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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 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  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 Were the Eurosceptics right?
Gavin Hewitt, BBC Europe editor, 22 June 2011 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. 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, 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. Origins of the Euro Crisis 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. 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; Olivier Blanchard, the IMF’s chief economist called for several bold innovations. 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 scenario som jag /Danne/ skrev om 2/9 2011 Mr Cameron, The Prime Minister, said he believed the ''most likely outcome'' was that the euro would hold together, despite the current debt crisis. "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." Calmfors pekar på Eurokrisens huvudproblem,kostnadsläget The Budapest government saw borrowing costs soar and the currency plunge as traders bet that international authorities may abandon Hungary, Workers of Europe unite, you've only euro chains to lose 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. A constitutional and economic monstrosity 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. Europe's common currency actually has two gigantic problems. 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 Thus, for a currency union to succeed, its member nations need to register approximately equal productivity growth and approximately equal wage and price inflation. The eurozone deal will fail 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. Kommentar av Rolf Englund: It would be Europe’s worst nightmare: after weeks of rumors, Nils Lundgren: Europakten räddar inte Italien från bankrutt 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. Traders are asking a more mundane question: Two decades to the day after the Maastricht Treaty was concluded, the EU's tectonic plates have slipped 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. Of the nine other EU countries outside the euro, Hungary, the Czech Republic and Sweden Content of Merkozy proposal 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.
How to Forge a Common European Identity
Events on the Continent have come to feel much like the drift into war. 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. The long shadow of the 1930s This time they may save the euro 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. Comment by Rolf Englund Bank of England Governor Sir Mervyn King 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. Top of pageCentral bank deal should remind eurozone leaders of looming disaster Eurozone money supply has been contracting recently in an eerie echo of the events contributing to the 1930s Depression One possibility would be to guarantee financing of rollover of public debts and fiscal deficits ... 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. 1000 miljarder euro är väl mycket pengar? For Europe, a Lehman Moment 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. The fiscal solution 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. 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. The euro zone's 17 finance ministers converged on EU headquarters Tuesday in a desperate bid to save their currency The ministers were discussing ideas that only weeks ago would have been taboo: 
Investors need to prepare for three possible outcomes to the European debt crisis, 'Germany As Isolated on Euro as US Was On Iraq' One striking feature of the euro crisis is how fast the unthinkable has become mainstream. Last week, the U.K. Financial Services Authority publicly advised banks to draw up contingency plans. - Germany is the only country in Europe that can act to save 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. Euro Zone on the Brink - A Continent Stares into the Abyss 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. 
The long shadow of the 1930s 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. "Men EMU är i alla fall bra för freden" The eurozone has 10 days at most. 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. Breaking up is hard to do The people who bullied Europe into adopting a common currency, And the things they demand on behalf of their romantic visions are often cruel, involving huge sacrifices from ordinary workers and families. 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. 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.
Italian bond yields rise above 8% With the replacement of Zapatero's Socialist party by Rajoy's conservative Popular Party, 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. Eurojättar varnar för total valutakollaps 
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". Ekot 25/11 2011 
Death of a currency as 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. Armageddon at Parthenon?
Is this really the end? 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; Germany, still fretful about turning a currency union into a transfer union in which it forever supports the weaker members, has dismissed the idea.
The crisis in the euro area is turning into a panic and dragging the zone into recession. 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 Markets and the euro 'end game' The euro is a macro-economic weapon of mass destruction - it simply must be defused. 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. 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. How much louder do the alarm bells need to ring before time is called on this absurd monetary experiment? Conspiracies, Coups and Currencies 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 longer the financial crisis in Europe drags on, the greater the risk of a European economic collapse The financial crisis in Europe has resulted from the attempt to impose a single money on such disparate economies as Germany and Greece. 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. The gathering storm in Italy has a growing number of policy makers calling on the ECB Yet few believe the ECB would let the common currency collapse to defend that principle. Of course, even a panic can be rational. 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.
