The real fun begins if Spain’s cost of borrowing rises above the pooled loan rate. It has to lend €9.8 billion to Greece.

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A country such as Portugal with total debt of 300pc of GDP, a current account deficit of 11.2pc, and a budget deficit of 9.4pc should not think it has the luxury to trim spending at a leisurely pace.
Portugal has an ugly choice. If it tightens hard to soothe bond markets, it too risks depression. EMU's Faustian Pact is closing in.
Ambrose Evans-Pritchard, 25 Apr 2010

We are in the Maastricht madhouse, a currency union without a treasury, ruled by the "no bail-out" clause of Article 125 of the EU Treaties. Europe is at last paying the price for fudging the true implications of EMU 19 years ago in that Medieval city on the Maas, gambling that it would one day be able to lead Germany by the nose into a debt union.

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Stabilitetspakten


Portugal's economy
The importance of not being Greece
The Economist print April 22nd 2010

Portugal is doing better than Greece. So why are markets fretting over Lisbon’s debt burden (yields on two-year bonds have risen to 4.8%)? And why have such figures as Simon Johnson, a former IMF chief economist, and Nouriel Roubini, a New York economics professor once labelled Dr Doom, said that a Greek-style crisis could infect Portugal?

One answer is that Portugal’s biggest problem is not primarily fiscal. It concerns growth—or the lack of it. Real GDP growth over the decade since Portugal joined the euro has been the slowest in the zone, despite a boom in Spain, its main trading partner.

Low growth reflects a disastrous loss of competitiveness since the country joined the euro. Portugal has lost export-market share to emerging economies (including those of eastern Europe) that churn out similar low-value products.

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The Importance of Being Earnest
Wikipedia

EMU - en snabbkurs
Klicka här

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Värstascenariot för euron
Hur illa kan det gå för euron sedan Grekland avslöjats som bankrutt och Spanien, Portugal och Irland också riskerar att tappa fotfästet.
Vilket blir första land att lämna euron den dag det blir möjligt?
Godmorgon Världen Lördag 03 april 2010

Läs mer här

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Southern Europe's problem is essentially a competitiveness problem, and not a fiscal one,
and if many states have been having growing difficulty with their negative fiscal balances, this is a symptom of the problem, and not its cause.
Even in the worst of cases - countries like Greece and Portugal - the rising recourse to fiscal outlays has been a response to lack of "healthy" growth, and the root cause of this continuing difficulty in generating real growth has been the underlying lack of competitiveness, and the inability to export your way out of trouble once the burden of debt starts to rise,
so simply pruning the fiscal side isn't going to cure the problem, and by now that simple point should be obvious, I would have thought.
Edward Hugh, Spain Economy Watch March 24, 2010

To some extent I cannot help feeling that a congenital inability to take bite-the-bullet type decisions is resulting in an ongoing process of passing the buck ever onwards and upwards. The latest exemple here is the issue of IMF involvement in the Greek adjustment process

Well, one of the reasons lying behind all the reluctance we are currently seeing may not be the issue of the German constitution, or even the question of changes to the Lisbon Treaty, or any of the major issues of principal which arise and would require lengthy and onerous debate. Maybe the question is a much more simple one: perhaps Europe's leaders are simply worried that if they make a cheap loan to Greece, then Spain, Portugal, Ireland, Italy, Austria, Slovenia and Slovakia may all soon argue they also need one.

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I spent the best part of last week trying to figure out the mechanics of the eurozone’s €440bn bail-out fund.
The European Financial Stability Facility is in many respects like a gigantic collateralised debt obligation and uses much of the machinery of modern finance.
And finally, the whole edifice would collapse if France was downgraded. This is a non-zero probability event, to put it mildly.
Wolfgang Münchau, FT September 26 2010

Once it raises the funds, the EFSF will not be able to lend on all of the €1bn, but only the portion backed by the collateral of those countries that themselves have a triple A rating.

edifice: An elaborate conceptual structure: observations that provided the foundation for the edifice of evolutionary theory.

collateralised debt obligation

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I am aware of the commitment of Europe’s elite to the success of the European project.
But the crisis is profound – for the eurozone, the European Union and the world.
As Wolfgang Münchau has pointed out, last week’s European Council was not a solution but a fudge.
Martin Wolf FT March 30 2010

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The IMF should impose default on Greece to end the charade
I just had lunch with Carmen Reinhart, author of `This Time is Different: Eight Centuries of Financial Folly” and a world authority on sovereign defaults.
Ambrose Evans-Pritchard Economics April 2nd, 2010


The euro’s big fat failed wedding
The European Union was banking on three forms of convergence:
economic, political and popular.

Gideon Rachman March 29 2010


Nästa krishärd Bulgarien
som knutit sin valuta mot euron och därför ser ut att drabbas av samma problem som euroländerna kring Medelhavet.
ekonomism.us 24/3 2010

EU ger klartecken för Bulgarien och Rumänien
Marianne Björklund, DN nyhetsplats 26/9 2006
Bra länkar

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En viktig slutsats är emellertid att valutaunionen har skapat en mycket stor del av de ekonomiska balansproblem som framför allt de sydeuropeiska länderna står inför.
En annan viktig slutsats är att det är mycket svårt att ta sig ur problemen när man sitter fast i en valutaunion.
Resultatet kan bli en gastkramning av ekonomierna och hela samhällssystemet.
Nils Lundgren Europaportalen 15/3 2010


The beginning of the end of Europe’s economic and monetary union as we know it.
This is the true historical significance of Ms Merkel’s decision.
Wolfgang Münchau, FT March 21 2010 19:35

In a column several weeks ago I put forward three conditions necessary for the eurozone to survive in the long run: a crisis resolution mechanism, a procedure to deal with internal imbalances, and a common banking supervisor. Since then, things have been moving in the wrong direction on all three counts.

For a start, we have come from a situation in which the “no bail-out” clause of the Maastricht treaty, having been almost universally disbelieved for 10 years, is suddenly 100 per cent credible. The minute the IMF marches into Greece, all ambiguity will end.

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The Greek crisis and the future of the Eurozone
The structural problem in the Eurozone is created by the fact that the monetary union is not embedded in a political union.
Paul De Grauwe Eurointelligence 11.03.2010

As is well-known, the ECB relies on ratings produced by American rating agencies to determine eligibility of government bonds as collateral. Prior to the financial crisis the minimal rating needed to be eligible was A- (or equivalent). In order to support the banking system during the banking crisis, the ECB temporarily lowered this to BBB+. At the end of 2009, however, the ECB announced that it would return to the pre-crisis minimal rating from the start of 2011 on. As the Greek sovereign debt had been lowered to BBB+, this created a big problem for financial institutions holding Greek government bonds, which now face the prospect that their holdings of Greek government bonds may become extremely illiquid. No wonder many dumped Greek government bonds, precipitating the crisis.

The choice the Eurozone authorities face today is between two evils.
The first one arises from moral hazard.

The second evil arises from the contagious effects of letting Greece default on the banking system and macroeconomic policies in the Eurozone

The legal skeptics argue that the no-bail out clause in the Treaty forbids the member states of the union to provide financial assistance to another member state. But this is a misreading of the Treaty. The no-bail-out clause only says that the European Union shall not be liable for the debt of governments, i.e. the governments of the Union cannot be forced to bail-out a member state (see Article 103, section 1).

But this does not exclude that the governments of the EU freely decide to provide financial assistance to one of the member states.

In fact this is explicitly laid down in Article 100, section 2. Thus euro zone governments have the legal capacity to bail out other governments.

Here is the text: “Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, acting by a qualified majority on a proposal from the Commission, may grant, under certain conditions, Community financial assistance to the Member State concerned”.

ECB should discontinue its policy of outsourcing country risk analysis to American rating agencies. The latter have a dismal record.

What’s to be done: the long term

The structural problem in the Eurozone is created by the fact that the monetary union is not embedded in a political union. This imbalance leads to a dynamics of creeping divergencies between member states and no mechanism to correct or to alleviate it

This structural problem has to be fixed before we are hit by the next crisis.
But that is also the hard part.

There is today in the Eurozone no willingness to move forward into a more intense political union.

One is led to the conclusion that the inability to create a more intense political union in the eurozone will continue to make the latter a fragile construction, prone to crises and great turbulence each time such a crisis must be resolved.

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Chancellor Angela Merkel has halted at the Rubicon.
Ambrose Evans-Pritchard, 21 March 2010

Paul De Grauwe

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The fundamental problem with the euro project was overambition.
The difficulties of monetary union without political union were much discussed in the 1990s, and then simply ignored, except in Britain and Scandinavia.
The risk of a single currency was probably manageable with a small group of countries that had a decent chance of remaining competitive with Germany. Bringing in all of southern Europe dramatically raised the stakes.
Martin Taylor, FT March 21 2010

The writer is chairman of Syngenta and former chief executive of Barclays

I had always supposed that the euro would hold together because the misery of unravelling it seemed likely to exceed the pain of soldiering on. But when both partners in a marriage seriously question the arrangement, divorce is only a matter of time. This is a marriage with 16 partners and domestic violence is hotting up.

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Chancellor Angela Merkel has halted at the Rubicon.
Has Germany just killed the dream of a European superstate?
So after weeks of Euro-bluff it looks ever more like an IMF rescue for Greece after all, and hence for any other eurozone nation driven to ruin by the wrong monetary policy.
Ambrose Evans-Pritchard, 21 March 2010
Very Important Article


“Should a eurozone member ultimately find itself unable to consolidate its budgets or restore its competitiveness, this country should, as a last resort, exit the monetary union while being able to remain a member of the EU.”
Wolfgang Schäuble, German finance minister, FT March 11 2010 19:15


Olli Rehn /European Commissioner for Economic and Financial Affairs/ is quoted with the dramatic statement that a failure of Greece is a failure of the EU.
"If Greece fails and we fail, this will do serious and maybe permanent damage to the credibility of the European Union... The euro is not only a monetary arrangement but a core political project of the European Union."
Eurointelligence 15.03.2010

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Greece

Greece threatens more than the euro
The risk for Europe now is that if the EU does not move forward politically in response to the Greek crisis, it will move backwards – and the long process of European integration could start to unravel.
Gideon Rachman, FT. February 22 2010


The Future of the Euro
Moment of Truth for Europe's Common Currency
Part 2: Is Europe Laying the Foundation for a Common EU Economic Government?
Der Spiegel Online 19/3 2010

The disastrous budget situation in Greece has highlighted the common currency's weaknesses in recent weeks and similar situations in Spain, Ireland, Italy or Portugal could aggravate the situation even further.

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"economically absurd", "economically erroneous and politically dangerous", "a scandal", "insane"
Europe’s monetary union is in a deep crisis.
In the context of Greece’s debt concerns and emerging problems in other countries, huge current account imbalances have been identified as a major threat.
But since the adoption of a single currency, devaluation is no longer available to correct an unsustainable current account deficit.
Otmar Issing, FT March 18 2010


Across Europe, from profligate Greece to newly strait-laced Ireland, countries are promising deep, painful cuts in public spending even as they face the likelihood of a new recession.
But some argue that Berlin is pressing too hard, and that the region’s new fixation on debt has created a “cult of austerity” that could make it harder to recover from the slump.
New York Times 17/3 2010

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We need an agreement that as an ultima ratio it's possible to exclude a country from the euro zone if again and again it doesn't fulfill the requirements,"
Ms. Merkel said in an address to Germany's lower house of parliament.
WSJ March 17, 2010

Ms. Merkel's spokesman, Ulrich Wilhelm, said Wednesday that securing approval for the new rule would take "a few years"—a vast understatement, said Simon Tilford, chief economist at the Center for European Reform, a London think tank, considering the history of the Lisbon treaty.

Ms. Merkel said the country's heavy reliance on exports is a plus, not a minus. "Germany will not forfeit its export strength," Ms. Merkel said. Her affirmation of the exports that drive Europe's largest economy made her the latest German official to hit back against French Finance Minister Christine Lagarde, who said the strategy creates unsustainable imbalances in the euro zone. Ms. Lagarde, speaking on French radio Wednesday, said that Germany should lower taxes to boost domestic consumption.

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China and Germany unite to impose global deflation
Germany is in a supposedly irrevocable currency union with some of its principal customers. It now wants them to deflate their way to prosperity in a world of chronically weak aggregate demand.
I am beginning to wonder whether the open global economy is going to survive this crisis.
The eurozone may also be in some danger.
Martin Wolf, FT March 16 2010

Germany


They've got only a garlic press For many years, I and others thought that when times got tough, it would be virtually impossible for the European currency to hold together.
On the other hand, there is an attractiveness about the euro: No member country of the European Union can print it.
Bill Fleckenstein 12/3 2010

If life in the eurozone becomes intolerable, exit will become the default resolution mechanism.
And when you include the legal possibility of an exit, the whole political and economic dynamic changes,

and the threat of an exit might turn into a self-fulfilling prophecy.
This does not apply only to Greece, but to a number of countries that have lost competitiveness to Germany.
Wolfgang Münchau, FT March 14 2010

I had previously assumed that Germany had a national interest in preserving the eurozone, as its exporters benefit more than anyone else from a stable exchange rate. Ergo, I thought, Germany – despite the rhetoric – would eventually do whatever it takes to prevent a breakup. It would be the rational thing to do.
But I think I was wrong.

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“Should a eurozone member ultimately find itself unable to consolidate its budgets or restore its competitiveness, this country should, as a last resort, exit the monetary union while being able to remain a member of the EU.”
Wolfgang Schäuble, German finance minister, FT March 11 2010 19:15

If we wish the euro to be strong and stable on a lasting basis – our condition for bringing the DM and its high credibility into the euro fold – we have to be prepared to integrate further in the eurozone. Co-ordination between euro members must be more far-reaching; they must take an active part in each other’s policymaking.

I understand that a great deal of political resistance will have to be surmounted. Nevertheless, I am convinced that from Germany’s perspective, European integration, monetary union and the euro are the only choice.

There are some people who might feel that their scepticism towards the euro has been vindicated. They are overlooking the strengths of Europe and the problems faced in other leading global economic zones.

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Greklands ekonomiska problem tvingar EU att ta ett nytt steg ut i det okända.
Vi sitter alla på första parkett och betraktar hur historien vrider sig, ännu ett stycke.
Unionen är en ofullbordad och därmed känslig konstruktion. Det verkar just nu inte särskilt troligt – men kanske hejdar sig unionen i steget och börjar tveka. Då kan det oavslutade bygget i stället börja krackelera.
Annika Ström Melin, Signerat, DN 12/3 2010

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Mer av Annika Ström Melin

Annika Ström Melin, vårt lands mest kunniga journalist i detta ämne, ställer EMU-frågan på sin spets.
Rolf Englund blog 18/2 2010

Den meste Ja-sägaren, P J Anders Linder på SvD, tiger dock fortfarande.
Rolf Englund blog 2010-03-11
Så även i dag 2010-03-12

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Det är inte oundvikligt
Rolf Englund i EU-krönika i Nya Wermlands-Tidningen 2001-09-18:

Nu är det skamligt många i Sverige som förbereder sig och Sverige för en tillvaro i ett av EMU-EU dominerat Europa. Varför skall man göra sig omöjlig till ingen nytta när man kan vara realist och få ett välbetalt jobb i Bryssel eller i varje fall få åka dit med någon svensk delegation? Motstånd är ju ändå meningslöst, tänker väl Herr Unckel och andra. Men, som alla svenskar vet, varje meddelande om att motståndet skall uppges är falskt. Det är inte dom som kommer att segra, det är vi. Likt det en gång mäktiga Sovjetunionen kommer den Europeiska Unionen att i efterhand ses som en papperstiger, som ett snarast oförklarligt historiskt misstag likt Första Världskriget.

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P.S. Ett stort tack till familjen Ander som på 1970-talet lät mig skriva ett oräkneligt antal ledare i NWT om löntagarfonderna och som lät mig skriva många förgripliga artiklar om EU och EMU i början av 2000-talet.

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"Nu behövs ett statsmannalikt ledarskap... Europas ledare, först och främst Tyskland och Frankrike"
Ska vi rycka ut för de sydeuropeiska länderna
eller ge upp och låta euron dö?
Den frågan klargör vad hela krisen handlar om: det europeiska projektets framtid.
Joschka Fischer, kolumn DN 10/3 2010

EU kan varken låta Grekland halka ner i statsbankrutt eller överlämna det till Internationella valutafonden, eftersom andra EMU-medlemmar – Portugal, Spanien och Italien – antagligen skulle ligga närmast till för attacker från finansmarknaderna. I så fall skulle det finnas risk för att euron rasade och för första gången på allvar hotade hela det europeiska integrationsprojektet.

Europas ledare, först och främst Tyskland och Frankrike som har avgörandet i sina händer, måste agera snabbt och genomdriva nya, uppfinningsrika lösningar.

även med ett, två eller tre steg framåt kommer Tysklands och Frankrikes rege­ringar att ta stora inrikespolitiska risker om eurokrisen i Medelhavsländerna förvärras och en finansiell räddningsoperation där blir nödvändig.

Invånarna i de länder som blir tvungna att betala notan är inte förberedda på den verklighet som ligger framför dem, och det kommer att lägga bränsle på den mångåriga ökning av euroskepticismen som nu genomsyrar alla politiska läger. Detta gäller i allt hög­re grad också Tyskland, och vi kommer sannolikt att få se ett extremt stort politiskt problem växa fram där mycket snart.

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Under 90-talet var det drömmen om federationen som dominerade sinnena och euron fick symbolisera den nya europeiska staten. Eller som Tysklands utrikesminister Joschka Fischer sa på ett föredrag i Berlin 1999 och svepte med handen över publiken:
”Ett mynt, en lagbok och ett svärd över hela kontinenten”.
PM Nilsson, Expressen 25/3 2007

Joschka Fischer
In the revolutionary cauldron of 1970s Frankfurt, he was a militant activist in the causes of Vietnam opposition and environment protection. He tottered at the edge of the terrorist scene and, more recently, has had to defend links with suspected kidnapper and murderer Hans-Joachim Klein and, by association, Carlos the Jackal.
BBC August 2005

JJoschka Fischer

Germany

"Allt är inte frid och fröjd.
Euron är ett politiskt flaggskepp i EU och därför är det grekiska dramat en rejäl prestigeförlust."
Det senaste SvD har skriit i frågan, 15 februari 2010
Rolf Englund blog

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Former Federal Reserve Chairman Paul Volcker is confident the /Euro/currency will survive
“I’m still a believer in the euro,” Volcker said in an interview in Berlin March 6.
The lack of a unified government to back up the European Central Bank is a “structural crack” and “maybe fortunately it’s tested with a country as small as Greece, which doesn’t present an insuperable financing problem.”
Bloomberg March 8 2010

Spain

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German constitutional law imposes such tight constraints that any dilution of the no bail-out clause in the Maastricht treaty or the price stability target of the ECB might trigger a forced German exit.
The most one can hope for during the next 10 years is improved voluntary co-ordination in the European Council.
Germany has unilaterally prescribed itself a deficit-to-GDP ceiling of 0.35 per cent from 2016.
Wolfgang Münchau March 7 2010

Greece last week solved its fiscal problem by creating a private sector problem of identical size.
The Greek state – the sum of its public and private sectors – is just as bankrupt today as it was a week ago

This means that, by following the fiscal policy rules, the eurozone would risk a private sector depression, which would almost certainly be concentrated heavily in Europe’s south. This scenario would greatly increase the probability of a eurozone break-up at some point in the future.

We have always known that a monetary union cannot exist without political union in the long run.

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Millions of migrants have arrived in Greece, Italy and Spain over the past decade.
To avoid serious social problems, those countries need to do a better job of making them feel welcome
Time Magazine March 1st 2010

The economic crisis will slow the flow but is unlikely to undo the demographic shift, not least because the birthrate among immigrants is much higher than the general population's. "If there's a lesson that can be learned from the northern European experience, it's that temporary migrants tend to remain," says Joaquín Arango, professor of sociology at the Complutense University of Madrid.

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Cecilia Malmström


Det kommer aldrig att bli möjligt att göra någon entydig nyttokalkyl som visar att Sverige gör en nettovinst på att gå med.
Lars Calmfors 2009


Greece threatens more than the euro
The risk for Europe now is that if the EU does not move forward politically in response to the Greek crisis, it will move backwards – and the long process of European integration could start to unravel.
Gideon Rachman, FT. February 22 2010

The EU has always proceeded by creating economic “facts on the ground”, which were intended to trigger political effects.

Ever since the 1950s this has worked admirably, as a modest coal and steel community turned into a common market and finally into a Union of 27 nations, with its own parliament, supreme court and foreign policy.

Jacques Delors, the European Commission president who presided over the creation of a single marketin the 1980s, said frankly: “We’re not here just to make a single market – that doesn’t interest me – but to make a political union.” The creation of the single market involved a huge expansion of European law and therefore deep erosions of national sovereignty.

A logical political response to Greek insolvency – and the threat of similar crises in Spain, Portugal and eventually Italy – might be to create common European taxes and a mechanism for big fiscal transfers between EU states.

But there is no sign of any such move. Europe is stuck. So what has gone wrong? The problem is that the “economics first, politics later” method is almost Marxist in its assumption that economics will inevitably dictate a particular political response. But democratic politics involves choice.

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If you want to understand what is happening to the European Union’s constitution, the EU flag is a good place to start.
European leaders will agree to delete references to the flag in the constitution.
Everybody knows the flags will keep flying.
The words in the constitution will change. But the substance will remain the same.
Gideon Rachman, Financial Times June 12 2007

EU, EMU, Marx och Den Enda Vägen
Rolf Englund blog 23/2 2010

EMU - en snabbkurs

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The risk premium on Greek government bonds continues to hover around 3 per cent, depriving Greece of much of the benefit of euro membership. If this continues, there is a real danger that Greece may not be able to extricate itself from its predicament whatever it does. Further budget cuts would further depress economic activity, reducing tax revenues and worsening the debt-to-GNP ratio. Given that danger, the risk premium will not revert to its previous level in the absence of outside assistance.
George Soros FT February 21 2010

Stabiliseringspolitik


The euro was meant to be a monetary union but not a political one.
The construction is patently flawed. A fully fledged currency requires both a central bank and a Treasury.
The Treasury need not be used to tax citizens on an everyday basis but it needs to be available in times of crisis. When the financial system is in danger of collapsing, the central bank can provide liquidity, but only a Treasury can deal with problems of solvency. This is a well-known fact that should have been clear to everyone involved in the creation of the euro.
George Soros FT February 21 2010


Det som nu händer är precis det som kritikerna, bland annat nobelpristagaren Paul Krugman och andra, varnade för inför bildandet.
Systemet har mycket svårt att hantera så kallade ”assymetriska chocker” där ett lands konkurrenskraft och betalningsförmåga plötsligt urholkas av någon exogen händelse.
Per Lindvall, SvD/E24, 2010-02-11


The late Eddie George /The former governor of the Bank of England/ once remarked to me that the euro project, which was launched in 1999, came 10 years too early. He was wrong.
It was 20 or 30 years too early or perhaps should not have been launched at all.
Samuel Brittan, FT February 18 2010


What once could be dismissed as simply a Greek crisis, or simply a Greek and Irish crisis,
is now clearly a eurozone crisis.