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, Suitably designed, the ECB's balance sheet could perhaps be a temporary bridge to a full-blown fiscal union. Finito? 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. Det finns ingen lösning, bra eller dålig, på eurokrisen 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. For reasons of pride, fear, ideology and personal survival, 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. Det finns ingen lösning, bra eller dålig, på eurokrisen Euro crisis reaches the Rubicon "would make the collapse of Lehman Brothers seem like a small problem" “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.” Eurodämmerung 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. 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. 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: Be Honest – The European Debt Deal Was Really A Greek Debt Default 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. Top of page
A key reason why the eurozone is under challenge is that markets have become conscious of a fundamental weaknesses in its design. Even if leaders do enough to avoid a financial meltdown, A UK businessman is offering The prize is described as the second biggest cash prize to be awarded to an academic economist after the Nobel Prize. Europe Deeply Divided Ahead of Make-or-Break Summit Pumping cash into a problem and imposing austerity – as is happening in Greece – is not the answer. 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. 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. Four years into the crisis, said Sir Mervyn, it was "surely time to accept that the underlying problem is one of solvency, not liquidity". BNP Paribas SA and Commerzbank AG (CBK) are unloading sovereign bonds at a loss, 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. If losing half the face value of a bond does not amount to a default, what does? 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. A euroozone built on one-sided deflationary adjustment will fail. 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. PJ Anders Linder, politisk chefredaktör på SvD, m fl,, borde kunna medge att det var bra att det blev Nej till EMU i folkomröstningen The eurozone sovereigns lack a true lender of last resort. The fundamental challenge is not financing, but adjustment. Inside the eurozone, adjustment of imbalances remains essential. But it is also vastly difficult, because the exchange rate has gone. Flera franska bankaktier faller tungt på tisdagen, Frankrike kan få bidra med ytterligare pengar till andra europeiska länder eller sitt eget banksystem, som skulle innebära "betydande" nya förpliktelser i balansräkningen. ... Big snag. 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. We will find out soon enough what EU leaders actually intend to do – rather than what the European Commission would like them to do. Something slightly odd is going on. 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. The lead negotiator for private holders of Greek debt has said that 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. Voluntary? As Sir John Major wrote this morning in the FT, this does not solve EMU’s fundamental problem, 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 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. Germany is pushing behind the scenes for a "hard" default in Greece 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: Pulling the plug on Greece risks bringing a much bigger crisis to a head all too quickly. The euro zone's decision to impose losses on holders of Greek government bonds has been an unmitigated disaster, The Ticking Euro Bomb 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. 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. Europe’s crisis is all about the north-south split Kommentar av Rolf Englund: "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 We are now in the stage of the crisis where people get truly desperate. Most economic historians and international economists I know believe a monetary union would fail unless it develops into a fiscal union. What Really Caused the Eurozone Crisis? (Part 1) First, Wolfgang Schäuble, Germany’s finance minister, from his recent piece in the Financial Times: Next, here's an excerpt from a statement recently made by Greece's Deputy Prime Minister and Minister of Finance, Evangelos Venizelos:
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. Konstruktionen kring euron har inte varit fel There was progress towards a eurozone rescue deal during the IMF's annual meeting in Washington, according to those present. War Game Amid a growing air of desperation, world financial leaders said they are scrambling to douse
"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.
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 Allt var fel från början, precis som kommunismen. Det är målsättningen om ett ständigt fastare förbund The euro, as we know, is a curious edifice (A building, especially one of imposing appearance or size), built without exits. 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. There is no provision in any European Treaty for a country to leave the eurozone. The commentaries that puzzle me are those that say in one breath that the eurozone cannot survive Snillen spekulerar What comes next is the explosion of the European project. America will survive this because America is a state. 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. Remarkably, the European authorities that drove Ms Lagarde’s selection just three months ago have rejected important components of her analysis 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”. We are moving away from what I consider the only effective solution to the crisis. "We must now face the difficult task of moving forward towards a single economy, a single political entity... "I am sure the euro will oblige us to introduce a new set of economic policy instruments. As Europe's leaders seemingly dance on the edge of disaster, European officials ended a two-day financial summit Saturday with no new concrete plans 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. The euro – a cross-border project supported by the political elite and by businesses 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. Why is Spain — along with Italy in so much trouble? 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. 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. Few people, least of all this newspaper, want either vast intervention in financial markets 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 Economist: This is not what they were promised when the euro was set up. 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 U.S. Treasury Secretary Timothy Geithner told EU finance ministers on Friday they should European banks are “grossly under-capitalized” Will the eurozone break up? Jag skulle bli förvånad om alla de länder som i dag har euron som valuta kommer att ha det om tio år. Rumpnissen bleknar 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. "Vi måste ha en åsikt på EU-nämnden på onsdag” 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. Att rädda euron är i fokus, men för att klara det krävs en fördragsändring. 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. Ms Merkel’s scepticism also stems from bitter experience. Wolodarski och eurons hot mot demokrati och välstånd Lösningen, det bästa möjliga utfallet, innebär alltså en inflationsspiral i hela eurozonen, samt att Sydeuropa i realiteten blir koloniserat. 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. Hur illa ställt är det egentligen? Euron står inför ett sammanbrott – 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. Överallt sprids känslan av att undergången närmar sig. Eurokrisen, fisksoppan och elitens olidliga dumhet Socialism och EMU - två misslyckade fullskaleexperiment 
Eurozone Problems De människor som mobbade EU till att anta en gemensam valuta, 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. 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. 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. Hela Europa riskerar att få nobben när marknaderna öppnar i kväll i Asien. Slutet för den nuvarande valutaunionen. Inte det mest sannolika, men ändå inget orealistiskt perspektiv. Inget kan rädda Grekland Eurojättar varnar för total valutakollaps Banker förbereder sig för eurokollaps Greker tömmer sina bankkonton 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. Eurodämmerung 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 Europas största banker tvingas att öka kapitaltäckningen, ett mått på risknivån, från 4 till 9 procent. De har fram till sommaren på sig. 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. Angela Merkels och Nicolas Sarkozys modell, som Jacques Delors kallar Merkozy, 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 Det finns ingen lösning, bra eller dålig, på eurokrisen Det är obegripligt hur EU kunde blunda för att hela Europa inte är som Tyskland. War Game: Nu börjar eurokrisen bli riktigt spännande Spara detta citat för framtida bruk För att lugna marknaden och för ha verktyg att hindra krisen från att spåra ur totalt arbetar Europas ledare på ett sätt att Kommentar av Rolf Englund: Euro-krisen IMF-chefen varnar för kollaps ett anförande som publicerats på IMF:s webplats SOU 2002:16, Stabiliseringspolitik i valutaunionen, slutbetänkande samt underlagsrapporter Vilken väg tar euron? 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. Det minst dåliga scenariot är att krisländerna i södra Europa intensifierar sina budgetsaneringar Det andra huvudscenariot är att ett växande väljarmotstånd mot ytterligare stödinsatser i Tyskland och på andra håll leder till ett abrupt slut för dessa. Långivarna gör då stora kapitalförluster på sina innehav av statspapper från dessa länder. Charles Gave beskriver situationen i Grekland som ett ”lågintensivt inbördeskrig”.
”För att rädda Europa måste vi döda euron”, säger analysräven Charles Gave Konstruktionen kring euron har inte varit fel 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. 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. Does the Euro Have a Future? By joining the euro, Greece and other peripheral nations lost much more than control over interest and exchange rates. 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. Mrs Merkel told the RBB radio station: After Stark "Through stupidity, romanticism and goodness knows what, the experts — chancellors and economists — supported the idea of a currency "I was one of the main spokesmen against the euro eleven years ago and said then it would not survive He added that history had shown that currencies without governments fail. * Alla valutaunioner i historien har antingen lett till en stat eller spruckit. * - To Be, Or Not To Be A Country - that is the question “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. The only way to save the eurozone from collapse 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. 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. Europe is now leveraging for a catastrophe 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. Unless there is a dramatic and simultaneous shift in the politics of Italy, Germany and the European Central Bank, The author is president of Eurointelligence, and an associate editor of the Financial Times. * Konstruktionen kring euron har inte varit fel 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. 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. “This crisis has the potential to be a lot worse than Lehman Brothers,” said George Soros, Gunnar Hökmarks generande förslag om eurokrisen The worst of the euro crisis is yet to come There is no provision in any European Treaty for a country to leave the eurozone. 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. * Nu brådskar det att avveckla euron under ordnade former. Rome, Habsburg and the European Union Europe will not slide back into recession, and the euro remains "strong and resilient" Låt Grekland lämna euron Nu brådskar det att avveckla euron under ordnade former. Even a joint bond might not save the euro The eurozone bond is not something you can introduce in an emergency meeting at midnight tomorrow. We are near to the end of the eurozone in its present form. 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. Today's European leaders can't do anything about the original sin: There are no cheap ways to speed the healing of housing. There's a lively debate about the merits of cutting government spending immediately, Johan Norberg varnar 
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, 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. Readers have asked for a quick verdict on the Merkel-Sarkozy deal. 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. French economist Jacques Delpla, who co-authored a paper proposing how eurobonds could work, See also: Trichet The leaders of Germany and France can agree to fiscal fusion and an EMU debt union, 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. Den nya beskyllningen mot Tea party-rörelsen är att den förstår samhällsekonomi i termer av hushållsekonomi. The Franco-German plan is fundamentally flawed because it does nothing to address 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. A new deutsche mark 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? The risks of what Sir Mervyn King, the Governor of the Bank of England, on Wednesday referred to as At his Inflation Report press conference yesterday, Sir Mervyn said: 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. Detta är skälen till att jag betraktar euron och EMU som ett felkonstruerat system. Slithering to the wrong kind of union Om EMU:s föregångare, den s k Werner-planen 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, The risk is that the package will follow the pattern of previous agreements and eventually disappoint markets. “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 Reaktionen auf Griechenland-Paket One step back from the abyss 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/normanlamontThere 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 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. So what's the EFSF then? 