The economics is really quite simple.
Greece has a budget problem. Ireland has a banking problem. Portugal has a private-debt problem. Spain has a combination of all three.
all must now endure excruciatingly painful spending cuts.
Barry Eichengreen, 2010-12-09
Higly recommended

The standard way to buffer the effects of austerity is to marry domestic cuts to devaluation of the currency. Devaluation renders exports more competitive, thus substituting external demand for the domestic demand that is being compressed.

But, since none of these countries has a national currency to devalue, they must substitute internal devaluation for external devaluation. They have to cut wages, pensions, and other costs in order to achieve the same gain in competitiveness needed to substitute external demand for internal demand.

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Det är en väldigt liten sannolikhet för att euron kommer att bryta ihop.
Det säger Svenskt Näringslivs chefekonom Stefan Fölster
och menar att krisen är stärkande och kan föra mycket gott med sig för Europas del i framtiden.
e24 9/12 2010


The Irish “rescue package” finalized over the weekend is a disaster. You can say one thing for the European Commission, the ECB and the German government: they never miss an opportunity to make things worse.

It pains me to say this. I’m probably the most pro-euro economist on my side of the Atlantic.
I’m also a believer in the larger European project.
But given this abject failure of European and German leadership, I am going to have to rethink my position.
Barry Eichengreen

The Irish “program” solves exactly nothing – it simply kicks the can down the road. A public debt that will now top out at around 130 per cent of GDP has not been reduced by a single cent.

Ireland will be transferring nearly 10 per cent of its national income as reparations to the bondholders, year after painful year. This is not politically sustainable, as anyone who remembers Germany’s own experience with World War I reparations should know.
A populist backlash is inevitable.

It must engage in “internal devaluation” because the traditional option of external devaluation is not available to a country that lacks its own national currency. But the more successful it is at reducing wages and costs, the heavier its inherited debt load becomes.

One can interpret the intransigence of the German government and its EU allies in two ways. First, they understand neither economics nor politics. As Tallyrand said of the Bourbons, “They have learned nothing, and they have forgotten nothing.”

Alternatively, policy makers in Germany – and in France and Britain – are scared to death over what Ireland restructuring its bank debt would do to their own banking systems. If so, the appropriate response is not to lend to Ireland – to pile yet more debt on the country’s existing debt – but to properly capitalize their own banking systems so that the latter can withstand the inevitable Irish restructuring.

Full text via Irish Economy

The two largest creditors to Ireland are /banks in/ the UK and Germany,
with loans outstanding of $149bn and $139bn respectively
An Irish bank default would affect the German and British banking systems directly, and require significant domestic bank bail-outs.
Wolfgang Münchau, FT November 21 2010

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Was the real mistake creating the euro in the first place? Since I was one of the few Americans to advocate a single European currency, you would be justified in asking: Am I having second thoughts?
My answer is no, creating the euro was not a mistake, but it could still be a mistake in the making.
The Greek crisis shows that Europe is still only halfway toward creating a viable monetary union.
If it stays put, the next crisis will make this one look like a walk in the park.

Barry Eichengreen, 2010-02-15

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Euro Currency Union Showing Strains
Rolf Englund, a Swedish economist who campaigned vigorously against the euro in a 2003 referendum whether to adopt it there, said the current crisis underscored why Swedes resoundingly decided to keep the krona.
''It will crack sooner or later, because it's impossible to have a common currency for such a big, and diverse area,'' he said.
''There's no real EU solution for Greece. They're helpless now, and they have no instruments to fend it off.''
New York Times, Associated Press, February 12, 2010


Is this funny, or not?
Herman Van Rompuy, non-combatant
Charlemagne, The Economist Feb 15th 2010

Mr Van Rompuy is a president without a country behind him—a president without money. So when a European Union crisis explodes that only money can fix, he will always be overshadowed by leaders who are putting their own taxpayers’ billions on the table.

Such leaders are not just making a financial sacrifice for Europe when they dig deep into their pockets. They are taking a political risk. In one opinion poll, by the Emnid institute, for instance, 71% of Germans opposed financial aid for Greece. Mr Van Rompuy has no voters to fear. So in such disputes, he is a non-combatant: a counsellor but not a player.

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“What went wrong wasn’t what happened this year. What went wrong was what happened in the first 11 years of the euro’s history. In some ways we were victims of our success. “The euro became a strong currency with very small interest rate spreads [on government bonds].
It was like some kind of sleeping pill, some kind of drug. We weren’t aware of the underlying problems.”
Herman Van Rompuy, president of the European Union, FT June 13 2010

Statsvetare


Årets upplaga av boken Europaperspektiv handlar om hur EU har hanterat den globala krisen
En av författarna som stack ut i panelen var docenten i ekonomisk historia vid Lunds Universitet,
Jonas Ljungberg som pratade om de kontroversiella delarna av eurosamarbetet.
- En del länder i Europa har valt att låta låsa sin valuta mot euron
- Det bästa för dem hade varit en flytande växelkurs, likt Sveriges.
Europaportalen 2010-02-04

- En del länder i Europa har valt att låta låsa sin valuta mot euron och fasta växelkurser har gjort att det förts en hård deflationspolitik vilket har drabbat länderna svårt, sa Jonas Ljungberg och lyfte fram exemplet Baltikum.

- Det bästa för dem hade varit en flytande växelkurs, likt Sveriges.

http://www.europaportalen.se/index.php?newsID=48411&page=4001&more=1

http://www.europaperspektiv.se/

Jonas Ljungberg, Professor, Dept. of Economic History, Lund

http://www.ekh.lu.se/ekhjlj/

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The real story behind the euromess lies not in the profligacy of politicians but in the arrogance of elites — specifically, the policy elites who pushed Europe into adopting a single currency well before the continent was ready for such an experiment.
None of this should come as a big surprise. Long before the euro came into being, economists warned that Europe wasn’t ready for a single currency. But these warnings were ignored, and the crisis came.
Paul Krugman, February 14, 2010

Consider the case of Spain, which on the eve of the crisis appeared to be a model fiscal citizen.

If Spain still had its old currency, the peseta, it could remedy that problem quickly through devaluation

if Spain were an American state rather than a European country, things wouldn’t be so bad. For one thing, costs and prices wouldn’t have gotten so far out of line: Florida, which among other things was freely able to attract workers from other states and keep labor costs down, never experienced anything like Spain’s relative inflation. For another, Spain would be receiving a lot of automatic support in the crisis: Florida’s housing boom has gone bust, but Washington keeps sending the Social Security and Medicare checks.

The fundamental problem was hubris, the arrogant belief that Europe could make a single currency work despite strong reasons to believe that it wasn’t ready.

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är krisen ett bevis på att eurons införande – som i den antika grekiska tragedin – drevs av hybris och att det är en ödesbestämd nemesis som är under uppsegling?
SvD-ledare signerad Claes Arvidsson 15/2 2010

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Victims of hubris, the Eurozone's original cheerleaders deserve this current crisis.
For some of us writing at the time of the Eurozone's formation just over a decade ago, the current crisis has been all too predictable.
Other currency unions, we pointed out, had been tried in history and always fallen apart.
Andrew Alexander, Daily Mail 12th February 2010

Victims of hubris, the Eurozone's original cheerleaders deserve this current crisis. When they began to recruit member countries for the single currency, they laid down a set of basic rules about the soundness of national budgets before they could qualify to join. These were sensible enough.

But in their eagerness for enlargement (as part of their pursuit of a United Europe in which they would be the main voices), the founder members allowed these rules to be broken.

The problems were visible from the outset. For example, neither Greece nor Italy's national finances were in a good enough condition to merit joining. But the greater ideal of a Eurozone prevailed over financial common sense. Economics gave way to politics, as it so often does. Proof, also, that creative accounting is not confined to dodgy public companies.

Will the Eurozone still be around in five years' time? With Greece, Italy, Portugal and Spain now suffering a severe financial crisis and with the euro seriously weakening, I think the prospect that it survives in its present form is most unlikely.

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Die Griechen und der Euro
Wirtschaftsprofessor Dirk Meyer von der Bundeswehruniversität in Hamburg
„Ein Austritt wäre langfristig besser“
FAZ 12. Februar 2010

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Credit Suisse says Greece must raise €30bn (£26bn) in debt by mid-year, mostly in April and May.
Greek banks have been shut out of Europe's inter-dealer markets, forcing them to raise money at killer rates. They are suffering an erosion of deposits as rich Greeks shift money abroad.
This could come to a head long before April.
Ambrose Evans-Pritchard, 11 Feb 2010


Here, in a chart, is why Britain can’t afford to be complacent about the plight of Portugal, Ireland, Italy, Greece and Spain.
UK banks are exposed to these countries to the tune of 16 per cent of gross domestic product, according to this chart from Stephen Jen of BlueGold Capital Management
(the figures themselves are Bank for International Settlement numbers).
Edmund Conway February 10th, 2010

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Tio års test av euron visar att domedagsprofetiorna kommit på skam.
Under krisen har euron visat sig vara en trygg hamn för euroländerna, och en tillflyktsort globalt.
Carl B Hamilton blog 8 februari 2010

Tänk om det inte fungerar
Valutaunionen är ett stort vågspel. om den skulle förverkligas. Det kan visserligen hända att en gemensam valuta skulle tvinga fram den anpassning som krävs för att den ska fungera: en samordnad finanspolitik, flexibla arbetsmarknader, och överföringar av människor och resurser mellan länderna.
Men tänk om det inte fungerar.
Gunnar Wetterberg, Samhällspolitisk chef på SACO DN Debatt 95-07-18


The last few days have reminded me of the speculative attacks
on sterling and the Italian lira in September 1992.

Wolfgang Münchau February 7 2010

Investors have concluded that the probability of a contagious default is rising. They are right.

The least helpful suggestion in this situation – one that has already contributed to investor panic last week – is to let the International Monetary Fund sort out the mess. The argument is that the European Union is not in a position to provide emergency aid in an effective manner and that the IMF has the experience, personnel and the instruments to do so.

That is all true, but advocates of an IMF-led bail-out conveniently ignore the disastrous signal that this would send to the financial markets about where the eurozone is heading in the future. It would demonstrate that the eurozone was incapable of sorting out its own problems. The eurozone might end up losing so much credibility that investors started treating it not as a monetary union but as a fixed exchange rate system with a finite time horizon.

At the moment, in the absence of any framework, the threat of a default is transmitted automatically from the first to the next vulnerable country. Last week, the stock market fell even more in Madrid and Lisbon than in Athens. And, lest we forget, other European countries might also be vulnerable. Austria could still be drowned by its banking crisis; Belgium has a much higher level of debt than either Spain or Portugal and a financial sector heavily shaken by the global crisis. As worries spread north, serious investors might be tempted to bet serious money on a eurozone break-up.

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1992

Wolfgang Münchau

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Such panics are easily triggered and difficult to stop.
Greek 10-year borrowing costs, at 6.7 per cent, are about 2 percentage points dearer than Ireland or Portugal, the two next riskiest eurozone sovereigns. This air of danger has infected Greek businesses.
Financial Times editorial February 5 2010

More seriously for Europe, even a slight surprise – a lost parliamentary vote or illness knocking out a trusted minister – could frighten investors, sparking a spiral of selling.

Such panics are easily triggered and difficult to stop. Risk-averse investors will then race to drop exposed bonds, shares and other sovereigns, spreading crisis through the continent.

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What the eurozone must do if it is to survive
The clear and present danger to the eurozone is Spain.
Wolfgang Münchau January 31 2010


Not a bang but a whimper: the threat facing the eurozone
Der Spiegel, the German news magazine, has caused a stir in Brussels by reprinting bits
Charlemagne blog, The Economist,Jan 25th 2010

Der Spiegel, the German news magazine, has caused a stir in Brussels by reprinting bits of an unusually gloomy internal report from the European Commission on the euro zone (the 16 countries that use the single currency). In particular, people have focussed on the report's finding that differing competitiveness among euro zone countries is "a cause of serious concern for the euro area as a whole." In a widely quoted extract, the report seen by Spiegel frets that:

...differences among euro zone countries "jeopardize confidence in the euro and threatens the cohesiveness of the euro area."

British Eurosceptics who have been predicting the collapse of the euro since before it was even created will no doubt be nodding sagely and feeling vindicated.

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Comment by Rolf Englund;
Not only British, I would say, haa, hm


Who is going to buy the multiple trillions in government debt that the G-7 countries want to issue? The dollar may be the worst currency in the world, except for all the others.
Where do you put your reserves? The dollar? The euro? Really? The euro is not a currency, it is an experiment.
I think Spain is an even bigger nightmare for the EU when compared to relatively small Greece.
Italy? Belgium? Portugal? All those countries (and their voters) will be watching to see how the EU deals with Greece. The potential for volatility in the euro is just huge.
Walt Ratterman at John Mauldin January 15, 2010

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The Greek government has promised to slash its fiscal deficit
from an estimated 12.7 per cent of gross domestic product last year to 3 per cent in 2012.
Is it plausible that this will happen? Not very.
But Greece is merely the canary in the fiscal coal mine.
Other eurozone members are also under pressure to slash fiscal deficits.
What might such pressure do to vulnerable members, to the eurozone and to the world economy?
Martin Wolf, January 19 2010

The task it is undertaking is huge. In particular, unlike most countries with massive fiscal deficits – the UK, for example – Greece cannot offset the impact of fiscal tightening by loosening monetary policy or depreciating its currency.

A big structural fiscal tightening will generate a deep recession.
That is sure to increase the cyclical deficit.

The government will soon be facing miserable public and private sectors, with no policy levers.

In an article in the FT last week, Desmond Lachmanof the American Enterprise Institute concluded that Greece will be forced to leave the eurozone.
Simon Tilford of the Centre for European Reform in London argued on these pages that it must be bailed out, instead.
There are two other possibilities:
Greece toughs it out;
or Greece just defaults.

Suddenly, the unthinkable would be thinkable. The eurozone could then confront a wave of sovereign debt and financial sector crises that would make what happened in 2009 look like a party.

A bail-out by the eurozone as a whole would create a monstrous moral hazard for politicians.
It would only be possible if the eurozone subsequently exercised a degree of direct control over the fiscal decisions of member states.
It would, in short, be the fastest route to the political union that many initially believed was a necessary condition for success.

Given the horrendous difficulty of all alternatives, I am sure the effort will be made to tough it out for as long as possible.

The competitive disinflation route to prosperity seems highly likely to fail.

Some, knowing of my opposition to UK membership of the eurozone, may suppose that I find some pleasure in these looming difficulties. On the contrary, I fear the dangerous consequences.

Most of the time having an independent currency is nothing but a nuisance. But every so often and quite unpredictably, countries desperately need a safety valve.

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Det handlar om vad jag vill kalla "brandförsäkringsargumentet".
En rationell sannolikhetskalkyl visar ju att man egentligen inte behöver någon brandförsäkring; risken att huset brinner är mycket liten.
Men om det sker och man saknar försäkring så slås hela ens tillvaro i spillror.
Det är inte sannolikheten i sig utan olyckans katastrofala följder som motiverar försäkringen.
Anders Ferm år 2000

Martin Wolf

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Secession
Fears of a euro break-up have reached the point where the European Central Bank feels compelled to issue a legal analysis of what would happen if a country tried to leave monetary union.
Ambrose Evans-Pritchard 17 Jan 2010


Greek Prime Minister George Papandreou said there was "no chance" that Greece would exit the euro zone,
as the country's reform plans came under renewed criticism from the European Central Bank.
WSJ 14/1 2010


We are about to learn whether the euro can survive a two-speed euro zone.
Irwin Stelzer, WSJ 11/1 2010

It is unlikely that any of the so-called Piigs (Portugal, Ireland, Italy, Greece and Spain) will be able to get their fiscal houses in order any time soon. Of these, only Ireland seems to have the political will required to cut spending, and even that is not a certainty.
Which means that we are about to learn whether the euro can survive a two-speed euro zone.

The prospect that the euro zone as a whole will grow a bit obscures the wide disparity in the likely performance of its members. Germany and France should begin to recover, Greece and Spain might be another story altogether. It is this disparity that is most worrying to euro zone policy makers as their area-wide currency celebrates its eleventh anniversary, refuting by its continued existence those critics who said the new currency would not survive a serious recession.

Angela Merkel will in the end contribute to a bailout fund if necessary.

Paul De Grauwe, a Brussels-based economist who advises European Commission President José Manuel Barroso, displayed more than a wry sense of humor when he told reporters, "If there are fears now that a breakup of the euro zone will lead to a weakening of the euro, then that is good news. So we should congratulate Greece for getting us out of … having a euro that is too overvalued."

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Unemployment in the eurozone 10 per cent for the first time since the introduction of the single currency. Despite extraordinary measures to protect the labour market during the downturn, 4m have lost jobs across the 16 countries that use the euro, according to the European Commission’s statistical arm.
FT January 8 2010

Spanish unemployment, by contrast, is at 19.4 per cent, nearly three times its level before its credit-fuelled economy collapsed. Germany has 7.6 per cent unemployment.

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The issue is not whether to preserve the eurozone, but how.
The crucial requirement is understanding rightly what has gone wrong.
It has not, as conventional wisdom now goes, been a fiscal failure, except in Greece.
It’s the private sector, stupid!
Martin Wolf. FT December 21 2010

An excellent new report from the Organisation for Economic Co-operation and Development makes this point very powerfully.
OECD Economic Surveys: Euro Area, December 2010

As the eurozone integrated, the excess of deposits over loans in surplus countries flowed to deficit countries, where banking sectors were short of deposits.

This, one might argue, was meant to happen.

Unfortunately, given low eurozone nominal interest rates and their buoyant economies, deficit countries had very low real rates of interest.

The consequent asset price bubbles were fuelled by foreign borrowing: by 2007, Ireland’s net liabilities to foreign banks were 204 per cent of gross domestic product.

Ireland and Spain had strong fiscal positions throughout: it was private borrowing that ran amok.

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Det finns egentligen inte någon Eurokris.
Tvärtom tvingar euron fram reformer som sedan länge varit nödvändiga, vilket alltid har varit ett av de starkaste argumenten för en gemensam valuta.
Stefan Fölster, Magasinet Neo 2010-06-15

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The eurozone’s next decade will be tough
Many have argued that, within a currency union, current account deficits do not matter any more than between Yorkshire and Lancashire.
They are wrong.
Martin Wolf January 5 2010

What would have happened during the financial crisis if the euro had not existed?
The short answer is that there would have been currency crises among its members. The currencies of Greece, Ireland, Italy, Portugal and Spain would surely have fallen sharply against the old D-Mark.

That is the outcome the creators of the eurozone wished to avoid.
They have been successful.

But, if the exchange rate cannot adjust, something else must instead.
That “something else” is the economies of peripheral eurozone member countries. They are locked into competitive disinflation against Germany, the world’s foremost exporter of very high-quality manufactures.

Where does that leave peripheral countries today? In structural recession, is the answer.
At some point, they have to slash fiscal deficits. Without monetary or exchange rate offsets, that seems sure to worsen the recession already caused by the collapse in their bubble-fuelled private spending.

This leaves peripheral countries in a trap: they cannot readily generate an external surplus; they cannot easily restart private sector borrowing; and they cannot easily sustain present fiscal deficits.
Mass emigration would be a possibility, but surely not a recommendation.

The crisis in the eurozone’s periphery is not an accident: it is inherent in the system.

When the eurozone was created, a huge literature emerged on whether it was an optimal currency union.
We know now it was not.

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Martin Wolf

EMU - en snabbkurs

I varje nation måste man också ta ställning till om man vill ha en myntunion som bygger på att det egna landets medborgare måste utvandra för långa perioder eller för alltid för att systemet skall fungera.
Nils Lundgren: EMU och teorin för optimala valutaområden, september 1994

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Eurozone credit contraction accelerates
Bank loans and the M3 money supply in the eurozone contracted at an accelerating pace in November, raising the risk that a lending squeeze will choke the region's fragile recovery next year.
Ambrose Evans-Pritchard, 30 Dec 2009


Southern Europe is being ordered to carry out IMF-style austerity, without the IMF-style devaluation required to rectify the massive imbalances that have built up between North and South under the euro.
The victims are caught like France and Germany under the Gold Standard of the early 1930s, when society was broken on a wheel of deflation decrees.
Ambrose Evans-Pritchard, 20 Dec 2009

The EMU system has condemned Club Med to structural depression, with no way out. The logical – yet politically absurd – response of German Chancellor Angela Merkel is to talk of overriding national democracies in order to save the euro. "The question arises over what authority Europe has to tell national parliaments what to do, in order to avoid damage to Europe itself? National parliaments don't like to be dictated to about such things, but we need to address the problem," she said.

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Det var inte inflationen - det var Depressionen
Germany "the new democracy survived serious threats to its existence in the early postwar years and found a semblance of stability from 1924 to 1928,
only to be submerged by the collapse of the economy after the Wall Street crash of 1929."
Ian Kershaw, New York Times, February 3, 2008

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Standard & Poor's has put Greece on negative credit watch
"The situation in Greece is very difficult," ECB chief Jean-Claude Trichet told the European Parliament's economic committee. "So this calls for very difficult, very courageous but absolutely necessary measures."
BBC 7 December 2009


Trade imbalances will grow from their current low levels in the months ahead, and this is politically dangerous.
Deficit country economies remain extremely fragile, and even if they avoid a double dip recession their unemployment rates will continue to rise well into next year.
Kevin O'Rourke Eurointelligence 4.12.2009

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Dubai and Euroland
What would happen if a member of the euro area could no longer finance its debt?
would default by one euro-zone country threaten the viability of the euro itself?

The Economist print Dec 3rd 2009

That Dubai World had financial troubles was known, but many investors had assumed its debts were backed by the government of Dubai, and ultimately by Dubai’s oil-rich neighbour, Abu Dhabi.

There are similar ambiguities within the euro bloc. If countries with rickety public finances, such as Greece, Ireland and Spain, ever found themselves unable to refinance their debt, would other euro members with deeper pockets rescue them? If not, would default by one euro-zone country threaten the viability of the euro itself?

Some think any problem will be Greece’s alone. After all, the treaty that created the euro contains a “no bail-out” clause that prohibits one country from assuming the debts of another.

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Top of page with nice links


Discord at the ECB heralds the eurozone’s endgame
Mr Stark’s departure marks a watershed with implications far beyond Germany’s borders.
David Marsh, FT 13 September 2011

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The euro: How Europe’s grand dream went sour
David Marsh, MarketWatch Aug. 10, 2011

In his definitive history of the euro, MarketWatch columnist David Marsh chronicles the European monetary union’s rise and fall, records the mistakes, intrigues and miscalculations along the way and asks: Where now for the euro?

MarketWatch is publishing this excerpt from the book, with new material from Marsh covering the events of the past few weeks.

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“The Euro – The Battle for the New Global Currency”is published by Yale University Press.


Officials have said they will support Greece, but they haven't said how. This has some skeptics of the euro project wondering if the rich, thrift-minded EU states ultimately can be counted on to come to the aid of poorer and heavily indebted ones.
"They can choose solidarity or chaos," said David Marsh, author of The Euro: The Politics of the New Global Currency.
Fortune February 19, 2010

"They can choose solidarity or chaos," said David Marsh, author of The Euro: The Politics of the New Global Currency.
"They are more likely to choose solidarity, but there is no certainty."

Any number of things could change in the euro zone in the next few years, Marsh said, depending on the terms offered debtors like Greece. He cites prospects ranging from smaller countries dropping out to a split of the EU into northern and southern regions to Germany pulling out, collapsing the project altogether.

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Greece


David Marsh, author of The Euro: The Politics of The New Global Currency, said the danger for EMU laggards is that the ECB will begin to tighten before they are out of trouble.
It is German recovery that threatens to stretch the North-South divide towards breaking point.
Ambrose Evans-Pritchard, 22 Nov 2009

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Eurons växelkurs har nått smärttröskeln för industrin i euroområdet.
Det är dåliga nyheter för tillväxten i hela Europa.
Det sade ordföranden för den europeiska företagarorganisationen Business Europe Jürgen Thumann
i ett uttalande på måndagen i samband med ett EU-möte om arbetsmarknaden.
DI 2009-11-09

Förutom Europafacket deltog även ekofinordföranden Anders Borg, eurogruppens ordförande Jean-Claude Juncker, ECB-chefen Jean-Claude Trichet och ekonomikommissionär Joaquin Almunia.

"Jag är djupt oroad över utvecklingen i växelkursen på senare tid. Euron har nått smärttröskeln för industrin i euroområdet", sade han.

"Det är oförenligt med G20-ländernas åtaganden för en ordnad upplösning av de globala obalanserna", fortsatte han.

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Anders Borg

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"The euro at $1.50 is a disaster for the European economy and industry,"
said Henri Guaino, right-hand man of President Nicolas Sarkozy.
French finance minister Christine Lagarde said it was intolerable that Europe
should "pay the price" for a dysfunctional link between the US and China.

Ambrose Evans-Pritchard, 20 Oct 2009

Beijing has clamped the yuan firmly to the weak dollar for over a year, quietly benefiting from the export advantages. It accumulated $68bn (£41bn) in reserves in September alone as a side-effect of holding down the currency.
Fresh reserves are mostly being invested in eurozone bonds, pushing the euro higher.

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Frankrike

Euron

Dollarn

Finanskrisen

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15 miljoner arbetslösa i EurolandUnemployment levels across the 16 countries that use the euro rose to 9.7% in September, the highest rate since January 1999. This brought the number of people unemployed across the eurozone region to 15.3 million.
BBC 30/10 2009

Spain has the highest eurozone unemployment rate at 19.3%.
Latvia has the EU's highest rate at 19.7%.

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Time for the ECB to get serious about the overvalued euro
The euros nominal and real appreciation since the end of 2000, resumed with a vengeance during 2009.
The strength of the currency is hurting the exporting and import-competing sectors of the Euro Area.
Unemployment and excess capacity continue to rise.
Willem Buiter's Maverecon October 18, 2009

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Stabilitetspakten

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Euron har för länge sedan bevisat sin styrka.
DN-ledare 2009-09-19

I den senaste ekonomiska krisen framstod euron som en säkrare tillflykt än dollarn.
Den svenska kronan däremot fick flyta upp och ned (mest ned) på de internationella orosvågorna.

Läs mer här


När det isländska alltinget för en vecka sedan med knapp marginal beslutade att lämna in en medlemsansökan sade EU-kommissionens ordförande José Manuel Barroso att beslutet var ett tecken på det europeiska projektets vitalitet.
Det kan man säga. Projektet lever, och euron har i den djupa ekonomiska krisen visat sig vara den fasta punkt man eftersträvade när den gemensamma valutan skapades.
Samtidigt är det ett svaghetstecken att en ledande företrädare för unionen behöver framhålla det lilla Islands vilja att delta som bevis på att projektet ännu inte är tömt på sin livskraft.
Johannes Åman, Signerat DN 25/7 2009

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It could be that future generations of German politicians find ingenious ways around the balanced budget law.
Or that they find a two-thirds majority to overturn it.
Or that Mr Sarkozy or his successors follow Germany into a future of austerity.
But as long as one of those three events fails to happen, Germany may discover that unilateral fiscal rigour in a monetary union could prove extremely costly.
For the sustainability of the euro, you surely do not want to get into a position where a large member state has a rational economic reason to quit.
So if Germany and France really do what they both promise,
you may as well start the egg timer.

Wolfgang Münchau, Financial Times June 28 2009

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The euro should appreciate to $1.53 (as against $1.40 recently).
Dollar Again Substantially Overvalued
"principally though not exclusively, against the Chinese renminbi and some other Asian currencies"
requires substantial dollar depreciation as well as a few others like the Swedish krona and the Swiss franc.
Peterson Institute for International Economics June 3, 2009


Latvia - IMF experts were overruled by Brussels
Contrary to revisionist talk, Argentina was not a basket case.
Its imbalances were no worse than those of the Baltics, Balkans, Spain, or Greece, and arguably better.
The denouement sequence is worth rehearsing since it offers a crude guide for those with euro pegs in Eastern Europe,
and ultimately perhaps for Club Med inside EMU.
The explosive power of this broad group dwarfs Argentina.
Ambrose-Evans Pritchard, Daily Telegraph 14 Jun 2009

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The ECB estimated bank writedowns total of $649 billion,
with an estimated $366 billion already announced.
CNBC Reuters 15 Jun 2009

Euro-zone banks will probably need to write down another $283 billion this year and next on bad loans and securities, the European Central Bank said on Monday.

The ECB estimated bank writedowns due to securities -- or toxic assets -- would total around $218 billion from the start of the financial turmoil to the end of 2010, while bad loans would account for another $431 billion -- a total of $649 billion, with an estimated $366 billion already announced.

The figures were published in the ECB's latest Financial Stability Review,
which concluded that risks to the financial sector had increased in the last six months
amidst a deterioration in the economic environment which is putting pressure on the bottom line of companies and households.

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$375 billion - It seems unfair. This was supposed to be a US crisis.
And now it turns out that the real banking mess is still coming for the eurozone
Adam S. Posen, Eurointelligence 5/6 2009

This mess is sizable.
The latest IMF Global Financial Stability Report estimates that a minimum of $375 billion
of capital will need to be injected into euro area banks, and perhaps as much as $725 billion
compared to $275 billion to $500 billion for the US banking system).

Sweden in the early 1990s is rightly held up as the example of how to this;
Japan from 1995 to 2001 is rightly held up as the example of how not to do this.
The difference comes down to how the government is forcing the banks to recognize the full extent of losses, and thus of capital needs.
Banks which are insolvent need to be either shut down, temporarily nationalized and reorganized before resale, merged with healthier banks,
or be subject to capital injections from the government in return for some form of shares.

As in the US, the blanket guarantees on deposits and various interbank assets prevented a panic, but also likely removed much of the market pressure on the banks to behave better.

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Adam Posen

jfr Kronan är en dyrbar lyx.
Omvärlden backar upp Sverige och Sverige backar upp Baltikum. även om Lettland fortsätter sin svältkur kommer förlusterna att bli mycket stora.
Barbro Hedvall, Signerat DN 2009-06-12

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Why eurofederalists should be delighted with recent events
The extreme deflationary policies now being imposed on the weakest eurozone countries point to frightening implications.
The Greek and other Club Med governments can slash their deficits only at the cost of huge falls in economic activity. Without the possibility of devaluation they cannot hope for big export gains
Anatole Kaletsky, The Times 11/2 2010

The most likely structure for a rescue would not require any funding from Germany at all. The rescue would simply consist of a decision, approved by a qualified majority on the European Council to implement Article 122 of the Lisbon treaty.

But who would actually pay for such an EU bailout? This brings us to the second reason why eurofederalists should be delighted with recent events.

As it happens, the European Council quietly approved an increase in the EU’s borrowing powers from €12 billion to €25 billion in December 2008 and to €50 billion last April. This borrowing was approved to make sure that the EU had plenty of money to help new members such as Hungary, Latvia and Romania, which have not yet joined the euro.

To extend the facility to all EU countries would take just another quick majority decision. And given that EU bonds are automatically guaranteed by all member governments, including Germany, France and Britain, there would, in practice, be no limit to the amount that could be raised overnight.

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The eurozone faces three threats more serious than any in the US or Britain:
the extreme vulnerability of Germany's economy to collapsing exports,
financial instability in Eastern Europe and
the growing tensions between the core and the periphery of the eurozone.
Between now and the German general election on September 27,
these dangers could combine into a perfect storm
Anatole Kaletsky The Times 9/4 2009

If you think Alistair Darling faces trouble in his Budget, spare a thought for Brian Lenihan, the Irish Republic's Finance Minister, who on Tuesday announced his second emergency budget in six months, imposing drastic tax rises, pension and wage cuts, still leaving his country with the by far the biggest budget deficit in the eurozone.
Irland

Or for Yannis Papathanassiou, his Greek counterpart. His country's credit has been downgraded to one notch above junk status and was justifiably described yesterday as teetering on the verge of bankruptcy in the German magazine Stern.
Grekland

Or for Pedro Solbes, the respected Spanish Finance Minister, who was sacked on Monday in response to the meltdown of an economy and banking system said to be invulnerable only a few months ago.
Spanien

Or even for Peer Steinbrück, the German Finance Minister, who, despite his swaggering boasts about the triumph of the Rhenish social-market model over Anglo-Saxon capitalism, presides over the weakest leading economy in the world outside Japan.
Tyskland

Baltikum

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Ex-Bundesbank chief Karl Otto Pohl has just said that Ireland and Greece
are in danger of defaulting on their sovereign debts and/or may be forced out of the Euro
Ambrose Evans-Pritchard Daily Telegraph Feb 26, 2009


The U.S. government rescued giant insurer American International Group
in part because its collapse would dramatically hurt European banks

CNBC 06 Mar 2009


"Kronan räddar Sverige"
Att Sverige står utanför euro-samarbetet är vår räddning.
Det säger den franske analytikerräven Charles Gave.
"Jag är extremt oroad över Europa", säger han.
Dagens Industri 2009-03-13


Austrian banks have lent a total of $300bn to clients in the region (Eastern Europe),
equivalent to 68 per cent of Austrian gross domestic product, according to (BIS).
If Bank Austria, which is owned by Italy’s Unicredit, were included, the figure would rise to about 100 per cent
Financial Times February 25 2009


Will Germany deliver on the Faustian bargain that created monetary union?
The German finance ministry is drafting rescue plans to prevent
default on the edges of the eurozone
leading to a full-blown collapse of Europe's monetary system.

Ambrose Evans-Pritchard, Daily Telegraph 23 Feb 2009


Eastern crisis that could wreck the eurozone
The crisis started in the US, but Europe is where it might turn into catastrophe
Wolfgang Münchau, Financial Times February 22 2009


European stocks tumbling to a six-year low
"We're near the cliff's edge, very close to capitulation, the mood is very gloomy," said Jean-Claude Petit, head of equities at Barclays Wealth Managers France.
"I'm not sure that governments and central banks are realizing what's really going on.
The gaffes made by West-European banks in East Europe revealed recently are having a devastating effect"
CNBC 20/2 2009


Vår slutsats blir att euron är bra för både näringsliv och konsumenter i Sverige, skriver Klas Eklund, Carl Johan Åberg och åtta andra nationalekonomer /däribland således Karolina Ekholm/.
- Den räntepolitik som förs av ECB i normalfallet kommer att stabilisera även den svenska ekonomin, skrev de.
Inte ens det är väl riktigt sant, men den viktiga frågan är vad som händer när läget inte är normalt, som t ex om världen skulle råka in i en Finanskris.
Rolf Englund blog 14/2 2009

Finanskrisen


Can The Euro Survive?
Ever heard of the four PIGS?
John Mauldin Feb 02 2009

Ever heard of the four PIGS?
This less than flattering acronym stands for Portugal, Italy, Greece and Spain, which are all in much deeper trouble than they are prepared to admit.
They are often considered the 'antidote' to the BRIC countries, the fast growing emerging market economies of Brazil, Russia, India and China.

The euro, or so the argument went, was doomed from the outset because of the wide spread in economic performance and discipline amongst the member countries.
At one end you had, and still have, the highly disciplined, but also slow growing, economies of Germany and the Netherlands.
At the other end you find the faster growing but poorly disciplined countries such as Spain and Greece.
As icing on the cake, you also had, and still have, countries that lack in both departments, such as Italy.

When the Stability and Growth Pact behind the euro was established, there was no reference made to unit labour costs which, with the benefit of hindsight, was a major mistake. Even Jean-Claude Trichet, the Head of the European Central Bank, who rarely admits mistakes, has publicly stated that if he could design the currency union all over again, he would push for a unit labour cost stability pact.

Table 1: 2007 Unit Labour Cost Index (2000=100)

Another issue, which is potentially even more destabilising for the euro longer term, is the massive liabilities facing Europe as its population ages.
We have borrowed table 2 below from Goldman Sachs which makes no secret of the challenges facing a number of European countries.
Greece is clearly facing the biggest challenge. Public debt, which currently stands at about 95% of GDP, will grow to a whopping 555% of GDP by 2050 if the current pension and social security programme is left unchanged. The Greek government is painfully aware of this and have been working on several new initiatives.
It was the passing of one of those new laws which caused the riots in Athens before Christmas.

A third problem facing Europe is the sheer scale of the banking crisis. Although this is not just a European problem, European countries are probably worse off than the US because a larger part of European debt has to be financed externally.
As you can see from chart 1, more than $2 trillion of European and U.S. bank debt needs to be re-financed before the end of next year.
Unless there is a material improvement in market conditions, re-financing at such a massive scale is simply not doable.

Kenneth Rogoff and Carmen Reinhart published a research paper about a month ago which should be mandatory reading for all investors2. They have studied every single banking crisis of the past 100 years and reach some rather unsettling conclusions.
As they point out: "Broadly speaking, financial crises are protracted affairs".

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"There is no risk that the euro will break apart," said Jean-Claude Trichet,
the European Central Bank's president, speaking at the World Economic Forum.
Ambrose Evans-Pritchard in Davos 30 Jan 2009

EU officials are furious over comments this week by Dominique Strauss-Kahn, head of the International Monetary Fund, who said the euro could prove unworkable unless the member states give up some control over fiscal policy.
"Otherwise, differences between states will become too big and the stability of the currency zone is in danger," he said.

The yield spreads on Greek 10-year bonds have reached post-EMU highs of 265 basis points over German Bunds.
The spreads have jumped to 236 for Ireland and 153 for Italy, levels unthinkable just months ago.

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Enligt ledamoten Charles Wyplosz så hade den grekiska valutan gått omkull och troligen också den italienska, spanska, portugisiska och kanske också den irländska valutan
vilket hade tvingat länderna att söka hjälp från den internationella valutafonden. Charles Wyplosz menar att euron skapades för att undvika just valutakriser och därför nu fyller sin roll.
Ekot i anledning av SNS 27/1 2009


Iceland Is Sacrificed to Save EU:
Shame on Britain and Holland

The Brussels Journal, 2009-12-05

The European Union, in order to save itself from the faults of its own legislation, has decided that Iceland and the Icelandic people are expendable. Realising its own failures the EU has decided, through the British and Dutch governments, that the Icelandic authorities have to shoulder the responsibility which is rightfully the EU regulators’. This is what the so-called Icesave dispute is mainly about.

The dispute started in October 2008 when almost the entire Icelandic banking system collapsed. One of the three largest Icelandic banks, Landsbanki, had operated internet savings accounts in the United Kingdom and the Netherlands collecting large amounts of deposits by offering high interest rates. These accounts were operated with the approval of the British and Dutch authorities and their operation was made possible by EU laws.

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According to a cruel joke making the rounds these days,
the difference between Iceland and Ireland is one letter and six months.

Speculation that the euro zone's breakup is imminent
Wall Street Journal 23/1 2009

An even crueler epithet calls London "Reykjavik on the Thames."
As European governments pile on mountains of debt to recapitalize their overleveraged banks and pump-prime their economies, the hitherto unthinkable is now a distinct possibility: national defaults.

On Monday, S&P downgraded Spain's credit rating to AA+ from triple A, following a similar cut for Greece last week.
Ireland and Portugal were put on credit watch, and Italy may be next in line.

The yield spreads between German bonds, the euro zone benchmark, and Greek, Belgian, Italian, Portuguese, Spanish and Irish bonds have widened to new heights -- an indication that the market considers the latter less safe.

All this has led to speculation that the euro zone's breakup is imminent.
Jean-Claude Trichet, president of the European Central Bank, felt compelled yesterday to dismiss such talk as "unfounded."

The euro is an anchor of stability, particularly for small members that otherwise would be much more exposed. Denmark may hold a referendum on joining the euro next year and in Iceland, which hitherto has declined to join even the European Union, a clear majority now favors adopting the single currency.

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Ireland

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Being a member of the eurozone doesn’t immunize countries against crisis.
In Spain’s case (and Italy’s, and Ireland’s, and Greece’s) the euro may well be making things worse.
Paul Krugman, New York Times January 19, 2009


Fördel att stå utanför EMU
Stefan de Vylder, Politiken.se, 8/1 2008


The eurozone economy will shrink 1.9% in 2009, the European Commission has forecast.
The whole European Union was facing a "deep and protracted recession".
Unemployment in the the 16 countries using the euro is expected to exceed 10% in 2010, up from 7.5% in 2008.
BBC 19/1 2008

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The PIIGS
The euro zone faces tough times as the PIIGS — Portugal, Ireland, Italy, Greece and Spain —
will need a flexible exchange rate to compensate for the economic slowdown
so some of them may decide to break free from the single currency's straightjacket

Hugh Hendry, Chief Investment Officer and Partner at Eclectica, CNBC 12/1 2009

"The euro is a flawed mechanism. The euro has no flexibility.
We need drachmas, we need lira, we need pesetas… and we don't have them," Hendry said.

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The euro marks its 10th birthday on New Year’s day at a perilous moment in global finance.
This month, the euro hit its highest level ever on a trade-weighted basis.
Ralph Atkins, Financial times December 30 2008

Capital markets have worried about public finances in some countries, leading to a dramatic widening of yield spreads, for example, on Greek and Italian bonds compared with German state debt.

Eurozone members trying to pull themselves out of recession will not have the option of currency devaluation, which could make the process more painful.

Such trends might make managing the eurozone harder, raising questions about its long-term future

Even if the eurozone has avoided a Lehman Brothers-style collapse, there is widespread agreement that the current fragmented system leaves the region dangerously exposed. Still, any moves to centralise bank regulation should be expected to encounter resistance from governments with an eye to the national interest – something James Bond would know all about.

Multimedia feature: the euro at 10

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Chart USD/Euro


We should not try to avoid 1929. We have already failed.
The best we can do now is to avoid 1930, 1931 and 1932

What about the €200bn European Union stimulus package that was agreed in a watered-down form by EU leaders on Friday?
Unfortunately, it is a public relations exercise first and foremost, designed to dupe people into believing that the EU is finally doing something.
Wolfgang Münchau, Financial Times, December 14 2008


Euroskeptics are easy to find in the Nordic capitals, and they won't accept that the financial turmoil has boosted the argument for the common currency.
"That's a totally ludicrous (amusing or laughable through obvious absurdity) assertion.
My view is that the euro will burst, and the sooner the better," said Rolf Englund, an economist who campaigned against the euro when Swedes rejected the currency in a 2003 referendum.

International Herald Tribune, October 16, 2008

Medborgare mot EMU

Folkomröstningen 2003

More by Rolf Englund in english

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Investors Raise Their Bets on Defaults in EU Countries
the cost of swaps linked to euro-zone countries including Italy and Greece has doubled in the past month.
Wall Street Journal, 31/10 2008

For Ireland, which introduced a €400 billion bank-guarantee program last month that is twice the size of its gross domestic product, investors' cost of insuring against debt default has risen eightfold since the start of the year.

The divergence in bond yields points up that even though the euro-zone nations share a currency and a monetary policy administered by the European Central Bank, investors still price the countries' creditworthiness individually.

The so-called spread between yield on the 10-year Italian Treasury bond and the corresponding German 10-year bond rose to 1.25 percentage point, after breaching the mark of a full percentage point Tuesday for the first time since the euro's launch in 1999.
In early 2007, that gap was about 0.2 percentage point.

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The interest spread between Italian 10-year bonds and German Bunds has reached 108 basis points, the highest since the launch of the euro.
Ambrose Evans-Pritchard, 31 Oct 2008

Italy's public debt is the third largest in the world after the US and Japan. At 107pc of GDP, it is the highest of any major economy in the eurozone and almost double the 60pc limit stipulated by the EU's Maastricht treaty.

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One can sympathise with Berlin. But sharing debts with Italy and Spain was implicit when they agreed to launch the euro.
Ambrose Evans-Pritchard, Daily Telegraph 08 October 2008
Very Important Article


Has the international financial crisis exposed the cracks in the European Union's single market?
And are concerns over the economic national interest now over-riding the broader goal of European integration?
These are the questions being asked by those committed to an "ever closer union" referred to in the words of the EU's founding Treaty of Rome.
BBC 6 October 2008

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"ever closer union"

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Germany will guarantee all private savings accounts
Hypo Real Estate, Germany's second biggest commercial property lender, is in trouble after a 35bn euro rescue plan collapsed.
Ms Merkel had previously been strongly critical of the Irish and Greek governments' decisions to take independent action to protect all savings deposits.
BBC 5 October 2008

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$700 billion rescue plan

German Finance Minister Peer Steinbrueck, deputy leader of Social Democrats,
"The world will never be as it was before the crisis,"

"The United States will lose its superpower status in the world financial system. The world financial system will become more multi-polar."
Reuters 25 Sep 2008

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The crucial problem on this side of the Atlantic is that the largest European banks have become not only too big to fail, but also too big to be saved.
The total liabilities of Deutsche Bank (leverage ratio over 50!) amount to about €2,000bn (more than Fannie Mae) or more than 80 per cent of the gross domestic product of Germany.
This is simply too much for the Bundesbank or even the German state, given that the German budget is bound by the rules of the European Union’s stability pact
Daniel Gros and Stefano Micossi, Financial Times, September 23 2008

Similarly, the total liabilities of Barclays of around £1,300bn (leverage ratio 60!) are roughly equivalent to the GDP of the UK. Fortis bank has a leverage ratio of “only” 33, but its liabilities are three times the GDP of its home country of Belgium.

Given that solutions for the largest institutions can no longer be found at the national level it is apparent that the European Central Bank will need to be put in charge as it is the only institution that can issue unlimited amounts of a global reserve currency.