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 BloombergBanks across Europe are braced to take as much as 17 billion euro ($24.5 billion) of 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 Imposing capital requirements is easy, but what is capital and what are real risk assets? "Det gäller bara Grekland", Mycket fiffigt, Eurozone agrees new Greek bailout – Det är klart att när det har varit så mycket osäkerhet och så mycket problem i euroområdet så It appears that the eurozone is forcing Greece into a selective default. This would be a default, the first by a western industrialised country in a generation. How do the credit ratings agencies decide whether a Greek restructuring plan constitutes a default? 1937! So demand will be depressed in both crisis and non-crisis economies; STATEMENT BY THE HEADS OF STATE OR GOVERNMENT OF THE EURO AREA AND EU INSTITUTIONS Preliminärt utkast från torsdagens EU-toppmöte som Reuters tagit del av. Greklands lån från EFSF att förlängas till åtminstone 15 år, från dagens 7,5 år. 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. 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’s strategy is Belgian roulette”, he said according to Le canard enchainé. Eurointelligence 21 July 2011 The accord between the two most powerful states in the euro zone Germany and France reach Greek accord 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. Merkel and Sarkozy “listened” to the views of Trichet, the statement said Time is running out for salvaging Greece and, beyond it, Europe’s shared currency, the euro. 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. Euroledarna rådvilla som nakna kejsare With Italian and Spanish debt yields ever higher, Thursday’s emergency summit offers perhaps the last chance to address it. In an added sign of mounting anxiety ahead of a European Union summit meeting on Thursday, Ingen bankskatt inom EU It looks like Jean-Claude Trichet and the financial markets have scared the European negotiators, 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 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 Karl Sigfrid arbetade under folkomröstningen om EMU på Medborgare mot EMU. French President Nicolas Sarkozy was to meet Merkel on Wednesday in Berlin "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. Stephanie Flanders, BBC Economics editor: European officials are considering a tax on financial institutions 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. A meeting of euro zone leaders on Thursday will not be the final step in the resolution of Greece's debt crisis 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. The euro zone's strategy for dealing with its members' fiscal problems is in tatters, 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 hereThis could even involve a country taking a sabbatical from the eurozone 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. ... Det är kostnadsläget, stupid. 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. The risks to the European banking system, with its intricate patterns of multibillion-euro, cross-national loans and investments, are correspondingly high. ... Trichet: ... 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 /Men varje 5-åring vet ju att det är mycket lätt att få stopp på cykeln utan att ramla. 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. "We are searching through our entire arsenal for a fundamental solution to the problem," said one official close to Finance Minister Wolfgang Schäuble. Five years ago, I was among those who argued that the probability of a collapse of the eurozone was close to zero. Europe’s political leadership has been, and still is, committing a category error in its approach. A modest proposal 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. How to save the eurozone “The governments have been warned, in no uncertain terms and using all possible means. I have said so publicly. Trichet reiterated that the ECB will not accept as collateral bonds from a nation that defaults. 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. 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. Eurogruppens ledare Jean-Claude Junker och Jean-Claude Trichet, chef för den Europeiska Centralbanken ECB Soon the euro zone may well have to expand the EFSF and allow it to issue jointly guaranteed “Eurobonds”. What EU leaders once ruled out — a default by a euro-zone nation — has firmly entered the sphere of the possible The eurozone might be on the verge of a fiscal cum financial crisis that destroys not just the solvency of important countries In Europe, politicians are dealing with the legacy of a utopian project which requires a degree of solidarity that their peoples do not feel. Europas ledare möts och pratar, men någon ordning på eurokrisen får de inte. 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. 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. Friday emergency summit meeting 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. For the record Very funny, Do Read! "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." "en viss default" 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. 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, Large matters, beyond the intellectual vision of Germany's current leaders. The cost of insuring Italian debt rose sharply after the country’s trusted Finance Minister became linked to a corruption scandal Despite the brave efforts of their governments and people, It is quite understandable that eurozone governments and the European Central Bank are not hurrying to make the necessary adjustments. The ECB’s worst nightmare 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. --- 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. --- 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. Nationalisation of Northern Rock, Wikipedia Bank Runs, by George G. Kaufman Nice pics of bank runs, Google Eventually, governments pursuing ever more austerity 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"Greece, Ireland and Portugal The Greek rescue and the European financial stability facility were meant to tide countries over until private lenders recovered from a temporary panic.