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Lender of Last Resort
Click

$700 billion rescue plan
Click


Could the credit crunch destroy the Eurozone?
The historical precedent is not the Great Crash of 1929.
Rather, it is the Japanese property bubble of 1989 and the deflation and long-term stagnation which followed.
George Irvin, EU Observer, 31/7 2008

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Mostly Spain
Banks becoming addicted to the liquidity window in Frankfurt
Ambrose Evans-Pritchard, Daily Telegraph, 21/8 2008


What if one of the member states of the eurozone were to default on its debt?
On the occasion of the euro’s 10th birthday, this has become the most frequently asked question about the single currency zone.
Wolfgang Münchau, Financial Times January 18 2009

The probability of a default is low but clearly rising. The decision by Standard & Poor’s, the ratings agency, to downgrade Greek sovereign debt and to put Spanish and Irish debt on watch seriously rattled investors last week, for good reason.

If the financial crisis has taught us one thing, it is to take perceived tail-risks more seriously.

Before I answer the question, it is best to consider what would not happen. For a start, the eurozone would not fall apart. A government about to default would be mad to leave the eurozone. It would mean that, in addition to a debt crisis, the country would also face a currency and banking crisis. Bank customers would simply send their euros to a foreign bank to avoid a forced conversion into a new domestic currency.

So we are stuck with the eurozone for better or for worse. If a default happens, the central banks and governments of the eurozone would be forced to co-ordinate their policies whether they liked it or not. Under its statutes, the euro system, which includes the ECB and the national central banks, is not allowed to monetise (that is, buy) new sovereign debt or to grant overdraft facilities. But the ECB is allowed to buy debt in the secondary markets, which is a way of monetising debt. All it would take is a decision by the ECB’s governing council.

Putting roughly the same value on Greek and German debt – which is what financial markets did for most of the last 10 years – never made sense.

If you assume the worst-case scenario of a default by five or six countries, a full fiscal union would be more probable than a break-up.

Full text

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More by Wolfgang Münchau


Meltdown
Two aspects of the eurozone economy are often mixed up. One is its overall performance.
The other is the divergences that at any time exist within the single currency area.
If you look at the eurozone from a great height, a meltdown of the Spanish economy looks like a minor regional wildfire.
Wolfgang Münchau, Financial Times, July 20 2008


Den stigande räntan drabbar inte svenskarna lika hårt som i många andra länder i Europa.
Den svenska ekonomin är betydligt bättre än i övriga EU, vilket gör det möjligt att kombinera räntehöjningen med en expansiv finanspolitik med bland annat sänkta skatter.
Lars Calmfors, Ekonomiekot 4 juli 2008

De flesta euroländer har inte en ekonomi som tillåter en mer expansiv finanspolitik.

De länder som ändå försöker sig på det riskerar att bryta mot euroländernas ekonomiska regler i den så kallade stabilitetspakten.

– Problemet är ju då att situationen ser ganska olika ut i olika länder. Tyskland kanske kan ta det här därför att där har man haft en ganska stark konjunkturutveckling jämförelsevis. Men sedan har vi ju länder som Spanien, Italien och Irland, där lågkonjunkturen är mycket starkare.

Så att det kommer helt klart att uppstå stora spänningar inom euroområdet, som är just den typ av spänningar som uppkommer när man ska ha en ränta för ett stort antal länder, där de ekonomiska förhållandena kan se väldigt olika ut, säger Lars Calmfors

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Calmfors


Spain, Ireland `Thrown to the Wolves'
July 4 2008 (Bloomberg)

``They have been thrown to the wolves,'' said Stuart Thomson, who helps manage $46 billion in bonds at Resolution Investment Management Ltd. in Glasgow, Scotland. `It's much easier to bring inflation lower if you're willing to have a recession in economies like Spain, Italy and Ireland.''

The Irish economy contracted for the first time in more than a decade in the first quarter. Growth in Spain was the slowest in 13 years in the period,

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Has Europe's terminal crisis begun with a triple no vote?
The ultra-Europeans have overplayed their hand. We can now glimpse a chain of events that will halt, and reverse, this extremist push towards an Über-state that almost no one wants.
Ambrose Evans-Pritchard, Daily Telegraph, 23/6 2008

The attempt to override the triple "No" votes of the French, Dutch, and Irish peoples has brought the EU to a systemic crisis of legitimacy.Has Europe's terminal crisis begun with a triple no vote?

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Germany and Spain have clashed in an escalating dispute over the European Central Bank,
exposing the deep rift that has emerged between Europe's North and South.
Ambrose Evans-Pritchard, Daily Telegraph 10/6 2008

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Why would the euro fall? Because the currency is still an experiment in cooperation.
At some point, one or more of the weaker European countries is going to need more monetary stimulation than the majority of the countries in the union, for a variety of reasons.
Will they pull out to be able to issue their own fiat currency?
John Mauldin May 30 2008

In the past fifteen years, France government debt to GDP has moved from 35% in French Franc (i.e.: a currency the government could print at will) to 70% in Euros (i.e.: a currency that only the ECB can print).

No wonder that Francois Fillon, the current French Prime Minister recently declared: "I run a state which now stands in a situation of financial bankruptcy, which has known deteriorating deficits for fifteen straight years and which has not voted a balanced budget for twenty-five years. This cannot last."

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Emu’s second 10 years may be tougher
Martin Wolf, FT May 27 2008

As the euro soars, the pressures of adjustment to internal divergence are likely to grow to enormous levels.

The report is honest about these challenges. Between 1999 and 2007, huge divergences in inflation, relative unit labour costs and current account positions emerged (see charts). These tendencies were exacerbated by the divergence in real interest rates, with the lowest rates in the countries with the highest inflation and – perversely, but inevitably – the strongest economies.

http://ec.europa.eu/economy_finance/emu10/reports_en.htm
344 pages pdf

The stories here are two:
the divergence in relative unit labour costs between Germany, on the one hand, and Ireland, Portugal, Greece, Spain and Italy, on the other;

and the scale of the credit-fuelled property booms in Spain and Ireland.

A 10 per cent improvement in relative unit labour costs would demand a 10 per cent decline in relative wages.
If that were to happen over, say, five years, nominal wage increases would probably have to be in the 0–1 per cent range.
Little short of a recession is likely to generate that result.

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Martin Wolf

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ECB marking its 10th anniversary June 1, has failed in each of the last eight years to achieve its aim of bringing inflation below 2 percent.
Sticking with the current number may result in ``a pyrrhic victory by pushing inflation within target but having destroyed the real economy,''
says Thomas Mayer, chief European economist at Deutsche Bank AG in London.
Bloomberg May 27 2008


There is no excuse for Britain not to join euro
The case for the UK shedding sterling and adopting the euro has never been clearer.
Willem Buiter, FT June 2 2008

From a conventional macro­economic perspective, there is no reasonable argument for a small, highly open economy such as Britain’s to retain monetary independence

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To those loudly insisting all this week that Britain should have joined the euro ten years ago,
I can only say: are you completely mad?

Ambrose Evans-Pritchard 08 May 2008
Highly recommended


Celebrating 10 years of the euro?
By Stephanie Flanders
Economics editor, BBC News 7/5 2008

About 16 million jobs have been created in the eurozone since the birth of the euro, and unemployment has fallen, from 9% in 1999 to 7% in 2007.

Of course, neither of these achievements is necessarily due to the euro, any more than the fall in average inflation and long-term interest rates can be directly attributed to the European Central Bank.

Nearly all of the world's advanced economies have seen a steady decline in inflation since the late 1980s (at least until recently), a development that has pushed down interest rates as well.

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EMU@10 is a very substantial document about the future of the euro area – by far the most comprehensive and thoughtful report we have yet seen. It has three parts. We will ignore the first, which looks back at the first ten years, as well as the second on future challenges,
and focus on the third about policy co-ordination, the most important from our point of view.

There are three schools of thought about euro area policy co-ordination.
here are those who want a new treaty to produce genuine gouvernance economique to subject the ECB to political dictat.
There are those who want to stretch the existing framework (“let’s see how far the ambiguity over exchange rate policy can take us”).
And there are those who want to work under the existing framework.

What is remarkable is that the European Commission is departing from the previous line that economic reforms should be dealt with purely under the framework of the Lisbon Agenda.
This report acknowledges that there are euro area-specific, rather than EU specific, externalities in economic reforms.
And while the Commission does not favour a new Lisbon Agenda for the euro area alone, it proposes structures to deal with implementing reform policy co-ordination at the euro area level.

Eurointelligence 8/5 2008

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Början på sidan - Top of page

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I am very pleased to welcome you to this website dedicated to the euro and
Economic and Monetary Union on its tenth anniversary.

Joaquín Almunia, Commissioner for Economic and Monetary Affairs

Början på sidan - Top of page


The unemployment rate in Spain jumped the most in 15 years to a three-year high
as the building market contracted. The jobless rate rose to 9.6 percent
April 25 Bloomberg


The pain in Spain
Spain's long property boom has come to a painful end
The experience of Sweden, where housing investment declined by 71% between the peak in 1990 and the first (not final) trough in 1995, suggests that such adjustments can be dramatic.
The Economist April 22nd 2008


Europe's monetary union, which launched the euro almost a decade ago,
remains an "experiment" with the outcome "likely to remain uncertain for a considerable time to come"
writes Otmar Issing,
who served as the European Central Bank's chief economist for its first eight years
Financial Times, April 16 2008


Jean-Claude Juncker, the EU's 'Mr Euro',
matters could get out of hand unless America took steps to halt the slide in the dollar.
Daily Telegraph 19/4 2008


The euro hit a record high against the dollar after data
showed eurozone inflation hits its highest level since the introduction of the single currency. - 3.6 per cent in March.
FT, April 16 2008

Början på sidan - Top of page


In truth, as the euro approaches its tenth birthday celebrations, it is facing the biggest test of its short life
The euro is about to show the world that it is not yet an optimal currency area — and the demonstration may not be a pretty one.
The Economist print, April 10th 2008

ECB has been reluctant to cut rates is not because growth is so robust but because inflation has picked up to 3.5%—the highest in the euro's nine-year existence.

And two bigger worries have emerged. The first is the strength of the euro. Mr Almunia, economics commissioner, says the euro is “overvalued” and adds that, although the impact has been moderate so far, “we are at the limits, if not beyond them.”

The second worry is the housing market. Europe may have avoided the American subprime mess, but in several countries house prices have been even bubblier than in America. They are already falling in Spain and Ireland, and, beyond the euro zone, are starting to do so in Britain. A property bust may not produce an American-style mortgage meltdown, but it will surely topple economies heavily dependent on construction
(which accounts for 15% or more of Spanish and Irish GDP, for example).

Even critics of the euro would concede that it has had considerable success, establishing itself in less than a decade as a genuine rival to the dollar as a world currency. But...

But some countries have adapted a lot better to the discipline of the euro than others. Germany and the Netherlands have cut labour costs and introduced enough reforms to make their economies more competitive. France, Spain and especially Italy have done less—and are suffering more, from both the euro's rise and the global slowdown.

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Optimal currency area

Början på sidan - Top of page


Though many observers are rightly concerned about Spain, it may be Ireland that becomes the next serious test of EMU’s one-size-fits-all monetary policy.
Alan Ahearne, Eurointelligence 6/4 2008


The European Commission Predicts Weaker Growth, Higher Inflation in 2008
The economy of the 15 nations that share the euro will expand 1.8 percent this year, the weakest since 2005.
Inflation will average 2.6 percent, the fastest since the euro was introduced in 1999
Feb. 21 2008(Bloomberg)

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Yet if the storm is peaking in the US, it has hardly begun in Europe.
"The next really big shock to financial markets is likely to be the risk of collapse in the EMU credit bubble: the private sector credit consequences are likely to be catastrophic"
Ambrose Evans-Pritchard


Byggkrasch nära i Spanien
Det är en konsumtionsstyrd ekonomi som i hägnet av gemensamma euron har häpnadsväckande underskott i utrikeshandeln.
Fredrik Braconier SvD 2008-01-04

Spain and Italy threaten EMU stability
Ambrose Evans-Pritchard, 8/1 2008

Click


Companies in Britain and Europe have failed to place a single high-yield bond
since the credit crunch kicked off in August, and
may now have to wait until next year before the credit market reopens for business.
Will Europe survive the euro?
Ambrose Evans-Pritchard, Daily Telegraph, 29/11/2007

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Hedge Funds

http://blogs.telegraph.co.uk/business/ambrosevanspritchard/nov07/euro.htm

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As the euro brushes $1.50 against the dollar,
it is already too late to stop the eurozone hurtling into a full-fledged economic and political crisis.
We now have to start asking whether the EU itself will survive in its current form.
Ambrose Evans-Pritchard, Daily Telegraph 23/11 2007

As Airbus chief Thomas Enders warned in a speech to the Hamburg workers last night, Europe's champion plane-maker - the symbol of European unification, in the words or ex-French president Jacques Chirac -- is now facing a "life-threatening" crisis.

The sudden rocketing in sovereign bond spreads this week between core German Bunds and Club Med debt - Italian, French, Spanish, Portuguese, Greek, as well as Irish, Belgian and Slovenian - is a clear sign that markets are starting to price in a break-up risk for the single currency, however remote.

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The euro soared to another record high against the sagging dollar,
climbing above $1.47 for the first time

CNN 2007-11-07

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"Some thougths about the future of the euro"
The real threat to the cohesion of the monetary union is not Italy, or even a post-property-crash Spain.
The real issue is the political gulf between France and Germany.

Susanne Mundschenk and Wolfgang Münchau, Eurointelligence 18/10 2007


Why The IMF’s Decision To Agree A Lavian Bailout Programme Without Devaluation Is A Mistake
Edward Hugh, Paul Krugman (and Anders Åslund)December 23, 2008

Paul Krugman
I’ve been saying this for a couple of weeks, but Edward Hugh has the goods.
Hugh puts his finger, in particular, on one gaping hole in the logic of the opponents of devaluation. We can’t devalue, they say, because the Latvian private sector has a lot of debts in euros, and a devaluation would make it very hard for borrowers to service those debts. As Hugh points out, the proposed alternative — sharp wage cuts, and basically a major domestic deflation — will also make it hard to service those debts.
Read more here

Edward Hugh
Read more here

Mer om Baltikum och Swedbank SEB m fl


The wolf packs are circling. Hedge funds target currency pegs
Fifteen years after George Soros smashed the sterling and lira pegs of Europe's Exchange Rate Mechanism, central banks have invited hedge funds to pounce again. This time on a global scale.
Ambrose Evans-Pritchard, Daily Telegraph 15/10/2007

The global M3 money supply is growing at 10.6pc as stimulus from America, Europe – and Japan, through the carry trade – leaks out to the vibrant parts of the world economy... With the usual lag, inflation has at last hit.

The easiest prey are in the Baltics and Balkans, where EU newcomers have let rip by importing an ECB monetary policy designed for the slow barges on the Rhine. All are overheating.
Inflation is now 11pc in Latvia, and 7pc in Estonia and Lithuania. Property prices in the capitals of all three are more expensive than Berlin. Inflation is 12pc in Bulgaria and 6pc in Romania.
The ECB has now invited the wolves to kill...... more



The dominoes are toppling.
What began as a credit crunch has turned into a dollar crunch.
We are witnessing a run on the world's paramount reserve currency,
an event that occurs twice a century or so

The needs of the Germanic and Latin zones are incompatible and
a coin with no treasury, debt union, or polity to back it up cannot displace the dollar — if it survives at all.
Ambrose Evans- Pritchard, Daily Telegraph 1/10 2007


The dollar broke above $1.40 per euro for the first time
Bloomberg 20/9 2007


Varför betalade ECB 1.800 miljarder kronor för att rädda euron?
Rolf Englund blog 15/8 2007


The euro slipped to a six-week low against the U.S. dollar on Wednesday and
high-yielding currencies stayed weak as investors continued to unwind risky positions
on concerns that fallout from the U.S. subprime problems is spreading to other countries.
CNBC/Reuters August 14, 2007


Bookmark and Share

Hollande Bids Adieu to EU Vacation Culture as Crisis Lingers
six years after a phone call from Frankfurt shattered former European Central Bank President Jean-Claude Trichet’s holiday in northern France.
The caller informed him that three troubled BNP Paribas SA hedge funds were causing money markets to seize up, the first signal that a global financial crisis was breaking out.
Bloomberg, Aug 26, 2013

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Jean-Claude Trichet


The ECB made a total of four cash interventions since last Thursday
after investors panicked when it became clear that European banks were vulnerable to the US turmoil.
The total pumped into the European banking system to help keep lending activity from freezing up came to around €200 billion
- on Tuesday (14 August) the bank gave another fresh cash injection of €7.7 billion.

France's largest bank BNP Paribas froze payments on three funds invested in the sector, which involves lending money to those with a poor credit history.

The ECB "will continue to monitor the situation while euro-area financial markets in general are going back to normal functioning,''
Mr Trichet said in a statement on Tuesday. 14/8 2007


The European Central Bank on Monday injected another 47.67 billion euros ($65 billion) into the banking system
13 Aug 2007 08:06 AM ET


Speculation is mounting that the European Central Bank will seek to arrange a currency swap
with the US Federal Reserve that would allow it to lend dollars to
European banks struggling to meet short-term dollar funding needs.
Financial Times, August 13, 2007


The European Central Bank made a second move to boost liquidity in the financial market Friday,
putting 61.05 billion ($83.6 billion) into the euro money markets,
having already injected 94.8 billion euros Thursday.
CNBC.com 10 Aug 2007 06:11 AM ET

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Med nödkrediter på nästan 900 miljarder kronor,
mer än man pumpade ut efter terrorattackerna den 11 september 2001,
lyckades Europeiska centralbanken avvärja en allmän panik på Europas finansmarknader.

Gunnar örn, Dagens Industri 8/10 - den 10 augusti - 2007

Paniken borde egentligen vara obefogad
med tanke på att den amerikanska bolånekrisen inte är särskilt omfattande i pengar räknat.
Den totala bolånemarknaden i USA är värd i storleksordningen 3.000 miljarder dollar. Av detta klassas en femtedel, ungefär 600 miljarder dollar, som högrisklån. Av dessa högrisklån kan så mycket som var femte fordran visa sig vara värdelös, enligt en bedömning gjord av centralbanken Federal Reserve. Totalt handlar det alltså om möjliga kreditförluster på drygt 100 miljarder dollar.

Kommentar av Rolf Englund:
Jag tycker 100 miljarder dollar är mycket.
Se även min kommentar på min återupplivade blog

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The European Central Bank scrambled to head off a potential financial crisis on Thursday by pumping an emergency €94.8bn ($131bn) into the region’s banking system
after liquidity in the interbank market started to dry up, threatening banks’ access to short-term funds.
Financial Times 8/10 2007

The cash injection was the biggest in the ECB’s history, exceeding the €69bn provided the day after the terrorist attacks of September 11 2001. The ECB also made an unprecedented one-day pledge to meet 100 per cent of all funding requests from financial institutions.

Full text

More info at EU Observer

ECB as Lender of Last resort

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In “The Coming Collapse of the Dollar,” James Turk and I said this about the effect of a falling dollar on other countries:
The only reason Japan or Europe can generate even their current meager rates of growth is the willingness of U.S. consumers to buy their Hondas and BMWs.
John Rubino 7/20/2007

Professor Paul de Grauwe
"Without further steps towards political union, the eurozone has little chance of survival"

Ambrose Evans-Pritchard, Daily Telegraph 16/7 2007

So what if the euro rises above $1.40?
What will the Europeans do in that case?
What we are most likely to get is confusion followed by panic.
Wolfgang Münchau, Financial Times, 16/7 2007

The long-run performance and success of the EMU depends on whether economic convergence or divergence is occurring.
Nouriel Roubini, New York University and RGE Monitor, 28/6 2007

Germany needs to formulate a response to Sarkozy or the only proposal on the table will be Sarkozy’s anti-stability, anti-competition, pro-currency-intervention proposals.
Wolfgang Münchau, Eurointelligence 12/7 2007


The euro has continued its dramatic surge to record highs against the dollar, causing serious strains in southern Europe and renewing concerns about the long-term viability of monetary union.
Ambrose Evans-Pritchard, Daily Telegraph, 12/07/2007

The country that most troubles outsiders is Latvia.
It has a whopping current-account deficit: some 21% of GDP in 2006, soaring consumption and debt, financed mainly by foreign-owned banks.
This points to a need for tough restraining measures. But the currency, the lats, is pegged to the euro, so the central bank's ability to raise interest rates is constrained.
RE: Like in Sweden before 1992 and allt that
The Economist print July 5th 2007

French and Italian industrial production both unexpectedly fell in April
as a stronger euro crimped exports, suggesting Europe's fastest growth in six years may have peaked.
Bloomberg June 11 2007

Finns euron kvar om 15 år?
Euron blev verklighet därför att det fanns europeiska ledare - Helmut Kohl, Francois Mitterand, Jacques Delors - som önskade sig de nya pengarna.
Om deras efterträdare bestämmer sig för att inte tro på projektet, då kommer det förr eller senare att haverera.
Peter Wolodarski Signerat DNs ledarsida 3/6 2005

I en viktig fråga är EMU-projektets varmaste anhängare och argaste kritiker helt överens:
för att valutaunionen ska hålla, måste den förr eller senare leda till politisk union.
”Det finns inget historiskt exempel på en beständig valutaunion som inte varit kopplad till en stat”, har ECB:s chefsekonom Otmar Issing förklarat.
Gunnar örn DI 7/6 2005

For the first time, respectable voices - i.e., those deemed respectable by the European elite -
are raising serious questions about the future of the euro
.
The issue is not really so much the future of the currency as the fact that, in May, the euro's future became a reasonable topic of conversation.
John Mauldin, Thoughts From The Frontline, 24/6 2005

"tensions" from "persistent divergences in growth and inflation" among its members, the European Commission warned
The report represents one of the sharpest official warnings that the euro remains fragile
Wall Street Journal 23/11 2006

 

Italy is often mentioned as the country most likely to leave the euro. I disagree.
If any country ever decided to quit that country would be Spain.
Wolfgang Munchau, Financial Times February 20 2006

The real reforms needed to secure the euro’s future
Desmond Lachman, Financial Times 1/3 2007

Joaquín Almunia, EU monetary affairs commissioner 280-page report on the low pace at which countries have adapted to the euro since its launch in 1999.
fear that a downturn could exacerbate problems in unreformed economies and heighten political and public criticism of the euro
Financial Times 23/11 2006

Now, some experts are becoming concerned that
without further moves towards political integration in Europe, one of the most tangible symbols of European unity -
the euro - could collapse.
BBC 14/5 2006

Could the eurozone disintegrate? - The answer is yes.
If /Italy/ fails to rise to the challenge it confronts, a default or even a forced withdrawal from the eurozone is perfectly conceivable.
Martin Wolf Financial Times 25/5 2005


John Rubino 7/20/2007:
In “The Coming Collapse of the Dollar,” James Turk and I said this about the effect of a falling dollar on other countries:

The only reason Japan or Europe can generate even their current meager rates of growth is the willingness of U.S. consumers to buy their Hondas and BMWs.
As the dollar plunges, Japanese and European goods, priced in suddenly-appreciating currencies, will become prohibitively expensive for U.S. consumers, who will respond by buying U.S.-made alternatives or nothing at all.

Correctly interpreting this change in buying patterns as a threat to their vital export sectors, European and Japanese leaders will respond with the only weapon they have left: monetary inflation. They’ll cut interest rates and buy dollars with their currencies, flooding the world with euros and yen the way the U.S. now floods the world with dollars.

Read more here

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So what if the euro rises above $1.40?
What will the Europeans do in that case?
What we are most likely to get is confusion followed by panic.
Wolfgang Münchau, Financial Times, 16/7 2007

My prediction is that they will first have a fight about who is in charge.
This has now turned into a fight among politicians, specifically between President Nicolas Sarkozy of France, who has asked for a more interventionist exchange-rate policy, and Angela Merkel, the German chancellor, who has said she will not permit this.

If the euro continues to appreciate, Germany in particular will suffer from a sustained exchange-rate overshoot, as its economy remains as dependent as ever on a successful export sector.

There are non-trivial structural risks that the euro may appreciate further in the short-to-medium term.If it does, Mr Steinbrück (“I’m not worried about a strong euro. I love a strong euro”) will not only have to eat his words. More worryingly, he and his European colleagues will have no idea what to do under these circumstances.

Germany’s ability to improve its competitive position through a devaluation of the real exchange rate has run its course.

My hunch is that the German government will find it difficult to stick to its current position and that Mr Sarkozy will win this argument.

It would be much better if the eurozone adopted a more structured process to deal with exchange rate overshoots.
But in the absence of such a strategy, what we are most likely to get is confusion followed by panic.

Full text

Germany needs to formulate a response to Sarkozy or the only proposal on the table will be Sarkozy’s anti-stability, anti-competition, pro-currency-intervention proposals.
Wolfgang Münchau, Eurointelligence 12/7 2007

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The long-run performance and success of the EMU depends on whether economic convergence or divergence is occurring.
Nouriel Roubini, New York University and RGE Monitor, 28/6 2007

Now several years after the formation of the monetary union (formally started in 2002 but already effectively in place since 1999) there is enough economic data to make a preliminary assessment of the success of the monetary union.

Here is a concise overview of the economic criteria that make a currency or monetary union desirable....

In the RGE paper (co-authored by Christian Menegatti, Elisa Parisi-Capone and myself) that we presented at the EMU conference we conducted a systematic overview of the evidence on economic convergence or divergence within the EMU.

The only country where the external adjustment has taken place has been Germany: but even in this case the adjustment was very slow and took more than a decade: the shock of German unification and the ensuing loss of competitiveness of Germany took more of a decade to be unraveled via a painful process of corporate restructuring and significant wage moderation.

Iin the process leading to EMU real interest rates sharply fell in countries such as Spain, Portugal, Ireland and the Netherlands. This reduction in real interest rates led to an economic boom and overheating that – in the countries above – took also the form of a housing boom with excessive investment in real estate and sharply rising home prices. The ensuing economic bust in the Netherlands and Portugal was particularly painful.

The housing bust that is likely to now occur in Spain - and possibly even Ireland – will be similarly painful.

One serious open question if whether the countries – Italy, Portugal, Spain, Greece - that have experienced a significant loss of competitiveness and real exchange rate misalignment will be able implement reforms that will increase productivity growth, reduce relative unit labor costs and allow them to regain their lost competitiveness. There are some reasons to be cautiously pessimistic. Even ECB executive board member Lorenzo Bini-Smaghi - who strongly argued that EMU has been a success – admitted that these countries may have to go through a long and painful adjustment period to regain the lost competitiveness.

Full Text

This article appeared orginally in Nouriel Roubini's Blog at RGE Monitor.

EMU - en snabbkurs

Spanien - Italien - Ireland


The euro has continued its dramatic surge to record highs against the dollar, causing serious strains in southern Europe and renewing concerns about the long-term viability of monetary union.
Ambrose Evans-Pritchard, Daily Telegraph, 12/07/2007

French president Nicolas Sarkozy yesterday instructed his staff to draw up plans on "the means for implementing an exchange rate policy" in co-operation with the 13 finance ministers of the eurozone, showing that he intended to press ahead with his campaign to clip the wings of the European Central Bank. The aim is to twist the arm of the ECB, until it agrees to slow the pace of rate rises.

"When the dollar loses 33pc of its value against the euro, how can our industries regain the competitiveness lost unfairly due to political manipulation by the rest of the world?" he told Euro MPs last week.

The current account deficits of Spain, Greece, and Portugal have all reached 10pc of GDP. While the slippage in France is less dramatic, it has been enough to cause deep soul-searching in Paris about the value of euro membership on current terms.

Bernard Connolly, global strategist for Banque AIG, said investors switching from dollars to euros were mistakenly treating Germany as if it were a "proxy" for all Europe. "What they fail to recognise is that Spain, Italy, and France are in a worse state than the US, and are even more dependent on a global credit bubble to support demand," he said.

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French and Italian industrial production both unexpectedly fell in April
as a stronger euro crimped exports, suggesting Europe's fastest growth in six years may have peaked.
Bloomberg June 11 2007

The euro advanced to a record against the dollar in April, making European goods less competitive at a time when the economy of the U.S., the region's biggest export market, has slowed. The European Commission predicts euro-region growth will cool to 2.6 percent this year, from 2.7 percent, still robust enough for the European Central Bank to push interest rates higher.

The declines in French and Italian output come after a report showing German industrial production fell in April for the first time in six months. Manufacturing in the euro region expanded at the slowest pace in more than a year in May.

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The unemployment rate in Spain jumped the most in 15 years to a three-year high
as the building market contracted. The jobless rate rose to 9.6 percent
April 25 2008 Bloomberg


The pain in Spain
Spain's long property boom has come to a painful end
The experience of Sweden, where housing investment declined by 71% between the peak in 1990 and the first (not final) trough in 1995, suggests that such adjustments can be dramatic.
The Economist April 22nd 2008

The Spanish economy has been a driving force for economic activity in the euro area for more than a decade, with year-on-year GDP growth exceeding the average rate of expansion in the euro area in every quarter since 1995.
The good times are now over.

The weakness began last year in the housing market — the major driver of the Spanish economy over the last ten years. The danger signs are now spreading to other sectors of the economy.

The Economist Intelligence Unit has cut its forecast for Spanish GDP growth to just 1% in both 2008 and in 2009, compared with an annual average rate of expansion of 3.8% in 1998-2007.

Rising employment in the construction sector has accounted for a substantial share of overall employment growth in recent years, while house prices are estimated to have increased by 190% between 1997 and 2007—only Ireland and the UK have experienced a similar hike in prices among major industrialised countries.

A return to a more normal level of housing investment would take off some 3 percentage points of GDP, and in order to absorb earlier excess construction, a temporary fall to below the normal level would probably be necessary.

The experience of Sweden, where housing investment declined by 71% between the peak in 1990 and the first (not final) trough in 1995, suggests that such adjustments can be dramatic.

With Spain being a member of the euro area (and a departure from the club out of the question), a devaluation of the currency to improve competitiveness and boost export demand is also not an option (although the high, and rising, current-account deficit would suggest a serious overvaluation).

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President Nicolas Sarkozy
"How can you continue to export if the euro is the only currency in the world
that is overvalued compared to the dollar, the yen and the yuan?

Daily Telegraph 7/6 2007

The ECB has doubled rates since December 2005, a key factor driving the euro to record highs. While a resurgent Germany can take the strain, most of the "Club Med" bloc is losing export share - including France.

"How can you continue to export if the euro is the only currency in the world that is overvalued compared to the dollar, the yen and the yuan?
How can a sector make ends meet if its productivity gains are eaten up by the artificial depreciation against the euro?'' he told farmers.

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Dollar - yen - yuan

France


Sarkozy
We have no indication to believe that he intends to backtrack on anything.
Far more than Italy's economic weakness, or a Spanish housing market meltdown,
this is the stuff which could endanger the long-run viability of the euro.
Wolfgang Münchau 4/6 2007

Sarkozy is no fool. He is a former finance minister, who knows exactly what he is talking about. He has formed a firm view of economic governance both in France and in the euro area. And he has come to a different conclusion that most of us have.

From the vantage point of a populist politician who is keen to break with the past, Sarkozy is in fact totally consistent. Treat the ECB, the Commission, and the Germans as your enemy, and play the role of Robin Hood, who takes the money from the evil ECB and hands it to the poor.

This, far more than Italy's economic weakness, or a Spanish housing market meltdown, is the stuff which could endanger the long-run viability of the euro.

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Axel Weber, the hawkish head of the Bundesbank, is alarmed by a 10.9pc surge in the M3 money supply
In an unprecedented rift, the heads of the Bundesbank and the Banque of France have contradicted each other in public,
exposing an emerging rift between Europe's north and south.
Ambrose Evans-Pritchard Daily Telegraph 18/05/2007

France and Germany have begun to clash openly over control of monetary policy in the eurozone, taking starkly different views about the rising threat of inflation. In an unprecedented rift, the heads of the Bundesbank and the Banque of France have contradicted each other in public, exposing an emerging rift between Europe's north and south.

Axel Weber, the hawkish head of the Bundesbank, is alarmed by a 10.9pc surge in the M3 money supply in March, the highest growth rate for the region in almost a quarter of a century. The less-watched M2-M3 gauge rose 19.8pc - anathema to monetary hawks in Frankfurt.

The comments were flatly contradicted hours later by Christian Noyer, France's bank chief. "There is no concern that inflation will get out of hand. The risk has not increased," he said, showing his irritation.

The north-south clash reflects the yawning gap between a resurgent "Teutonic Tiger" conquering markets in Asia and Eastern Europe, and a sickly France being left behind. The strong euro is slowly asphyxiating French exporters.

The rest of the Club Med bloc is lining up behind Paris. Romano Prodi, Italy's premier, said: "I am worried about the relentless rise of the euro. We have reached a point where it has become truly a burden."

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European finance ministers
The incoming French president was warned there was no enthusiasm for his election calls for the ECB’s mandate to be amended to focus it on creating jobs and growth as well as fighting inflation.
Financial Times 9/5 2007


The eurozone has now split into two incompatible camps.
"The euro is our currency but everyone else's asset," bemoaned Josef Christl, from Austria's central bank.
Ambrose Evans- Pritchard, Daily Telegraph 30/4 2007

Madness was at full throttle last week as the stateless currency of the world's least dynamic bloc surged to an all-time high near $1.37 against the dollar. It brushed yen163 against the yen, a rise of 80pc since 2001. The euro is even lording it over the Swiss franc.

This rise has occurred at a time when a) the EU's "Lisbon" drive to unshackle the economy and close the technology gap with America has flopped, b) France, Italy, Spain, and Poland are openly defying the EU's single market rules, c) the grand plan to create an EU superstate has collapsed, leaving the euro an orphan currency, with no sovereign entity behind it, and no hope of an EU Treasury or debt union to see it through a crisis.

The world plainly wants euros. Investors are willing to believe for now that the currency is a sort of big D-Mark reflecting the wonders of the German export machine - forgetting about 180m Latins on the other side of the eurozone's cultural fault line. They'll learn.Sated with dollars, China, Russia, and the petro-powers are shunting their massive reserves into Bunds and Spanish treasuries, pushing the euro ever higher.Since most of Asia hold down their currencies by mercantilist intervention, Europe is taking the brunt of the dollar slide.

Deutschland AG has just enforced the harshest wage compression of modern times.Unit labour costs in manufacturing fell 4.4pc in 2005 alone as Volkswagen and Siemens extracted longer hours without extra pay under threat of moving jobs East.Stealthily, Germany has gained 40pc in competitiveness against Italy since the D-mark and lira were fixed in 1995, 30pc against Spain, and about 20pc against France.

Berlin gave up the D-Mark under an implicit contract that the euro would never fuel German inflation.This contract will be enforced. If not, German citizens will pull the plug on EMU. The only question is who will file for divorce first: the Latins or Teutonia. They cannot both share the currency.

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Euro is 'doomed to failure'
Former British foreign secretary Lord David Owen said:
"The basic concept is flawed. I think that it is a straitjacket which if we joined we would find an intolerable constraint."
Lord Owen was Britain’s foreign secretary from 1977-79 and EU co-chairman of the international conference on the former Yugoslavia from 1992-95.
BBC 1999-02-28

Lord David Owen


The French created the European Union, so it would be appropriate if they destroyed it.
Of course, Mr Sarkozy and Ms Royal would reject any suggestion that they are eurosceptics. Both argue that they want a “better Europe” or a “different Europe”.
Gideon Rachman, Financial Times, April 10 2007


Do current account deficits matter inside a monetary union?
Martin Wolf, FT 28/3 2007


Is Latvia about to devalue?
Although Latvia in 2007 may not be Thailand in 1997, there are worrying similarities.
Lex, Financial Times 21/3 2007

The currency’s peg to the euro has provided the country with much-needed stability – after Russia’s 1998 default, most crucially – but has restricted the central bank’s ability to use monetary policy to reduce demand and inflation.

It has also encouraged the credit boom by reducing borrowers’ exposure to foreign exchange risk. Moody’s says Latvia’s $20bn external debt equates to over 100 per cent of GDP, 43 per cent of it short-term and owed by the private sector.

After Thailand’s currency peg broke in 1997, its currency lost more than half its value in the following six months.

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Englund om Asien-krisen

Bör Carl Bildt dömas till böter?
Back in 2005, the former Thai central bank governor was fined $4.6 billion /he/ was found by a civil court to be guilty of “grave negligence” in squandering Thailand’s currency reserves in a futile attempt to prop up the baht.
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Germany’s export strength also makes it export-dependent and vulnerable to a downturn in global demand.
Any distress in the US will transmit to the rest of the world economy via the financial markets.
Direct trade has long ceased to be the main transmission mechanism of transatlantic shocks, at least for the UK and the eurozone.

Wolfgang Munchau, FT March 4 2007


The real reforms needed to secure the euro’s future
Desmond Lachman, Financial Times 1/3 2007


Ségolène Royal, socialist candidate for the presidential elections:
It's not for Mr Trichet to dictate the future of our economies: it's a matter for our leaders chosen by the people.
Daily Telegraph 27/12 2006


The Eurozone economy is strong enough to withstand weaker US growth, higher German taxes and a dip in exports next year,
the European Commission has said.
BBC 18/12 2006

Growth will slow in 2007, though the Commission said it would remain robust as negative effects would be limited. Countering the global problems would be strong domestic consumer demand and improved corporate spending, it added.

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``While slower growth in the U.S. will undoubtedly have an impact on the rest of the world, our analysis suggests that its effect on activity in the euro area should be limited,'' Klaus Regling, head of the commission's economics department, said in the report.
Bloomberg


The recent flurry in foreign exchange markets probably signals the start of a process of unwinding global imbalances. Suppose the market brings about the requisite dollar depreciation.
Then, if China and Japan were to maintain their dollar exchange rates there would be a large effective appreciation of the euro with potentially devastating effects on Europe.
Vijay Joshi, FT 15/12 2006

The author is a fellow of Merton College, Oxford

Suppose the market brings about the requisite dollar depreciation. Then, if China and Japan were to maintain their dollar exchange rates, as they are currently entitled to, other countries, especially in Asia, would have an incentive to do the same. There would then be a large effective appreciation of the euro with potentially devastating effects on Europe. An exchange rate war could follow, as well as a return to protectionism.

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French premier Villepin attacks ECB amid call for return to franc
Ambrose Evans-Pritchard, Daily Telegraph 13/12 2006

Speaking on French radio as the euro surged to fresh records against Asian currencies, he said it was time to "lay everything on the table" and set the proper limits of ECB power. "We must clarify matters in exchange rate policy, which means taking back our sovereignty and our margin for action so the states can play their part," he said.

The comments came as Nicolas Dupont-Aignan, a presidential candidate, became the first major Gaulliste to call for a return to the franc, underlining the collapsing popular support for monetary union in parts of French society. Mr Dupont-Aignan said the EMU had become unreformable, leading to a monetary squeeze that was driving the French economy into slump.

Mr de Villepin said the eurozone was split into two clearly opposed camps. "There are some states that are happy with the current situation, but for France it is not acceptable. This is a tough fight that we are going to have to carry out at a political level," he said.

Mr de Villepin's comments on exchange policy was a clear reference to Article 111-2 of the Maastricht Treaty giving EU finance ministers the power to shape the exchange rate. Known as the "nuclear option", it gives politicians the means to dictate policy to the ECB - since the exchange rate is an indirect lever over interest rates. It would in effect strip the bank of its cherished independence. No EU national leader has ever before threatened openly to invoke the clause.

Michael Dicks, chief eurozone economist for Lehman Brothers, said a further rise in the euro above $1.35 would could cause severe strains.

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The Iraq invasion, disastrous though it has been, may not go down in history as the greatest political blunder of the past decade.
That dubious honour will probably belong to an event most people still regard as a triumph: the creation of the euro.
"the beginning of the end of the European project"
Anatole Kaletsky, The Times 26/10 2006

What we see today, not only in Italy and Hungary, but also in the other relatively weak economies on the southern and eastern fringes of the EU, is the beginning of the end of the European project.

What we see in Eastern and Southern Europe today are the consequences of the EU’s transformation from a union of democratic countries into a sort of supra-national financial empire in which the most important decisions affecting EU citizens are no longer subject to democratic control.

There is now almost no chance of Hungary, or any other new European country, being admitted to the euro-zone in the foreseeable future. This was demonstrated over the summer when Lithuania and Estonia was refused permission to join the euro on the flimsiest of grounds.

Italy will be tightening its budget at the same time as Germany implements the biggest tax increases in its modern history

At some point the people of Europe will realise that there is something rotten in a political system that leaves them forever in the world economy’s slow lane — and which cannot be changed by any democratic process, regardless of how people vote.

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Eurozone unemployment falls to record low
7.7 per cent of the workforce
(I Sverige 4,6 per cent)
FT 1/12 2006


Why break-up of faltering euro could be the way ahead
At the end of the day, EMU is no more than a glorified system of fixed exchange rates. We know from past shocks – ERM 1992, Asia 1997 – that such constructs can collapse in days if for any reason the markets start to smell blood.
Ambrose Evans-Pritchard, Daily Telegraph, 18/09 2006

The disintegration of the euro may be drawing closer. Warnings of an EMU bust-up were once confined to a handful of eurosceptic journals: they have since spread to City banks such as Morgan Stanley and HSBC, and are now moving perilously close to the EU core itself.

"Will the Eurozone Crack?" is the latest missive from the Centre for European Reform, a pro-euro think-tank with close ties to the European Commission.

"The single currency was supposed to bring Europe together, but it risks becoming a source of economic dislocation and political division," begins the report, a 59-page demolition of EMU by the centre's business chief, Simon Tilford.

As The Daily Telegraph's Brussels correspondent, I used to meet for furtive lunches with a Commission economist who was so worried about the coming smash-up that he had switched his savings into "hard" currencies, choosing foreign accounts beyond EU reach. I joke not. He knew, from his ringside seat, that the single currency had been thrust on Europe by the Delors crowd for entirely political reasons in the face of vehement warnings from the pros at the Directorate of Economic and Monetary Affairs.
"They didn't care if there was a crisis one day. In fact they welcomed it, thinking that it would make it easier for Brussels to gain fiscal powers and create a debt union," he said.

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How to ensure the eurozone does not unravel
Simon Tilford, FT 4/10 2006


What are the circumstances under which the eurozone could disintegrate?
In practice, that would happen only if either Germany or France decided to quit.
Wolfgang Munchau, FT 25/9 2006

A departure by Italy or Spain, or both, would not suffice. However, it is extremely difficult to construct even a purely theoretical scenario under which it would make sense for France or Germany to reintroduce national currencies. A decision to quit would never pay off for the quitter in the short run. The administrative costs would be crippling, financial markets would be in turmoil and the quitter would almost certainly have to pay higher risk premiums on its bonds.

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More by Wolfgang Munchau


Den gemensamma valutan är integrationens mest synliga tecken, och förmodligen det mest långtgående steget mot en europeisk gemenskap
En del experter menar att en gemensam valuta aldrig kommer att fungera utan en gemensam ekonomisk politik och en verklig solidaritet mellan länderna
Jakub Swiecicki, Utrikespolitiska Institutet 2006/8


Otmar Issing, Europe's high priest of monetary orthodoxy, has confessed that the euro was launched on flawed foundations and is now threatened by "big tensions" between north and south.
"The proper functioning of a monetary union requires flexible labour and good markets. These conditions have not been fulfilled from the start."
Ambrose Evans-Pritchard, Daily Telegraph 31/5 2006

Otmar Issing, Europe's high priest of monetary orthodoxy, has confessed that the euro was launched on flawed foundations and is now threatened by "big tensions" between north and south. In a parting shot before stepping down today as the European Central Bank's chief economist, and dominant force, Dr Issing said the stark differences in wage inflation across the eurozone were storing up future trouble.

While he did not name the culprits, Dr Issing was clearly fingering the Club Med quartet of Portugal, Greece, Italy, and Spain, all of which failed to kick their inflationary habits after joining EMU.

He said the euro project was launched before the building blocks were in place. "The proper functioning of a monetary union requires flexible labour and good markets. These conditions have not been fulfilled from the start."

Dr Issing has been Frankfurt's intellectual powerhouse since the early 1990s, infusing the fledgling euro-bank with the ethos and monetary discipline of the revered Bundesbank, where he had also been chief economist.

A loyal public servant, he has never questioned the euro's viability, but it is an open secret that he long favoured a core currency limited to France, Germany and Benelux, and doubted whether the euro could survive as an orphan currency without the backing of full political union.

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Otmar Issing

Monetarism


Paul de Grauwe, professor of economics at the University of Leuven in Belgium and an adviser to Mr Barroso, fears that a lack of political integration is undermining the single currency project.
BBC 14/5 2006

The Italian election result was a disaster for Italy and is a threat to the future of the euro.
Italy is now in the economic condition that normally preceded devaluation of the lira in the years before the single currency. So long as Italy remains in the euro system it will be impossible to devalue, yet it would be equally impossible for a weak left-of-centre coalition, with no real majority, to take the tough economic decisions that might, or might not, restabilise the economy.
William Rees-Mogg, The Times, 17/4 2006


The narrow election victory by Romano Prodi’s centre-left alliance was the worst imaginable outcome in terms of Italy’s chances to remain in the eurozone beyond 2015.
Wolfgang Munchau, Financial Times 17/4 2006


Spricker EMU?
Det mardrömsscenario ekonomerna varnade för tycks nu inträffa i Italien
Expressen-ledare 24/3 2006


Italy’s seven years within the eurozone seem consistent with Dante’s famous inscription at the entrance of hell: “Abandon all hope, ye that enter”.
The economic consequences of monetary union have been so serious for the country that they require urgent political action by the next Italian government. Without it there will be no escape from the inferno.
Wolfgang Munchau,Financial Times 20/3 2006


Italy follows Argentina down road to ruin
Desmond Lachman, American Enterprise Institute (Timbros storebror)
Financial Times 17/3 2006

Desmond Lachman joined AEI after serving as a managing director and chief emerging market economic strategist at Salomon Smith Barney. He previously served as deputy director in the IMF's Policy and Review Department and was active in staff formulation of IMF policies toward emerging markets.