Yields on the sovereign obligations of Greece, Ireland and Portugal remain near record highs. But it does mean that markets do not believe them. In this sense, the rescues are failing. Nice, sort of, chart of Youth Unemployment Moment of truth for the eurozone 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. 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. 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. 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. Trichet says leaders can’t repeat the mistakes made by U.S. officials when they let Lehman Brothers Holdings Inc. fail.
The ECB’s worst nightmare Jan Kees de Jager, the Dutch finance minister 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 Greece, Portugal and Ireland Wolfgang Schäuble, German finance minister, said a rethink was needed 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.” S&P and Moody’s 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. Bland annat kan Europeiska centralbanken (ECB) i ett sådant läge sluta ta emot grekiska obligationer som säkerhet för lån. 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". 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. The Greek rollover pact is like a toxic CDO This isn't just a mortgage or housing crisis. The alleged case of a successful internal devaluation — that of Latvia 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. German Banks ask for state guarantees as a condition for private sector involvement 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. 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 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. Time for Plan B 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 USA:s president och alla vi andra borde inte bekymra oss om Liran och Drachman 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 Why spend seven hours behind closed doors, only to decide to wait and see? Why spend seven hours behind closed doors, only to decide to wait and see? As a result of the discussion, he said, the euro group had “cleared the way for a solution”. Threats are only worth making if those making the threats could actually carry them out 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. WarGames: Chicken-Race mellan Berlin och Frankfurt Luxembourg Prime Minister Jean-Claude Juncker, the head of the eurozone group of finance ministers said "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" 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. The bail-out strategy that rescued Europe’s peripheral economies is proving insufficient. 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. Inherently, there are two conflicting economic tensions in the rescue packages. Though the ministers will doubtless go on talking, it is increasingly hard to see a safe way out of this crisis. Andes Borg å ena och å den andra sidan om eurokrisen Svenska Dagbladet åter i EMU-debatten! European finance ministers will hold an emergency meeting on Tuesday in an effort to narrow differences over a €172bn ($247bn) rescue package for Greece. 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. Eurokrisen är alltså över? Fel. 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. 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. The global fallout of a eurozone collapse 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.
The sovereign debt crises that Europe is experiencing today are a typical aftershock of a deep financial crisis. 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. The European Cental Bank's bailout package is just a $1 trillion fig leaf covering the problem and Om euron kollapsar Det krävs förändringar i EU:s fördrag och därmed också nya uppslitande folkomröstningar. 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. --- What happens when Greece defaults. Here are a few things: Co-Founder Of Reaganomics, Paul Craig Roberts: After the creation of the euro in 1999, European nations that had previously been considered risky, 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. Greece, Ireland, Portugal, Spain “Events in Greece have brought the euro area to a crossroads: 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 Concluding remarks at the Banque de France / Deutsche Bundesbank Spring Conference on “Fiscal and Monetary Policy Challenges in the Short and Long Run” Bundesbank President och Grekland – “the central bank equivalent of nuclear deterrence: defy us and we will blow up the world” Kaos väntar om Grekland faller 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. 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. The endgame for Europe is approaching — and much faster than anyone expected 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. 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 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 The confusing debate about “reprofiling” or soft restructuring pays testimony to the sheer incompetence of eurozone’s finance ministers, The ECB, which has bought about €45bn /SEK 404 miljarder/ of Greek bonds over the past year, 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. Om Grekland ställer in betalningarna, alternativt skriver ned värdet på sina utestående lån, Interest rate cuts work their way through to the real economy by a number of transmission channels. The eurozone, as designed, has failed. The underlying economics of the /Euro/crises are clear 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. The problem with the strategy of imposing the burden on taxpayers in borrowing countries is that it is unlikely to work. The eurozone’s journey to defaults Läget i Grekland blir allt allvarligare. Ekonomin skenar och missnöjet bland människor växer. “I was told to say there was no meeting... We had certain necessities to consider” Skrattar bäst som skrattar först om Grekland Europe is running a giant Ponzi scheme In May 1931, a Viennese bank named Credit-Anstalt failed. 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. For all Germany’s fear of becoming locked into permanent support for the Irish and others, Pushing the Irish and Greeks into official EFSF-style bailouts thus worsens their finances and makes default more likely. 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. 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. Greek, Portuguese Bonds Slump as Schaeuble Proposes Restructure RE: "Tsunamani sinks all the boats" Many European banks need bigger capital cushions to restore market confidence and help reduce the risk of another financial crisis, A day after Portugal formally requested aid from the European Union to help ease ongoing debt problems, ECB and The Taylor Rule - a difference of 9 per cent 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. Bara en floskelavtrubbad EU-byråkrat kan kalla en blyväst för en livboj och förvänta sig att bli trodd. 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. 