Try reissuing the 12 national currencies that were replaced with just one.
That might sound like it would destroy the euro. And yet it may be the only way to salvage something from an experiment that looks more like a failure with every month that passes.
Matthew Lynn, a columnist for Bloomberg News, 27/2 2006

At a seminar in London this month organized by the think tank Open Europe, John Gillingham, professor of history at the University of Missouri-St Louis, said it was time to look at radical options to change the way the euro area's economy is run.

"The currencies of the euroland should be reissued and any attempt to regulate the values of the currencies by an overall single monetary and fiscal straight jacket should be dropped," said Gillingham, who wrote the book "Design for a New Europe".

It might seem odd to listen to forecasts on monetary matters from a historian rather than an economist. Then again, the euro is primarily a historical achievement - which may help explain why it has gone wrong.

Of course, the debate has been here before. (You don't need to be a professor of history to know there are very few genuinely new ideas in the world.) As far back as 1990, then British Chancellor John Major proposed a new European currency that would circulate alongside the existing national ones.

It wasn't accepted then because everyone was focused on creating a single currency that would replace the others. Now, perhaps it has more chance. Why? Because in 1990 you could still argue a single currency would deliver stronger growth. It is hard to argue that in 2006.

There are only three ways forward. One is to struggle on with a permanently sluggish economy. Another is to wait for a financial crisis, or a bad-tempered exit (probably by Italy). The third is to preserve what is good about the euro, while repairing the parts that don't work.

Design for a New Europe at Amazon

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Will EMU survive 2010?
Global interest rates are likely to return to more normal levels. The ‘one size fits all’ policy of the ECB is then likely to become very difficult to bear for countries like Spain and Italy
Daniel Gros, Director CEPS, 17 January 2006
A most impressive list of Board of Directors....

Germany entered EMU with an overvalued exchange rate, but it has regained competitiveness through a process that used to be called ‘competitive deflation’, i.e. extracting continuous concessions from trade unions on labour costs. By contrast, Italy has continuously lost competitiveness, and the French performance has again been ‘middling’.

Somewhat surprisingly, the export performance of France is even worse than that of Italy, suggesting a corresponding lack of structural reforms.

Unnoticed by many, an even more severe disequilibrium is building up in the case of Spain, which so far has been regarded as a success story.

The remainder of this decade is thus likely to see the North and the South of Europe trading places: Germany is likely to emerge with the strongest growth once its real estate market has bottomed out, whereas Italy and Spain are likely to experience a period of weak growth as their labour markets struggle with the problem of how to regain competitiveness through lower wages and extracting concessions on working time.

The real test for the EMU framework is thus likely to arise over the remainder of this decade. Once Germany has brought its public finances under control (probably around 2007), the pressure will mount on Italy whose relative position is likely to have deteriorated further. Over time, the global savings glut is likely to end and global interest rates are likely to return to more normal levels. The ‘one size fits all’ policy of the ECB is then likely to become very difficult to bear for countries like Spain and Italy, which will then have to enter a period of very low increases, or even declining, domestic price levels. A combination of slow growth, rising real interest rates and increasing pressures from Brussels to reduce spending will make EMU unpopular in these countries.

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Spanish banks doubled their share of the ECB’s weekly funding auctions,
taking their borrowing up to €44bn in December, according to the most recent data from the Bank of Spain.

Financial Times February 11 2008 22:01

The European Central Bank has effectively funded new lending in Spain in recent months, replacing banks’ use of wholesale capital markets, which have been strangled by the global credit crunch.

The market for securitised debt and for mortgage-backed bonds in particular has been almost entirely shut since the credit crunch hit last summer and investors began shunning complex, structured debt.

The Spanish banking system is second only to the UK in Europe in its use of mortgage-backed bond markets and other securitisations to fund lending.

Jean-Claude Trichet, president of the ECB, last week insisted the central bank had not been bailing out banks in Spain, but said there had been a marked increase in use of securitised bonds as collateral by Spanish banks and others.

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Subprime

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Yet if the storm is peaking in the US, it has hardly begun in Europe.
Bernard Connolly, global strategist at Banque AIG, says euro-losses may surpass the US debacle:
"The next really big shock to financial markets is likely to be the risk of collapse in the EMU credit bubble: the private sector credit consequences are likely to be catastrophic"
Ambrose Evans-Pritchard


"Some thougths about the future of the euro"
The real threat to the cohesion of the monetary union is not Italy, or even a post-property-crash Spain.
The real issue is the political gulf between France and Germany.

Susanne Mundschenk and Wolfgang Münchau, Eurointelligence 18/10 2007


Professor Paul de Grauwe
"Without further steps towards political union, the eurozone has little chance of survival"

Ambrose Evans-Pritchard, Daily Telegraph 16/7 2007

Since the start of the year, the Spanish economy has felt like a huge party on the Titanic, cruising heedlessly on to an iceberg of corporate debt.
The danger signs were there for all to see: a real estate bubble; corporate borrowing up 37 per cent in a year; frenzied M&A activity, and last but not least
a current account deficit that has ballooned to become the second largest in the world in absolute terms after the US.
Leslie Crawford, FT July 14 2007

“Spain is different!” the over-borrowed say. There won’t be a property crash – foreigners will always want a place in the sun.
And who cares about the current account deficit? We are all in the euro now.

“International investors only care about one thing, your exposure to the real estate sector,” laments one Spanish banker.

Although house prices are not falling yet, house sales are. According to the association of Spanish property registrars, property sales fell 7 per cent in 2006. This year, building permits have been issued for 800,000 new homes. And while not all will come on to the market this year, it is difficult to escape the conclusion that the Spanish real estate market is over-heated, over-priced and over-supplied.

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One serious open question if whether the countries – Italy, Portugal, Spain, Greece - that have experienced a significant loss of competitiveness and real exchange rate misalignment will be able implement reforms that will increase productivity growth, reduce relative unit labor costs and allow them to regain their lost competitiveness.
Nouriel Roubini, New York University and RGE Monitor, 28/6 2007


Euro helps topple Spanish property
Bank of Spain's governor, blamed the bubble on the wrong interest rates caused by euro membership
Ambrose Evans-Pritchard, Daily Telegraph 26/04 2007

Miguel Fernandez Ordonez, the Bank of Spain's governor, blamed the bubble on the wrong interest rates caused by euro membership.
"The single monetary policy has meant that excessively loose conditions for our economy have been almost continuous," he said. "A less relaxed tone would have been better for our needs." A report by the bank concluded that house prices were 35pc overvalued.

Bernard Connolly, global strategist for Banque AIG and former head of economic research for the European Commission, said the country will face a brutal adjustment over the next two years - if it can remain in the euro at all.
He said: "Spain is going to face the very direst of economic circumstances: a cycle of recession, deflation and widespread private sector default - a depression in fact.
This stock market slide is not just a 'correction'. It has a very, very, long way to go."

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Last year alone, Spain started to build 800,000 new homes
Unfortunately, the number of new houses was not just more than France, Germany and Italy combined built last year. It was also more than anybody wanted to buy.
FT editorial 28/4 2007

Spain has experienced a roaring economic expansion, in part fuelled by low interest rates caused by sluggish growth in other parts of the eurozone.

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- In any dynamic modern economy the size of the US or the European Union there are bound to be significant regional differences in economic performance. Economic policy tries to assuage such differences and set up automatic stabilising mechanisms by which they become self-correcting. Movements in exchange rates can act as such an automatic stabiliser.
Lawrence Lindsey Financial Times 1996-11-28


Disbelief has been suspended. Whenever I mention rising interest rates, higher mortgage payments, creeping unemployment, the possibility of falling house prices, fingers are stuffed in ears, eyes are tightly shut and heads shake wildly. No, no, no. Go away.
It was the same in Spain, until this week.

The pain in Spain
It was the same in Spain, until this week. Then, hola!
Financial reality crashed through the roof of the property market.
Jeff Randall, Daily Telegraph 27/4 2007

Shares in Spanish construction companies have collapsed like haciendas in an earthquake. Years of cheap loans, chronic over-supply of housing (facilitated by corrupt planning officials) and dodgy investment schemes, peddled to gullible foreigners, created an unsustainable boom. The bust is going to Costa lot, especially for thousands of Britons who borrowed heavily to buy a home in the sun, expecting rental income to pay the mortgage.

The pain in Spain is a timely reminder that rampant bull markets can make ordinary people mistake themselves for financial wizards.

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Houseprices


Do current account deficits matter inside a monetary union?
the impact of low interest rates was greatest not where demand was weakest, but where conditions for a property boom were best: notably, in Ireland and Spain
Martin Wolf, FT 28/3 2007


In Spain, the construction and housing sector accounts for 18.5 per cent of gross domestic product,
about twice as high as the eurozone average.
The comparable figure for Germany is 8.7 per cent.
Wolfgang Munchau, FT 19/3 2007

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The booms in Spanish and Irish real estate make the US real estate boom look timid
Charles Gottlieb of the Center for European policy studies, Nov 21, 2006

By importing the credibility of the European Central Bank, they benefit from low nominal interest rates, in spite of their vivid growth and consequent higher than average inflation. Thus in addition to the global savings glut which exercised downward pressure on nominal interest rates, both countries exhibit very low real interest rates.

In fact, the total value of mortgage debt in Ireland tripled over the 2000-2005 horizon, and mortgage lending is still growing at a 20% pace. Spanish lending is still growing at a 23.6% pace. Given that in Ireland 83% of total outstanding mortgage debt in 2005 and in Spain, 97% of the debt is at variable rate interest, households are considerably exposed to interest rate hikes.

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Houseprices


A decade of red-hot growth in the Spanish housing market fueled a jump in such things as jobs and consumer spending, turning Spain into one of the fastest-growing countries in the euro zone.
But now, economists say the real-estate boom is coming unmoored from the economic fundamentals that once drove it, and they worry the market is headed for a hard landing that could have repercussions for the rest of the economy.
Wall Street Journal 9/11 2006

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Byggkrasch nära i Spanien
Fredrik Braconier SvD 2008-01-04

Spain and Italy threaten EMU stability
Ambrose Evans-Pritchard, 8/1 2008

Click


Italy is often mentioned as the country most likely to leave the euro. I disagree.
If any country ever decided to quit that country would be Spain.
Wolfgang Munchau, Financial Times February 20 2006

Italy is often mentioned as the country most likely to leave the euro. I disagree. Leaving the euro would not solve any of Italy’s problems. Since Italy’s debt is mostly euro-denominated, Italy would be facing an Argentinian-style debt crisis. A wise Italian politician told me recently that Italy was more likely to disintegrate as a nation state than to leave the euro.

If any country ever decided to quit, unlikely as this may be, that country would be Spain, not Italy. Over the past seven years, Spain has lost even more competitiveness against the eurozone than Italy. At the same time, Spain is also in a better position to quit. With a debt-to-gross-domestic-product ratio of just over 40 per cent, Spain would have no problem servicing its debts.

Unlike Italy, Spain enjoys the reputation of a European success story. But its economic success rests on shaky ground. It was driven by a housing bubble, during which average property prices have increased almost threefold since 1997. The US and UK housing markets have been well behaved by comparison.

The house-price bubble has kept the Spanish economy ticking over – and overshadowed Spain’s underlying problem of falling competitiveness. Successive Spanish governments have failed to put in place the one condition essential for a country to prosper in the eurozone in the long run – a sufficient degree of wage and price flexibility.

The country’s current account deficit for the first 11 months of 2005 reached 7.3 per cent of GDP. In its latest autumn forecast, the European Commission put the current account deficit at 8.3 per cent this year, and 9.1 per cent in 2007. These are unsustainable levels.

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More about house prices at internetional.se


On Friday I was in Davos in a panel on the "Ups and Downs of EMU" (European Monetary Union) where ECB head Trichet, Italian Economy Minister Tremont, a few other EU officials and myself were supposed to discuss the following questions:
Will EMU collapse in the future? Which country will exit first? What will be the consequences of a break-up of EMU? How to avoid that? And what are the prospects for the Growth and Stability Pact?
Nouriel Roubini, 28/1 2006

Unlike the other panelist that ignored the topic and spoke instead about all the good things allegedly associated with EMU, I took the questions seriously by considering some of the problems and risks faced by EMU and the risks of a break-up, especially for the case of Italy.

My remarks caused a stir with Minister Tremonti who interrupted me in the middle of my remarks, went into a temper tantrum and shouted - to the consternation of all participants - to me: "Go Back to Turkey!!". I happen to have been born in Istanbul; but more than offensive to myself his pathetic burst of uncivilized anger was an insult to the decent Turks who are currently trying to negotiate an agreement to enter into the EU.

My current concerns are that, while EMU has lead to a process of convergence of nominal variables (inflation, interest rates, etc.). it has also been associated with a process of increased divergence in economic performance, especially regarding economic growth rates.

This economic performance divergence is a serious problem for some EMU countries (Italy, Portugal, Greece) and it may eventually lead to a collapse of EMU. I am not supportive of such a collapse but, unless appropriate macro and structural economic policies are undertaken, the risk of a break-up becomes serious.

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Nouriel Roubini


The risks that eventually Italy may exit EMU cannot be underestimated.
On a possible EMU collapse I will talk on Friday in a Davos panel with Italian economy minister Tremont and ECB head Trichet.
Nouriel Roubini, 27/1 2006

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See also:
"Det finns ingen anledning till oro"
It is highly unlikely that the European Monetary Union will collapse any time soon.
There are sound reasons to suppose that the economic pain in Europe will rise from its already high level, especially in countries, such as Germany and Italy, that are already under stress.
John Makin, American Enterprise Institute, 24/6 2005


Frits Bolkestein, the former EU internal market commissioner, has questioned the chances of survival for the euro in the long term.
EU Observer 26/1 2006

The ageing of Europe's population will hit the continent "ruthlessly," the outspoken Dutch politician stated, with eurozone states like Italy being unprepared for the expected jump in pension claims.
These states "will be forced by political pressure to borrow more and increase their budget deficit, with consequences for interest rates and inflation," he indicated, adding "the real test for the euro is not now, but in ten years time".

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Will all the 12 countries in Europe's single currency remain members in three or four decades?

The Economist 24/11 2005

WILL all the 12 countries in Europe's single currency remain members in three or four decades? The question may seem imponderable. But euro-area governments floating 30- or even 50-year bonds are asking investors to ponder it nonetheless.

S&P assumes that countries such as Italy and Greece would want to regain their own currency only to debauch it. Both have lost competitiveness since the 1990s. Italy's unit labour costs are projected to be 27% higher by the end of 2006; Greek costs have increased by almost half. In S&P's simulations, the Italian government announces a surprise exit from the euro on the last day of 2006, and promptly devalues the new lira by 27%. The Greeks devalue by 49%.

Both countries would thus recoup, at a stroke, the competitiveness they have lost. Unfortunately, their debts would still be payable in euros.

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Of course, I will be challenged on my views on Europe and my opposition to the British intervention in Iraq.
Europe should no longer be a divisive issue within the party. The constitution is dead. I can see no circumstances in which British membership of the euro will be an issue in this parliament or the next.
Kenneth Clarke, Daily Telegraph 1/9 2005

Europe should concentrate on building jobs, enterprise and competitiveness with a real attack on unnecessary regulation.

As far as Iraq is concerned I believe I was right and that events are proving me right.

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Ken Clarke’s dismissal of the euro as a “failure” is like a cardinal telling us that God doesn’t really exist.
There are two new, contradictory arguments for pessimism.
Vincent Cable,Liberal Democrat shadow chancellor, Financial Times 1/9 2005

The sceptical voice of the former UK Conservative chancellor adds to the chorus of pessimism about the euro that has reached a crescendo after the No votes in the French and Dutch referendums.

I agree with him that the cautious approach to entry by Gordon Brown, the current chancellor of the exchequer, is right at the present time. But is the euro really a “failure”?

There are two new, contradictory arguments for pessimism.

The first is that the European Central Bank’s common monetary policy is a cause of slow growth.

The second concern is that Germany, far from languishing under the euro, is showing signs of economic improvement, potentially creating an unsustainable divergence with Italy (and others). Either, it is said, could lead the single currency to collapse.

There is a serious issue about whether the “one size fits all” monetary policy is restricting growth, particularly in Germany

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Let us again suppose that A reforms and B does not.
For B’s government, there is a windfall. For A’s government, some of the benefits of reform are lost.
The difference with the EU case comes from the fact that eurozone countries share an interest rate that is set by the ECB with respect to the average inflation rate.
Jean Pisani-Ferry, Financial Times, August 31 2005

Germany

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En rad länder i västra Europa plågas av en ihållande ekonomisk kris. Arbetslösheten stiger och tillväxten sjunker. I Tyskland, Italien och Frankrike - liksom Sverige - tilltar svårigheterna trots god konjunktur och låg ränta.
Grundorsaken är den europeiska sociala modellen med höga skatter, omfattande bidrag och offentliga monopol.
I kris behövs en nationell valuta, vars ränta och växelkurs kan anpassa sig efter de nationella förhållandena, sägs det. Hur stor verkan för att stimulera ekonomin som penningpolitiken ger har dock allt mer börjat ifrågasättas.
Johnny Munkhammar SvD 5/8 2005

Ekonomisk politik kan fokusera på antingen strukturella reformer eller stimulanser av konjunkturen. Det senare kan utgöras av finanspolitik eller penningpolitik. Båda är dock bara olika former av klassisk keynesiansk stimulanspolitik.

En gemensam valuta, som i Hayeks anda för bort penningpolitiken från nationella politiker, stänger likt en guldmyntfot möjligheten att fuska sig ur problem och främjar därför reformer.

From The Economist 99-09-25

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Hayek

John Maynard Keynes

Johnny Munkhammar

Kommentar av Rolf Englund:
Man får anta att Johnny Munkhammar har använt sig av uteslutningsmetoden.
Det kan inte vara fel på EMU. Inte är det något bekymmer att man inte inom EMU har någon ränta som ett land kan påverka. Inte är det något bekymmer med stabilitetspakten, utom kanske att den inte tillämpas för länder som Tyskland och Frankrike.

Därigenom måste Munkhammars slutsats bli att det behövs supply-side economics, som i USA.

Sedan moderaterna, efter att ha tappat var tredje väljare, övergav den Munkhammarska systemskiftespolitiken, strömmarna väljarna till.

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It is economic performance – not the European Union budget or any proposed constitution – that will determine the fate of the “European Project”.
After all, Hitler came to power in 1933 due to “ordinary economic voting behaviour” when the mainstream parties’ economic agendas were unconvincing, not because a majority of German voters then embraced Nazi ideology.
Adam Posen, Financial Times, August 3 2005


European Central Bank council member Christian Noyer:
Countries using the euro are free to drop the currency.
"It is possible for a country to leave the euro zone because member states are sovereign"
Noyer is also governor of France's central bank
Bloomberg 4/7 2005

Noyer, also governor of France's central bank, told French National Assembly's foreign affairs committee last week, according to minutes of the closed hearing released today. Such a move may put in doubt a nation's continued membership of the European Union, he said.


For the first time, respectable voices - i.e., those deemed respectable by the European elite -
are raising serious questions about the future of the euro. The issue is not really so much the future of the currency as the fact that, in May, the euro's future became a reasonable topic of conversation.

John Mauldin, Thoughts From The Frontline, 24/6 2005


"Det finns ingen anledning till oro"
It is highly unlikely that the European Monetary Union will collapse any time soon.
There are sound reasons to suppose that the economic pain in Europe will rise from its already high level, especially in countries, such as Germany and Italy, that are already under stress.
John Makin, American Enterprise Institute, 24/6 2005

Weakening economies in Europe have translated into rising pressure for political change. The previously noted loss by Germany’s left-of-center SPD Party of North Rhine–Westphalia in the May 2005 election has been likened to the Republicans carrying New York and California in a presidential election. Clearly, it is not politically viable for even a left-leaning German government to try to rein in social costs while the German economy is so weak. The unemployment rate is above 11 percent, and growth is slipping toward zero.

The poor performance of some European economies and the unevenness of performance among them--Spain, Ireland, and even France are still experiencing strong growth and strong real estate markets--is a byproduct of Europe’s bold currency experiment in which full currency union preceded political union.
Normally, political union precedes monetary union.

The more serious problem is the moral-hazard issue that arises in a monetary union with one central bank oriented toward low inflation and twelve treasuries with sharply differing economic systems to manage. The expedient move by the Italian government would be to borrow heavily in order to finance a large fiscal stimulus to boost Italy out of its recession. The effective peg between interest rates on Italian government liabilities and German government liabilities means that the Italians will be under increasing pressure to employ Keynesian fiscal stimulus to boost their economy. The Italian Finance Ministry answers to the Italian government, not to the European Central Bank, thus the institutional bias to use deficit finance to boost the economy out of recession.

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Lord Lamont was UK chancellor of the exchequer 1990-93 and is co-chairman of the Bruges Group
The problem with the EU is that at times its very nature exacerbates internal tensions.
That is why the euro may eventually break up

Norman Lamont, Financial Times, June 22 2005


Six years ago, 11 European nations made a bold bet that a common currency would unify and fortify the continent from Sicily to Helsinki. Now, as many of the nations in what is known as the euro zone slog through an economic funk,
the experiment is helping to drive countries further apart - and fueling a growing resentment of the wider European Union.
The Wall Street Journal 13/6 2005

The euro-bashing isn't confined to Italy. A poll for Stern magazine this month found that 56% of Germans want the mark back.

"Breakup is back on the radar screen as a theoretically possible option" for the monetary union, says Holger Fahrinkrug, an economist at Swiss bank UBS in Frankfurt.

"It would have been better for Italy to stay out [of the euro] for a few years," says Julian Callow, chief European economist at Barclays Capital in London. "There's no easy solution now."


Is the euro forever?
Six and a half years since the launch of monetary union, this was precisely what eurozone officials and central bankers had been dreading and seeking to avoid at all cost: a debate about the future of the euro.
Wolfgang Munchau Financial Times 8/6 2005


A rising tide of integrationist ambition swept the single currency on to the European shore in the 1990s.
Now, it is in danger of becoming a beached whale.

Further expansion of the eurozone is undesirable until its core economies have demonstrated their ability to make the system work, both economically and politically.
Martin Wolf Financial Times 8/6 2005


I en viktig fråga är EMU-projektets varmaste anhängare och argaste kritiker helt överens: för att valutaunionen ska hålla, måste den förr eller senare leda till politisk union.
”Det finns inget historiskt exempel på en beständig valutaunion som inte varit kopplad till en stat”, har ECB:s chefsekonom Otmar Issing förklarat.
Gunnar örn DI 7/6 2005


The French and Dutch referendums have dashed hopes of political union in Europe.
As criticism of the euro grows louder, there are fears that monetary union, too, might be in peril
The Economist "Can this union be saved?" June 6th 2005


Finns euron kvar om 15 år?
Euron blev verklighet därför att det fanns europeiska ledare - Helmut Kohl, Francois Mitterand, Jacques Delors - som önskade sig de nya pengarna.
Om deras efterträdare bestämmer sig för att inte tro på projektet, då kommer det förr eller senare att haverera.
Peter Wolodarski Signerat DNs ledarsida 3/6 2005

Varför överlevde valutaunionerna i USA, Kanada, Tyskland och Italien, till skillnad från de skandinaviska och latinska mynt-unionerna? Jo, de var en del i arbetet med att skapa en nationalstat.

För amerikanerna tog det 150 år att uppnå en fungerande monetär union... ännu på 1920- och 1930-talen rådde en oenighet mellan regionerna om penningpolitiken, vilket lade grunden för den paralysering som i sin tur bidrog till att skapa den stora depressionen.

Om Tyskland fortfarande haft en egen valuta skulle man kunnat devalvera sig ur de senaste årens kostnadskris. Men i stället har landet pressat ner kostnadsläget den hårda vägen, genom arbetslöshet och sänkta reallöner.

Hur länge orkar Europa färdas på det spåret?

Nu riktas blickarna mot Italien, som har förlorat sin konkurrenskraft på grund av fallande produktivitet och finansiell oreda. Martin Wolf i Financial Times tecknade i förra veckan en mörk framtidsbild, i vilken italienarna känner sig så pressade att de sliter sig loss från EMU.

Så här i backspegeln måste 1990-talet betraktas som ett osedvanligt lyckosamt decennium, i väntan på det stora ovädret.

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Mer av Peter Wolodarski

Could the eurozone disintegrate? - The answer is yes.
If /Italy/ fails to rise to the challenge it confronts, a default or even a forced withdrawal from the eurozone is perfectly conceivable.
Martin Wolf Financial Times 25/5 2005

Tyskland har gjort många fel. Ett allvarligt fel var att gå in i EMU med en för högt värderad valuta.
Om inget mirakel inträffar vad gäller den internationella konjunkturutvecklingen kommer arbetslösheten att fortsätta att öka. Det faktum att den nominella räntan är gemensam i en valutaunion innebär dessutom automatiskt att realräntan blir lägst i de länder som har den högsta inflationen, det vill säga de som skulle behöva en hög ränta, och högst i de länder som skulle behöva stimulera ekonomin.
Stefan de Vylder Göteborgs-Posten 22/10 2002
Kommentar av Rolf Englund:Stefan de Vylders artikel var den första i världen som påpekade detta i efterhand uppenbara konstruktionsfel. är det värt Nobelpriset? Ja, ingen tidigare Nobelpristagare hade i alla fall kommit på det före de Vylder...

Ja, det är ju inget konstruktionsfel, det blir så med en gemensam valuta.

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In an interview with the daily La Repubblica
Welfare Minister Roberto Maroni said Italy should consider introducing a temporary dual circulation of the euro and the lira,
given that the switch to the single currency has failed to tackle the country's economic slowdown and a decline in competitiveness.
Forbes 3/6 2005

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The under-fire euro fell further on Wednesday, slumping to an eight-month low
Report claiming that Hans Eichel, the German finance minister, and Axel Weber, the president of the Bundesbank, were present at a meeting at which the possible break-up of European Monetary Union was discussed.
The German Bundestag is also said to have commissioned a report on the legal repercussions of a country wishing to leave the EMU.

Germany’s finance ministry labelled the talk “absurd”, while Mr Eichel and Mr Weber issued a statement saying the euro was a “unique success story”.
Financial Times 1/6 2005

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EU will never become a federation with a unique federal government, federal army and international personality.
The reason is that member states do not want that
It would be risky to work towards a federal Europe since the EU might instead end up on the road to disintegration as a reaction. We may be seeing that now.
Frits Bolkestein Financial Times 31/5 2005

The writer, a member of the European Commission between 1999 and 2004, is author of The Limits of Europe (Lannoo) and his Brussels diary Grensverkenningen (Prometheus)

The Common Agricultural Policy and regional development funds do not respect this rule. They urgently need reform. Why should German citizens pay for the upkeep of the landscape in France? What makes the bureaucrats in Brussels believe they are better judges of French regional policy than their colleagues in Paris? All non-essential bits of these programmes should be repatriated. That would also help to slim the EU budget.

The EU is a group of states that have decided to carry out certain tasks in a federal manner, such as trade and competition policy. The federal framework applies to the European parliament, the European Court of Justice and (for 12 of the 25 member states) the European Central Bank.

But the EU will never become a federation with a unique federal government, federal army and international personality. The reason is that member states do not want that: not Britain, and not France either. Nor do the Germans want it, even though Joschka Fischer, their foreign minister, spoke some years ago of a "federation of nation states". That concept is a contradiction in terms. In using it, Mr Fischer underestimated his audience.

It is an example of the eurobabble that other politicians have unfortunately emulated.

The principle of subsidiarity, which means that whatever member states can do equally well (or better) should not be undertaken by the Union. This principle has been obeyed more in theory than in practice.
There are proposals to intervene in the energy efficiency of buildings; the over-indebtedness of consumers; accidents at home; the fat content of food; sexual intimidation; and working time. The EU should not be involved in these areas.

The trouble is that the institutional bias is always to propose more. The European parliament wants the EU to do everything. The European Commission displays the normal bureaucratic instinct: more tasks mean more jobs and more money. And often a member of the Council of Ministers tries to achieve through Brussels what they cannot get at home. Many politicians mistake activity for action.
The error that is steadfastly made is to think that because some cause is worthy, it must be done by Brussels. That is a non sequitur. Yet this sort of thinking is prevalent and has inevitably led to great irritation.

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An EU of 40 is inevitable unless stopped by a referendum,
according to outgoing Commissioner Frits Bolkestein

EU Observer /Le Monde/ 14/10 2004

The second problem, Bolkestein warned, is that immigration is
turning the E.U. into "an Austro-Hungarian empire on a grand scale."

University of Leiden, Days before the third anniversary of 9/11 2004

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The Limits of Europe
In this provocative book, Frits Bolkestein takes the enlargement of the EU with Eastern European countries as the starting point for his argument of where the European Union should go from here. Full of controversial opinions, such as the exclusion of Turkey from membership, it will aim to set the agenda for years to come.
Amazon UK


Never Closer Union?
An earthquake has hit Europe. The move towards ever closer union turns out not to be inevitable.
The Europe we have today is as much as - quite possibly more than - all will share
The treaty is dead.
Martin Wolf Financial Times 1/6 2005

Before the vote, Jean-Claude Juncker, Luxembourg's prime minister and current president of the European Council, declared that France and the Netherlands should re-run their referendums, if necessary, in order to obtain the "right answer". Mr Juncker is all too representative of the contemporary European elite, which does not merely deserve, but needs, the kicking the French have given it.

When the French look at contemporary Europe, they no longer see themselves in the mirror and when they look at their economy, they no longer see anybody in control.

First, the treaty is dead. I presume the Dutch will vote No. If the British cannot be threatened with isolation, they will also reject it. It is impossible to overturn the verdicts of the disgruntled citizens of two of the six founding members and two of the three most powerful countries in Europe.

Further movement towards deeper integration among all members of the EU is off the agenda. The Europe we have today is as much as - quite possibly more than - all will share.

Enlargement beyond Bulgaria and Romania has become unlikely. There will be referendums on Turkish entry. In current circumstances, these would be lost.

France has set its face not just against the European project but against the modern world. That is going to make it far more difficult to pursue liberalisation, domestically, within Europe and globally. For that outcome, the French elite bear heavy responsibility. Their ceaseless indulgence in infantile anti-market rhetoric has had its consequence.

Last but not least, there is a chance of some unravelling of the European project, which has relied on a version of the bicycle theory: if it does not go forward, it risks toppling over. The belief that it must go forward is now dead. It is possible that some achievements, including the single market, will go backwards.

A currency union requires greater flexibility and so more intense internal competition than independent national monetary areas. The failure to make this clear before starting the union was the great political and economic blunder of the 1990s.

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Mer om "The bicycle theory"

More by Martin Wolf

Rolf Englund:
For a moment I thought I had been smart and invented the expression "Never closer union" but I googled it and found that The Economist had written about that in "The end of federalism" - May 29th 1997

The Economist also wrote that
The bicycle theory is popular in Brussels. Yet the suggestion that after 40 years of steady development the EU is a fragile organisation that could easily collapse seems implausible.
and
The elites in Brussels and national capitals may be all for it; but the people may not... The biggest priority, however, is the need to win (or win back) the confidence of Europe’s people.

Not bad for being written in 1997...

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This is just a foretaste of what could happen once investors start to think through the euro's long-term chances of survival in a "post-federal" Europe that is no longer moving ineluctably towards ever-closer union.
Can a stateless currency hold together in a mere "zone" of 12 sovereign states, with a half-constructed legal base, while its economies are moving in starkly different directions?
Ambrose Evans-Pritchard Daily Telegraph 28/05/2005

Hubristic talk that the euro would soon displace the dollar as the world's reserve currency has been silenced by a flurry of analysts' reports warning that monetary union is becoming unmanageable and could collapse, leaving holders of Italian, Greek and Portuguese state bonds with a wicked haircut.

Italy's Confundistria chief, Luca Cordero de Montezemolo, believes his country is now staring into the abyss. Its world share of exports has collapsed by almost one third since the launch of EMU. The economy has contracted for the last two quarters and is now accelerating downwards.

"The political class doesn't seem to understand the dramatic condition of our public finances, and above all the real economy. This is the worst crisis since the war. We must face up to the emergency with brave, urgent, and unpopular measures," he says.

Portugal, Greece and Italy slipped into monetary union with false figures - or "statistical alchemy" in the words of Eurostat - and debt loads that breach the Maastricht limits. They enjoyed a quick windfall from ECB's far lower rates, but the wealth illusion proved poisonous. It let Italy fend off structural reform, and led to a mighty boom and bust in Greece and Portugal.

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Paul Krugman about the break-up of EMU

Here's how the story has been told: a year or two or three after the introduction of the euro, a recession develops in part - but only part - of Europe. This creates a conflict of interest between countries with weak economies and populist governments - read Italy, or Spain, or anyway someone from Europe's slovenly south - and those with strong economies and a steely-eyed commitment to disciplined economic policy - read Germany. The weak economies want low interest rates, and wouldn't mind a bit of inflation; but Germany is dead set on maintaining price stability at all cost. Nor can Europe deal with "asymmetric shocks" the way the United States does, by transferring workers from depressed areas to prosperous ones: Europeans are reluctant to move even within their countries, let alone across the many language barriers. The result is a ferocious political argument, and perhaps a financial crisis, as markets start to discount the bonds of weaker European governments.

Read more here


In spite of interest rates at historic lows, strong world demand, low inflation and healthy corporate profitability, the eurozone growth outlook is gloomy.
A stability trap?
"If the eurozone were no longer an area of stability, I think that some countries - particularly Germany - might say that a return to a national currency would create more stability."
Ralph Atkins FT May 27 2005


The European Commission 29 June formally asked the Italian government to take measures to get back in line with eurozone rules.
Rome was called on to push its public spending deficit under the three percent of GDP ceiling by the end of 2007, and present a plan to Brussels by November on how it will achieve it.
EU Observer 30/6 2005

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On 5 December 2006, the Commission adopted the Convergence Report 2006, which re-assessed the conditions for adopting the euro in the Czech Republic, Estonia, Cyprus, Latvia, Hungary, Malta, Poland, Slovakia and Sweden.

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The ECB published its own report on the same day.


Sverige bör, liksom England, hålla sig utanför euron så länge som möjligt.
Det säger Martin Wolf, biträdande chefredaktör på Financial Times
Ekonominyheterna 4/12 2006

Han går därmed på kollisionskurs med det svenska näringsliv som annars hyllar hans tongivande teser för liberal globalisering.
"Det är bara länder som inte kan sköta sin penningpolitik själva som behöver euron," säger Wolf.
Det var efter ett föredrag om globaliseringen i förra veckan arrangerat av Ohlininstitutet i Stockholm som Martin Wolf avfärdade det samlade svenska näringslivets tes om att Sverige behöver euron.

"Det är bara länder som inte kan sköta sin penningpolitik själva som behöver den. För länder som kan sköta sin penningpolitik är det mycket bättre att stå utanför euron och på så vis skapa en stabil ekonomisk-politisk miljö istället för att införa euron och därmed riskera en penningpolitik som är ’quite inappropriate for you."

2004 kom hans banbrytande bok ”Why Globalization Works” där han bland annat detaljgranskar globaliseringskritiken och ger den fel på nästan samtliga områden utom att vissa internationella institutioner, såsom WTO, inte fungerat ”så bra som de borde”. Nu har boken översatts till Svenska (SNS förlag) men den är inte skriven för svenskar, säger Martin Wolf lite skämtsamt:
"Jag kan inte ta Sveriges problem på allvar, ni har den mest generösa välfärdsstaten på jordens yta och en ekonomi som blomstrar."

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Let us think the unthinkable:
Could the eurozone disintegrate?
The answer is yes.

If /Italy/ fails to rise to the challenge it confronts, a default or even a forced withdrawal
from the eurozone is perfectly conceivable.
Martin Wolf Financial Times 25/5 2005

Disappearance of the zone as a whole seems hugely unlikely, so long as the commitment to the European project survives. But the exit of one (or more) members, a sovereign default or both is not at all inconceivable.

Interest rate spreads within the eurozone are tiny. Investors apparently consider the debt of the eurozone governments as close to perfect substitutes. This is astonishing: after all, ratios of government debt to gross domestic product at the end of last year varied from Luxembourg's 5 per cent and Ireland's 29 per cent to Italy's 105 per cent and Greece's 112 per cent

Investors must not only believe that the currency union is impregnable but that each sovereign borrower is as good as the other.

The latter belief assumes that all the fiscal authorities will behave in an equally responsible manner or that there is an implicit bail-out. These assumptions are highly implausible.

Relative to Germany, Italy's real effective exchange rate has appreciated by almost one-fifth since 1999. In its most recent Economic Outlook, the OECD notes that the cyclically adjusted primary fiscal balance (the balance before interest payments) has collapsed from a surplus of 5 per cent of gross domestic product in 1998 to a forecast surplus of only 1 per cent this year

In order to regain lost external competitiveness, Italy must have substantially lower inflation in the costs of tradeable goods and services than elsewhere in the eurozone.

Unfortunately, efforts to shift the fiscal position back to balance would weaken the economy still more, since there are no monetary or exchange-rate offsets to such fiscal tightening.

(Rolf Englund: That is the main point with EMU. If that is not a good thing - which I do no think it is,
than the whole EMU project is fundamentally wrong.
Bad thinking - as stupid as the Stability Pact.
Why do you do stupid things like that?
Because you need a flag, a parliament, a president, a defence - and a currency - to build a state.)

Martin Wolf continues: If you think you have seen a case a bit like this, you are right: it is called Argentina.

Bernard Connolly, a notorious opponent of the monetary union, even argues that the debt ratio will explode upwards, given the low inflation Italy needs and the declining potential rate of growth that Italy also has
(Italy and monetary union: voyage of the damned, Banque AIG, May 18 2005.)

Mr Connolly's assumptions seem too pessimistic, particularly over the present fiscal position. But the underlying point is strong: managing the fiscal position of a country that suffers from structurally weak productivity growth, a large loss of international competitiveness and an irrevocably fixed exchange rate (or, in Italy's case, no exchange rate at all) is challenging, to say the least.

I do not wish to be misunderstood. So let me be clear. I am not saying that the eurozone will disintegrate, or that Italy is doomed to Argentina's fate either. I am saying that tough choices and tougher times do lie ahead. Only with radical structural reforms, the most disciplined wage behaviour and the greatest possible fiscal rigour can a country in Italy's predicament sustain stability and return to healthy growth.

If the country fails to rise to the challenge it confronts, a default or even a forced withdrawal from the eurozone is perfectly conceivable.

Full text

Argentina

Bernard Connolly

More by Martin Wolf

Top


Could we be headed for some sort of crisis within the EU?
The crowning irresponsibility of the EU’s elite is the way that they have allowed necessary free market reforms to be contaminated by the creation of their unnecessary and unwanted superstate.
Andrew Stuttaford National Review On-line May 2005


If the No vote wins in France
will they have to start again fron "Ground Zero"?

CNBC 23/5 2005


It is almost impossible to overstate the importance of the French referendum
on the European constitution for the future of the European Union.

For the first time since the creation of the euro in 1999, we might be discussing what the European Central Bank and euro advocates have most dreaded: how long the euro might survive.
The euro can be still justified for as long as progress towards political union continues
Wolfgang Munchau Financial Times 11/4 2005


Utan Europas förenta stater kommer EMU att spränga EU
Staffan Ahlberg Dagens Industri 24/5 2003


Om EMU inte skulle fungera ekonomiskt, kan man ha hur vackra argument som helst för – det kommer ändå att haverera.
Det är det första testet. Jag är glad att jag började där. För på den punkten känner jag mig trygg och säker nu.
Göran Persson i Tiden (s) nr 3, 2003

The eurozone is a monetary federation without a federal budget. This unstable situation can evolve in two ways. One is implosion through political tensions between member states
Dominique Strauss-Kahn Financial Times 14/9 2004
The writer, a former French minister for the economy, finance and industry, is a member of the French parliament.
Very Important Article


An emergency plan for dealing with a European financial crisis was agreed at the weekend
by EU finance ministers, central bankers and financial regulators.
The most likely scenario to be tested would involve a collapse by a big bank
operating across EU borders, triggering fears of a systemic crisis.

Financial Times 16/5 2005


The chancellor's proposal may be the first sign of an unravelling of the underlying fundamentals of the euro.
Uwe Bott, President, Cross-Border Finance, New York, Letters FT 20/1 2005


The trouble is that immigration looks more and more like the first problem that requires Europeans to choose definitively between European and national sovereignty. Nations can lay down the law on immigration, and so can the EU. But any mixed regime of EU standards and local immigration quotas will collapse of its own illogic
Christopher Caldwell FT 15/1 2005


What would happen if one of the 25 member states of the European Union refused to ratify the constitutional treaty?
Some say the non-ratifying country would have to leave the EU. Others argue that nothing would happen: the EU would simply continue on the basis of the existing treaties.
An intriguing possibility would be to split the EU in two - an outer part, in which all members take part, and the eurozone.The outer part would consist of a customs union, a common external trade policy, an internal market, a single competition policy and free movement of goods, services, labour and capital. This is essentially today's EU minus the eurozone and perhaps also minus the common agricultural policy, structural funds, and the common foreign and security policy.
Wolfgang Munchau FT 17/1 2005


EMU ökar spänningarna i medlemsländerna
Situationen som man ser i dag tror jag inte ska uppfattas som extrem. Det kommer att uppkomma situationer där konjunkturutvecklingen skiljer sig mycket mer åt mellan länderna än i dag”, säger Lars Calmfors
DI reporter Jonas Ohlin 7/1 2005

Tyskland, Italien och Nederländerna har för låg tillväxt. Samtidigt riskerar Irland, Grekland och Spanien överhettning.Den europeiska centralbanken, ECB, har ett omöjligt jobb. Deras ränta blir fel för några länder hur de än gör.Och det kan bli ännu värre i framtiden.

”Jag tror att man ska räkna med att länderna inte går fas. Situationen som man ser i dag tror jag inte ska uppfattas som extrem. Det kommer att uppkomma situationer där konjunkturutvecklingen skiljer sig mycket mer åt mellan länderna än i dag”, säger Lars Calmfors

Stark euro tynger Framför allt Tyskland, men även Nederländerna, skulle behöva en lägre styrränta för att få fart på ekonomin. Tillväxten är låg samtidigt som resursutnyttjandet och därmed också inflationstrycket är lågt. Samtidigt slår den starka euron hårt mot konkurrenskraften för exportföretagen.

Det är helt klart så att om Tyskland hade haft en egen räntepolitik så skulle man ha haft lägre ränta där i dag än vad man har”, säger Ingemar Hansson, generaldirektör på Konjunkturinstitutet, KI.

Eftersom räntepolitiken bestäms på en europeisk nivå kan den inte samordnas med arbetsmarknadsreformer, vilket gör att Tyskland fastnar i hög arbetslöshet.Samtidigt är ECB:s ränta, som i dag är 2 procent, för låg för flera länder. Irland är det tydligaste exemplet, med en hög tillväxt och ett högt resursutnyttjande riskerar konjunkturen att bli överhettad.Inflationen skenar i väg och det finns stor risk för fastighetsbubblor när räntan är när räntan är så pass låg som den är i dag. även Grekland, Luxemburg och Spanien kan få liknande överhettningsproblem.

Det är en nödvändig delkostnad för en valutaunion”, säger Ingemar Hansson.

Mer av Lars Calmfors

Top


An emergency plan for dealing with a European financial crisis was agreed at the weekend
by EU finance ministers, central bankers and financial regulators.
The most likely scenario to be tested would involve a collapse by a big bank
operating across EU borders, triggering fears of a systemic crisis.

Financial Times 16/5 2005

Although there are no signs that such a problem is likely to appear in the foreseeable future, European regulators are haunted by the Asian financial crisis in 1997-98, which shook the whole region.
The most recent such event in Europe took place in 1992-94, although that crisis was largely confined to Nordic countries.

The assumption underlying the agreement is that the most likely cause of a economic crisis in Europe would arise from the banking sector, not from a securities crash.

Full text

Lars Jonung på CNN: Every nation state has a system of supervision and control of its financial sector, including a lender of last resort, to guarantee the soundness and stability of the financial system.
Presently, such a pan-European set of institutions is lacking.
Read more here

RE: Sverige

Jonung m fl: Finland

Internationella valutafondens roll i krishantering: fallet Asien
Eva Srejber m fl Ekonomisk Debatt nr 2/1999

House prices

Rolf Englund, Den Stora bankkraschen, Timbro, 1983

Top


How long will the euro survive? The author shows that the answer depends principally on Germany.
New Book: "Euro on Trial" by Brendan Brown

Brendan Brown received his PhD from London School of Economics and is Director and Head of Research at Tokyo-Mitsubishi International plc, London.

"Euro on Trial" looks back - to the aspirations of the founders - and forward - to the possibility of reform or splitting up.

Monetary union is reversible in part or in whole and this book assesses the costs and benefits.

How long will the euro survive? The author shows that the answer depends principally on Germany.