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. The risk is roughly one in seven that Europe's ongoing debt crisis will push member nations to abandon the shared currency, 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," State of the union: Can the eurozone survive its debt crisis? State of The Union They’re bust. Admit it. 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. At the EU’s insistence, the peripherals’ priority is to slash their budget deficits regardless of the consequences on growth. The total exposure of foreign banks to the struggling quartet of 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. Three numbers stand out: 12.4, 9.8 and 7.8 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. Kommentar av Rolf Englund: EU bailar inte ut någon, EU lånar ut Vad säger Annika Ström Melin, som borde veta bättre? The divisiveness pact 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. Comment by Rolf Englund "Europakten är bra för Sverige" The flawed economics of the Competitiveness Pact: 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/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. 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. Riksdagens finansutskott beslutade i dag att Sverige inte ska gå med i den så kallade europakten, Folkpartiet däremot driver på för att Sverige ska gå med i europakten så snart som möjligt. Jean-Claude Trichet is upping his war against the European Council when he decried yesterday’s Ecofin agreement as poor and insufficient. "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," "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. The European stability mechanism, which will be the permanent crisis mechanism from 2013 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 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. Right now Europe may be embarking on a path that could tilt the union away from economic liberalism, 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. Nobel Prize-winning economist Joseph Stiglitz said the European Union may face a “lost half-decade” similar to that experienced by Japan “In Japan -- where they tried to balance the budget too early -- in 1997 and 1998, Japan went in for another lost half- decade,” Will the dam break in 2007? More by Joseph Stiglitz at IntCom Why the eurozone will survive 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: 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. Euro breakup revisited Egentligen strider det mot EU:s grundlag att låta EMU-länderna gå i borgen för varandras skulder, It is twelve years since the launch of EMU. 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, Eurokrisen är inte över 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. Full text"I dag försöker finansministrarna till varje pris hindra en omstrukturering av statsskulderna, Use of marginal lending facility spikes to €15bn 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; 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. We have been presented with the same data over and again: Why Angela Merkel's Competitiveness Pact is a bad idea, and what else she should do We have been presented with the same data over and again: Rädda euron första punkten på finansministrarnas lista För att komplicera de redan spretiga diskussionerna något mer så har Nicolas Sarkozy och Angela Merkel presenterat ett eget förslag om EU:s konkurrenskraft. For months, financial markets and policymakers from Wall Street to Frankfurt have been begging European leaders to do something – anything – 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. Dangers lurk in Franco-German plans for a more tightly integrated euro zone 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. 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. Sarkozy in Davos James Bond Never say never again 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. 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. The key issue in Europe now is not the merits of the single currency but the parlous state of its banking system. 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. Roubini says it is absurd to focus on 2013 Europe is now facing what Edwin Truman of the Peterson Institute for International Economics calls 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. 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. The dam breaks in Portugal 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. At the December summit, the European Union missed a historic chance to get on top of this crisis. The most glaring manifestation of this lack of leadership is the EU policy consensus What makes this crisis self-sustaining is the presence of two interacting components: 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? *
So do not be fooled by anybody who says that the central bank should cut interest rates for the benefit of innocent citizens Greece has become the world's riskiest borrower in the fourth quarter of 2010, surpassing Venezuela, Irish 10-year yields have been climbing to 9%, Greek 10-year yields to over 12%, Euron är "världens mest stabila valuta". Jean-Claude Juncker dismissed concerns about the future of the euro, calling it The foreign owner of a Greek, Irish or Portuguese bond, for example, faces two specific dangers 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 Europe preview of 2011 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. Joschka Fischer om en ny allians mellan Paris och Berlin The euro’s struggles could become more pronounced in coming months as traders increasingly use the beleaguered currency to fund so-called “carry trades.” The crisis was caused – except in Greece – by large and persistent intra-eurozone private sector imbalances between the centre and the periphery, If Germany and its hard-money allies genuinely wish to save the euro – which is open to doubt – Mechanics of a European capital flight It’s a nine-page note oozing with detail about how — precisely — capital flight amongst eurozone members impacts the eurosystem. Most economic historians and international economists I know believe a monetary union would fail unless it develops into a fiscal union. a defining moment for Europe "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? Full textFormer British Prime Minister Gordon Brown has said he Nils-Eric Sandberg och sökandet efter EMU:s Holy Grail Rolf Englund blog 9/12 2010 Euro-Krise Doubts are growing as to whether the euro has a future Konstruktionen av den fond som sattes upp efter Greklandskrisen i våras har en inneboende svaghet. One of the hallmarks of the unfolding financial crisis is that even “experts” quickly concede that How do you balance the moral hazards of propping up the banks, with the practical hazards of letting them default? Desmond Lachman, now a research fellow with the American Enterprise Institute: Next year could bring a crisis that will likely end with weaker countries streaming for the euro zone's exits.
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. *
Why Greece will have to leave the eurozoneDesmond Lachman, FT January 11 2010 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. 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). How Close Did Europe Come to Lehman-Style Crisis? 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.  Time for Plan B 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. The burden on the countries that have been rescued is enormous. 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. The financial storm has reopened the debate on the euro’s flawed design 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. Hur många euro går det på en tulpanlök? Rätt svar är: minst en. 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. Tulipmania in the Netherlands in the 1630s Det osannolika och omöjliga med en uppdelning eller ett sönderfall av euron i en ny monetär flora, 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. For sceptics the question has always been how robust a currency union among diverse economies with less than unlimited mutual solidarity can be. Can Europe save the euro? -- 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. 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. 2011 will see the first member of the European single currency starting to talk seriously about 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. What about the spectre of “debt deflation”? 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 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. Endgame The markets attention shifted from the immediate funding problems to the underlying solvency issues. Despite an €85 billion bail-out for Ireland, the euro zone’s debt crisis is getting worse. “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. Breaking up the euro is not unthinkable, just very costly. 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. I become nervous when Angela Merkel says the future of the euro and that of the EU are inextricably linked. Europe is edging towards the unthinkable Let me assure you that my proposal stands no chance of success. Fear is spreading in Europe. How many countries are going to need bailouts 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.  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? The euro crisis Probably one of the best pieces of analytical commentary we have yet read on the eurozone situation Credit default swaps (CDS) measuring risk on German, French and Dutch bonds have surged over recent days, "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. Eurozone borrowing costs hit record “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. Martin Wolf refers me /Clive Crook/ to this new paper by Paul De Grauwe, Comment by Rolf Englund The road to self-destruction of the eurozone In the end the ERM collapsed. 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. * Lord Lamont was UK chancellor of the exchequer 1990-93 and is co-chairman of the Bruges Group RE: They say that he was singing in the bath the morning after UK left ERM. The Irish bailout is not, after all, what one normally thinks of as a bailout "There is zero danger" Det allmänna stödet för EU förblev intakt, även om stödet för euron störtdök, utropar Sieps som en regeringens Bagdad Bob Leaving the euro: how would it work? EU:s "Bagdad Bob" EMU är inget experiment. EMU är ett vågspel. Den irländska krisen är långt ifrån över och läget för euron är "exceptionellt allvarligt", Om Spanien får akuta problem att hantera sina statsfinanser. "Can the Euro Still Be Saved?" 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." The conservative Die Welt writes: The center-right Frankfurter Allgemeine Zeitung writes: This is the most important eurozone news today, much more important, and alarming, than anything that happens in Ireland. 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. 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. Mr Van Rompuy said he was "very confident" the problems could be overcome. But he added: 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. 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. Euro under siege after Portugal hits panic button 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.” ... EU:s president och Tysklands förbundskansler pratar strunt ... 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. 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. So why are the possibility of sovereign default, persistent imbalances and lack of a fiscal union incompatible? 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. The futile attempt to save the eurozone 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 Angela Merkel consigns Ireland, Portugal and Spain to their fate 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. Calmfors: EMU klarar inte ytterligare en kris Euroområdets ekonomier skulle klara av att hantera en ny kris inom kort under förutsättning att den inte blir för stor. Euro disintegration was never a great risk. ECB loans to banks down to 514 billion euros (USD 716 billion), Political upheaval rocks eurozone debt markets 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. Europe is the region in the world most at risk of losing a currency war. Without strong growth, it simply cannot work. The euro: 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.’” Part 1 of our series on the spring’s sovereign-debt crisis. 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.
------- Part 2 of our series on the spring’s sovereign-debt crisis. 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 Den ekonomiska politiken i EU måste utvecklas och det kan bara ske gradvis. 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. Professor Lars Calmfors, ordförande för Finanspolitiska rådet, har nyligen publicerat en läsvärd rapport, ”Fiscal policy coordination in Europe”. Kommentar av Rolf Englund:
Ur Rolf Englund, Rosornas Krig, Timbro, 1984 Det är målsättningen om ett ständigt fastare förbund Robert Schuman och Jean Monnet Open Europe’s Chairman Lord Leach When asked about the future of monetary union, Lord Leach said, Lord Leach of Fairford is a Director of Jardine Matheson Holdings. Dr. Irwin Stelzer, senior fellow and director Hudson Institute 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. En form av ohelig allians, där problemtyngda stater garanterar problemtyngda banker, 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. A eurozone banking crisis left unresolved 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. 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. 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. 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. It is worrying that European policymakers have not created a mechanism for dealing with an insolvent state in the European Monetary Union. 