Germany's membership so far has brought much disappointment. How many more years of disillusion are required before the question of EMU reform or break-up enters the mainstream of German political debate?

Full text

Tyskland

Euron spricker när dollarn faller
Rolf Englund Nya Wermlands-Tidningen 2001-01-08


The dollar is likely to fall further.
This is creating more dilemmas for Europe than for America
The real question is not whether the dollar needs to fall, but how drastic the economic effects of its fall will be.
From The Economist print edition Nov 11th 2004


Politicians are failing not only to enthuse voters, but they are silent on the biggest challenge
In the past 12 years 200 million people from the west of China have moved to industrial areas within 100 miles of the Pacific.
They have acquired advanced technologies and high skills.
It is the equivalent of adding another Germany, France and Britain to the potential workforce of Europe, at less than 10 per cent of European labour costs.
William Rees-Mogg The Times 4/10 2004

There is a new economic challenge in the world that is particularly difficult for Britain and Europe. Pricing power has shifted from the Atlantic to the Pacific; it now belongs to China. China can set the prices for manufacturers below the level at which Europe, or Britain, can compete. European cars, for instance, have many good qualities, but, like Fiat or Jaguar, they are surplus to the world’s requirements. China also sets prices for raw materials and oil. If Chinese demand had not risen so fast in the past five years, oil would be $20 a barrel, not $50.

This revolution in pricing power reflects the industrialisation of China, drawing on the huge Chinese workforce. In the past 12 years 200 million people from the west of China have moved to industrial areas within 100 miles of the Pacific. This transfer continues. They have acquired advanced technologies and high skills. It is the equivalent of adding another Germany, France and Britain to the potential workforce of Europe, at less than 10 per cent of European labour costs. This is one of the largest human migrations in history. Britain has not begun to adjust to its impact.

This has already turned the terms of trade against Europe; the process is global and the rate is accelerating. In all probability it will destroy the ill-conceived euro before 2020, perhaps before 2010.

Full text

Början på sidan


The eurozone is set up according to this principle - "one money, one central bank".
The Scandinavian union was based on the idea "one money, three central banks"

Lars Jonung, Research adviser, DG Ecfin, European Commission
Financial Times 13 September 2004

Sir, Allow me to comment on two statements by Wolfgang Munchau in his interesting analysis of the stability of monetary unions ("The flaw that threatens the eurozone", September 6).

First, Mr Munchau writes: "The Scandinavian monetary union (1872-1931), which included Sweden, Denmark and later Norway, was more durable but started to unravel slowly after the political union between Norway and Sweden ended in 1905."

Actually, the amazing fact is that Norway and Sweden, after mobilising their armed forces against each other, broke up their political marriage peacefully without a monetary divorce. This is an exceptional event in the history of monetary unions. After this political break-up, the Scandinavian monetary union functioned well until the outbreak of the first world war.

Second, Mr Munchau states that "one common cause underlies the failure of all monetary unions: the lack of political union with the authority to enforce economic and financial policy among its members". Monetary history suggests a more precise interpretation: a successful monetary union requires that there is one central bank with the legal monopoly on supplying the base money of the monetary union, hence having the power to determine the policy interest rate.

The eurozone is set up according to this principle - "one money, one central bank". The Scandinavian union was based on the idea "one money, three central banks", which explains why it was eventually dissolved. And the other failed monetary unions considered by Mr Munchau, the German-Austrian monetary union and the Latin monetary union, suffered from the same weakness, that is the lack of a single union-wide central bank.

What does this tell us about the future of the eurozone? The European Central Bank, with its monopoly on issuing euros, should be compared with the US Federal Reserve system rather than with the monetary unions of the past with many central banks. Of course, the economic performance of a monetary union such as the eurozone can be improved on by co-operation among the member states in various fields of policymaking. The optimal extent of such political and economic co-operation is not known to the economics profession for the moment, witness the academic debate concerning the Stability and Growth Pact. Actually, some competition among policymaking authorities within a monetary union such as the eurozone may be desirable - as long as the competition does not concern the monopoly supply of base money.

It is safe to conclude that European policymakers are currently involved in a learning process, searching for improvements in the workings of the eurozone. This ongoing process of adaptation is in itself a guarantee for a lasting monetary union.

Mer av Lars Jonung


Europe is likely to split
The bandwagon against the European constitutional treaty is rolling.
Wolfgang Munchau, Financial Times October 4 2004


The history of Europe is littered with examples of monetary unions that had promising starts but subsequently collapsed. On present form, Emu may be heading in the same direction
Wolfgang Munchau Financial Times 6/9 2004

The eurozone bases its economic policy on two premises: one is that it needs only a minimal degree of policy co-ordination; the other is that the process of economic and monetary union (Emu) is irreversible. Both assumptions could not be more wrong.

Last week, the European Commission outlined the basics of a long-awaited reform of the stability and growth pact, the eurozone's framework for policy co-ordination. The current pact became defunct after France and Germany last year managed to avert the threat of sanctions despite running excessive deficits.

The reform proposals address a few long-standing criticisms: lack of flexibility during economic downturns, a too-narrow focus on annual deficits as opposed to the outstanding stock of public debt and too great a reliance on the threat of fines. The trouble is that the reforms do not even come close to creating an effective regime of economic policy co-ordination. Where there used to be sanctions, there will now be peer pressure. Fiscal policy in the eurozone member states will in future be exactly the same as in the past, except that breaching the rules will no longer be deemed illegal but ungentlemanly. With the reformed stability pact, Emu will be more like an eccentric club than an economic union.

High inflation is probably the most frequent trigger for the failure of monetary unions.

Another mechanism through which a monetary union may fail is a banking crisis that starts off in one country and spills over into the rest of the union. It is far from clear whether the present system for co-ordinating banking supervision in the eurozone will prove effective in such a situation.

No matter whether the trigger is high inflation, a banking crisis or some other channel, one common cause underlies the failure of all monetary unions: the lack of a political union with the authority to enforce economic and financial policy among its members.

The new European constitution, signed by EU leaders in June this year and awaiting ratification by member states, takes a small step towards such a union, for example in foreign policy and through the extension of majority voting in some areas. The trouble is that it leaves the present, defunct economic policy regime intact. As a framework for a political union capable of supporting a monetary union in the long run, it simply will not do.

Valéry Giscard d'Estaing, the former French president who presided over the constitutional convention, predicted that the new constitution would last for 50 years. Let us hope that he is wrong. If he is right, the constitution may well outlive the euro.

Full text

More about the Stability Pact

More about the Constitution


Nu är det inte bara varningar och råd som förs fram utan direkta larmsignaler
om att EMU-projektet riskerar att haverera.

"Ett totalt sammanbrott kan inte längre uteslutas", sade Calmfors.
Sydsvenskan 17/2 2004

Frågan kom upp när ekonomiprofessor Lars Calmfors, tidigare regeringens EU- och EMU-utredare, i Rosenbad igår presenterade årets rapport från ekonomerna i European Economic Advisory Group, EEAG

Tonen har skärpts ordentligt i årets rapport. Nu är det inte bara varningar och råd som förs fram utan direkta larmsignaler om att EMU-projektet riskerar att haverera.

Hotbilderna utgörs av växelkurssvängningar mellan euron och andra valutor, främst dollarn, som ECB inte tillräckligt parerar med räntesänkningar. Vidare skapar Frankrikes och Tysklands öppna nonchalans mot stabilitetspakten en osäkerhet om vilka regler som verkligen gäller. Att en rad länder, som Storbritannien och Portugal, står på tröskeln till att överträda underskottsgränsen gör inte situationen lättare. "Ett totalt sammanbrott kan inte längre uteslutas", sade Calmfors.

För Sveriges del verkar läget än så länge vara ganska betryggande. Kreditvärderingsinstitutet Standard & Poor's höjde igår landets kreditbetyg till toppnivån AAA.

Lars Calmfors

Euron

Top


Jacques Delors: Asked if he puts the chances of the effective collapse of the EU as high as 50%, he replies simply: “Yes.”
The Economist 12/2 2004


Lessons from monetary union
A monetary union is primarily a political, not an economic project. This is the most important lesson from the euro so far.

If you merely want exchange rate stability, forming a monetary union is definitely overkill.
Wolfgang Munchau, Financial Times, January 5 2004

Europe's economic and monetary union is five years old this week, and it is too soon to tell what its long-term impact is likely to be. But for those countries, in Asia and elsewhere, discussing whether to set up their own monetary union, the euro's short history has produced a few early lessons.

A monetary union is primarily a political, not an economic project. This is the most important lesson from the euro so far. Each member country will at some point be required to make political sacrifices. For example, members might face constraints on their fiscal policy. The economic consequences of the euro, if they exist at all, are far more difficult to prove. If you merely want exchange rate stability, forming a monetary union is definitely overkill.

Start off with an internal market before adopting a single currency. The Europeans made the mistake of failing to integrate financial markets first. One negative consequence is that monetary policy decisions are transmitted to various parts of the eurozone at different speeds.

Forget about a stability pact and focus instead on the long-term sustainability of public finances, including pensions.
Sustainability is a complex issue that cannot be reduced to a single number, such as a deficit ratio. Do not shy away from using qualitative criteria, even if they are not that easy to implement. It is better to have a soft rule that is roughly right than a hard rule that makes no economic sense. Be aware that policy co-ordination is an essential ingredient for a monetary union to work. Every member should accept that all aspects of economic policy - from expenditure and taxation to the regulation of financial, product and labour markets - are matters of common concern.

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The Brussels elite climb into their BMWs for the Christmas break, and the near-obligatory trip to the slopes of Verbier, in a dark mood. The only problem is that things could be even worse when they get back.
The last year has been an unmitigated disaster for supporters of the cause of greater European integration, as national self-interest reasserts itself across the continent.
George Parker, the FT's Brussels bureau chief, Financial Times 18/12 2003

And all the time, public support for the European dream has slipped away. The number of people who think the EU is "a good thing" has slipped below 50 per cent, and turnout in next year's European elections is expected to hit a new low.

The events of 2003 are a catalogue of bad news, lightened only by the formal signing of the accession treaties in April by 10 new member states - many of whom were still living under communism only 15 years ago. The Iraq crisis was only the start of Europe's problems, the Union shattering along the lines of "Old" and "New" Europe defined by Donald Rumsfeld, US defence secretary.

The European economy, dogged by sluggish reform, a resistance to a truly free single market and a looming pensions crisis, remained stuck close to recession while the US roared further ahead.

In June Tony Blair shelved any hopes of Britain joining the euro for the forseeable future, and in September Sweden recorded a strong No to membership of the single currency.

Then came the year's twin low-points. First France and Germany effectively killed the EU's stability and growth pact because they could not bear to be bound by the deficit rules they themselves had invented. Then a few weeks later there was the appalling Brussels summit, where the EU's prestige project - a new constitution - was unceremoniously booted into the long grass because France and Germany could not agree with Spain and Poland on a new voting system.

There is no sign of the constitution being revived in the near future, the stability pact lies abandoned in the gutter, and in June the voters will get their chance to say what they think in the European elections. The verdict is unlikely to be favourable, and maybe that will be the jolt Europe's squabbling and increasingly nationalistic leaders need to start burying their differences.

Full text

Top


I den grundlagskonferens som EU just lagt på is efter sammanbrottet vid toppmötet i Bryssel förra helgen har Sverige hållit en påfallande låg profil.
Men det beror inte på att Sverige efter folkomröstningen aktar sig för att sticka ut, försäkrar Persson, utan på en vilja att ta ansvar för att Europeiska Unionen får ett beslutsmaskineri som fungerar med 25 medlemmar.
- Alternativet är ju att det här havererar och går i stå. Och om varje land då ska matcha sina positioner, då kommer det här att sluta med ett elände.
Intervju i DN 20/12 2003


Mr Giscard d'Estaing told the European parliament:
"History teaches us that bad constitutions, those which are felt to be unjust or ineffective by citizens, lead to revolution or rebellion. In this particular case, I don't think that any barricades will be raised, but I do think we would see the gradual falling apart of the European Union."

Financial Times 6/12 2003


Utmaningen är att finna ett sätt att mobilisera folkliga känslor för byggandet av Europa. Möjligheten är att skapa ett mera demokratiskt Europa.
Utan det kommer det europeiska projektet att misslyckas.

Vernon Bogdanor, DN Debatt 24/9 2003


Det finns fördelar med euron, men riskerna är stora.
Vår bedömning är att Sverige för närvarande bör avstå från att ta detta steg.

Roger Mörtvik, Samhällspolitisk chef,
TCO Irene Wennemo, Näringspolitisk chef, LO
DN Debatt 5/9 2003


In 1993, Czechoslovakia experienced a two-fold break-up:
On January 1 st, the country disintegrated as a political union, while preserving an economic and monetary union.
Then, the Czech-Slovak monetary union collapsed on February 8 th.

We analyze the economic background of the two break-ups, and discuss lessons for stability of monetary unions in general. We argue that while Czechoslovakia could be considered an optimum currency area, it was in fact less integrated than some other existing unions. That, along with low labor mobility and higher concentration of heavy and military industries in Slovakia, made Czechoslovak economy vulnerable to asymmetric economic shocks - such as those induced by the economic transition. Furthermore, the Czech-Slovak monetary union was marred by low credibility, lack of political commitment, low exit costs, and the absence of fiscal transfers.

Källa: http://ideas.repec.org/p/dgr/kubcen/199874.html

See also: http://www.eh.net/lists/archives/abstracts/sep-2000/0007.php

http://www.bradmans.com/scripts/display.cgi?type=hgc&city=293


Deutsche Bank-ekonom orolig för EMU-kollaps
Stabilitetspakten är i gungning och statsminister Göran Persson gör rätt när han som förutsättning för ett euro-inträde ställer krav på budgetdisciplin. Det säger Ulrich Schröder, chefsekonom på Deutsche Bank.
Ekot 4/9 2003

– Om EMU inte skulle fungera ekonomiskt, kan man ha hur vackra argument som helst för – det kommer ändå att haverera. Det är det första testet. Jag är glad att jag började där. För på den punkten känner jag mig trygg och säker nu.
Göran Persson intervjuad i Tiden (s) nr 3, 2003


Det är den så kallade stabilitetspakten som fått Persson att börja sväva på målet
DN-ledare 30/8 2003


Det finns starka ekonomiska skäl för att ha en buffert i statsfinanserna om man ska gå med i EMU
Det ger oss en bättre start med euron än de länder, exempelvis Tyskland, som var med från starten och som inte tänkte på stabiliseringspolitiken

Lars Calmfors Ekot 17/7 2003

Mer av Lars Calmfors


Skapandet av den Europeiska monetära unionen, EMU, var utan motstycke, något som lovade mer integrerade och större marknader. Stimulansen av handel och investeringar är uppenbar. Men kommer euron att bestå?
Två aktuella utvecklingar kommer att ge svaret. Den första gäller utgången av de strider som pågår i Frankrike, Tyskland och på andra håll om reformeringen av socialförsäkringarna. Den andra är debatten om huruvida "sociala rättigheter" ska skrivas in i utkastet till EU:s författning.
Georges de Ménil, professor i ekonomi vid Ècole des Hautes Ètudes en Sciences Sociales i Paris
DN 28/8 2003

Niklas Ekdal, på Herbert Tingstens stol,
om konservativt tänkande och utopiskt

Med kommentar av Rolf Englund
Signerat, DNs ledarsida, 13/7 2003


- Vi tror inte någon går ur, då havererar alltihop.
Göran Persson

Expressen/TT 2003-05-13

Om Sverige går över till euron går det inte att gå ur samarbetet igen, enligt statsminister Göran Persson - Jag tror inte ens det finns någon formell möjlighet att gå ur. Man ger upp en del av sin nationella suveränitet när man går in i samarbetet, men får i stället ett skydd mot de globala marknadskrafterna. Det är det bytet vi gör, sade Persson vid en utfrågning på Värmdö gymnasium.

- Det finns en kraft som växer fram som kan vara en global motvikt till USA, och det är europeiska unionen, sade Persson.

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- Den gemensamma valutan är ett steg på vägen mot fördjupad politisk enighet, mot ett slags Förenta Europa.
Om det blir några fler steg vet vi inte, vi vet inte ens om euron överlever de påfrestningar som spänningarna mellan femton eller tjugofem ekonomier utsätter den för.

Om gud inte funnes, sa Voltaire, vore vi tvungna att uppfinna honom. EU också. Och, förr eller senare, EMU.
Dagens Nyheter, huvudledare 30/6 2003

Myntunion utan fiskal union äventyrar demokratin
Sverker Gustavsson Ekonomisk Debatt 2003, nr 4

EMU är i gungning
Antingen tvingar EMU-problemen EU att snabbt bli en centraliserad superstat eller så spricker EMU
Margit Gennser, SvD Brännpunkt 16/6 2003

Margit Gennser är ordförande i Medborgare mot EMU och var riksdagsledamot (m) 1982-2002
klicka här


Evigt liv för EMU?
Stefan de Vylder i tidskriften Socialpolitik nr. 2/2003


Vem vet, om tio år kanske Tyskland har temporärt tvingats lämna euroblocket för att devalvera sin valuta. Att säga ja till euron blir då inte att säga ja till tillväxt - utan som att knyta fast sin jolle vid "Titanic"! Om tio år kanske vi är glada över om kronan är den enda valutan vid östersjön vid sidan av euron - och den ryska rubeln.
"Euro-ja som att knyta jollen till 'Titanic'" Anders Ferm, DN Debatt 7/6 2003


Lars Calmfors tror inte på nejsidans argument att EMU kommer att spricka, till följd av att euroländernas ekonomier växer olika snabbt. Dessa skillnader kan, enligt honom, klaras genom att lönerna får öka i något olika takt.
DN Ekonomi 6/6 2003 Reporter: Johan Schück


Vi måste säga nej till EMU. En valutaunion utan gemensam politisk ledning kommer inte att fungera.
Per-Olof Eriksson

Aftonbladet 28/5 2003


Du har tidigare känt en oro för att hela europrojektet skall spricka och att det finns en sådan risk, vari består den enligt Dig?
Varför svängde hon i EMU-frågan?

Ebba Lindsö, blivande VD för Svenskt Näringsliv
Ekots lördagsintervju 17/5 2003


"Jag är övertygad om att valutaunionen kommer att spricka. Det är bara en fråga om när. Säger vi ja nu och går in då får vi vara med i det lidandet", säger han.
Per-Olof Eriksson, Dagens Industri 15/4 2003


Lönebildningen har varit mitt första och viktigaste frågetecken.
Det andra har varit oron för att hela europrojektet skulle kunna spricka. Naturligtvis finns en sådan risk.
Därför kommer jag rösta ja till euron den 14 september.
Ebba Lindsö

SvD Brännpunkt 13/4 2003


Vi vill ha en flytande krona som ställer in sig på rätt kurs, varken hård eller mjuk.
Tro mig, EMU kommer att spricka!
P-O Eriksson Dagens Industri 7/3 2003


Jag tror för min del att länder måste klara sina interna problem själva. Lika svårt som det är att införa demokrati utifrån i ett land som inte är vant vid den, lika svårt är det att införa en förnuftig ekonomisk politik den vägen.
ändå kommer jag nog att rösta "ja" i september.

Per Dahl, politisk chefredaktör, Barometern 3 Mars 2003


State Street Global Advisors, the US fund manager, one of the world's largest with $760bn of assets under management, said a single monetary policy was by its "very design pro-cyclical and destabilising"
Financial Times 2/3 2003


Utan Europas förenta stater kommer EMU att spränga EU
Staffan Ahlberg Dagens Industri 24/5 2003


När det gäller EMU-debatten finns det ett argument som jag har synnerligen svårt för. Inte för att det skulle vara särskilt besvärligt att bemöta. Heller inte för att det skulle vara intellektuellt tungt eller värst sannolikt. Argumentet går ut på att Sverige inte ska gå med i EMU eftersom "EMU kommer att spricka".
Pernilla Ström Kolumn i DN 25/2 2003


EMU kan sluta med katastrof
Anders Ferm i LO-Tidningen nr 9/2000 den 10 mars


Brandförsäkringsargumentet
Anders Ferms resonemanget om EMU bottnade i vad han själv kallade brandförsäkringsargumentet. Risken är statistiskt sett minial att huset börjar brinna, men om det sker förstörs hela ens ekonomi.
Alltså tar man en försäkring.


Det är en dum konstruktion - skulle vi rösta om huruvida EMU skulle vara kvar eller inte så skulle jag tveklöst rösta nej. Felet är naturligtvis att Europa är inte ett optimalt valutaområde. Det finns så stora skillnader internt. Det är få ekonomer som tror att det här skall hålla, låt oss säga, 20 år framåt.
P-O Edin, tidigare chefekonom på LO Affärsvärlden, nr 12, 2002-03-20


Två tidigare försök att få till stånd ett intimare monetärt samarbete mellan Europas stater - med Werner-planen 1971 och EMS (det europeiska monetära samarbetet) 1979 - har båda misslyckats. Sannolikheten för ännu ett, större, misslyckande har inte minskat: inga egentliga säkerhetsventiler har skapats.
Trots detta tror jag att EMU är bra för Europa
.
Magnus Blomström i DN 98-02-02


Tänk om det inte fungerar Valutaunionen är ett stort vågspel. om den skulle förverkligas. Det kan visserligen hända att en gemensam valuta skulle tvinga fram den anpassning som krävs för att den ska fungera: en samordnad finanspolitik, flexibla arbetsmarknader, och överföringar av människor och resurser mellan länderna. Men tänk om det inte fungerar.
Gunnar Wetterberg DN Debatt 95-07-18


State Street Global Advisors, the US fund manager, one of the world's largest with $760bn of assets under management, said a single monetary policy was by its "very design pro-cyclical and destabilising"
Financial Times 2/3 2003

State Street Global Advisors has launched an unusually frank attack on the euro, warning it could lead to a loss of national sovereignty and push European countries into recession.

The US fund manager, one of the world's largest with $760bn (£487bn) of assets under management, said a single monetary policy was by its "very design pro-cyclical and destabilising".

Alan Brown, chief investment officer, said there was a "real prospect" that such a policy could see Germany slip into a deflationary cycle similar to Japan.

"Most commentators accept that the Deutschmark joined the euro at an exchange rate which is some 20 per cent higher than purchasing power would suggest," he said.

In order for the real exchange rate to decline over time, Mr Brown said Germany would have to run an inflation rate "perilously close to zero". At the same time, Germany would experience above average real interest rates as well as tax increases and spending cuts to curtail its deficit.

"There is a certain irony to the fact that Germany, the principal architect behind the stability and growth pact, is one of the first countries to be caught by it," Mr Brown said.

"Effectively, all important economic sovereignty would have been handed over to an unelected body in Brussels," he added.

"If a country in the eurozone were to be slipping into recession, they wouldn't be able to do anything about exchange or interest rates which are determined for the region as a whole."

Mr Brown said this would lead to protracted economic downturns. "In the same way booms can go on for years, as Ireland bears out, so can busts," he said.


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