Markets are starting to panic about the eurozone periphery Belgian’s deputy prime minister, Laurette Onkelinx, who is close to Mr Di Rupo, is quoted as saying: While the Europeans are celebrating the end of the financial crisis, something strange is happening in the bond markets. 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. The intra-eurozone imbalances will not only persist, but probably increase. The improvement in Germany’s economic growth is driven not by productivity gains but by real devaluation. The European economy is at risk of sliding back into a recession as governments cut spending to reduce their budget deficits. 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. 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. "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. Slovakia stalls €440bn bail-out fund 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.  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. ... 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 --- 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. 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. 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. 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. Charles Kupchan i Washington Post Only a closer union can save the eurozone 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. 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. "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 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, Hungary's IMF revolt augurs ill for Greece The country /Hungary/ cannot easily devalue to claw its way out of its debt-trap 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 Satsa på en hästkur av samma kraft som Lettland! The rebellion against the 1930s fiscal and monetary policies of the Euro-complex is gathering pace. Far from holding the eurozone together, it will cause weaker countries to be catapulted out of EMU. John Makin is one of my Gurus 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. John Makin is one of my Gurus "Can countries inside a fixed exchange-rate system like the euro grow and tighten budget policy at the same time? 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. 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. More by Makin Rolf Englund blog 2009-03-11 EMU - en snabbkurs Comment by Rolf Englund: "I was opposed to the euro, I think it was a great mistake to have monetary integration," 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. 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. 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? 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. In the US, stress test forced weaker institutions to raise capital and turned round sentiment The case against the euro 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. Paradigm Lost - the Euro in Crisis The eurozone’s tragic small-country mindset 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. The prevailing view in Brussels and Frankfurt is that the growth problem is 100 per cent structural. So far, so good. But here is my question: what is your “plan B”? - Visst beror dagens problem i ekonomin i någon mån på missgrepp i slutet av 80-talet och början av 90-talet. 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. 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. Annika Ström Melin, president Van Rompuy och EMU --- 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. “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. Herman Van Rompuy, non-combatant 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.  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. 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. CDS prices are over 721bp for Greek five-year bonds, Portugal 345bp, Ireland 260bp, Spain 247bp, and Italy 234bp. 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). 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. El Pais spoke of a "perverse spiral" in its editorial. Parkinsons lag och ECBs nya skyskrapa, forts. The single currency was created by eurocrats, foisted upon its people and bound to end in tears. 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 The eurozone’s crisis has blown sky-high the idea that developed countries are 100 per cent safe. The possibility of a break-up of the eurozone.
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. The euro, in its current form, is finished. 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. Merkel and Cameron disagree on EU treaty change 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. 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. 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. Might the eurozone break up? Until recently I would have answered:
absolutely no. Is that still true? I do not know. It was no accident that the eurozone created a special purpose vehicle to manage this bail-out. 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. The eurozone came extremely close to a breakdown 10 days ago. 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. 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. --- How can a loan guarantee solve a problem of excessive indebtedness?
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. 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? Frankrikes president Nicolas Sarkozy hotade med att dra Frankrike ur eurosamarbetet 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." Greece - Portugal”Centralbanker dumpar euron” The End of the Beginning for the Euro First off, there is the self-contented hubris. Next consider the immediate causes of the calamity. 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). 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." What we're seeing in Greece is the death spiral of the welfare state. 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. The End of the Euro 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. 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. The euro is in danger, German Chancellor Angela Merkel "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: 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 Paul Krugman: "Grekland kommer att lämna euron" ”Euron är en domedagsmaskin”, menar Junilistans före detta ordförande Nils Lundgren, – 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.
– 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. 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. The “c” word: Contagion 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. 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. 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. Full textAcropolis now The eurozone’s economic governance 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 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. Is a European banking crisis next? Från ECB till EBC Bryssel, Belgien och fullskaleexperimentet EMU 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. Full text of interesting article Det är målsättningen om ett ständigt fastare förbund - "ever closer union" - som är själva grundbultsfelet med EU. – 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, So do not be fooled by anybody who says that the central bank should cut interest rates for the benefit of innocent citizens This is going to be the most important week in the 11-year history of Europe’s monetary union. Germany Friday will be remembered as the day the euro needed rescuing. 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. Poland should not rush to sign up to the euro 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. The Glory of Poland “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.” Katyn 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. Roubini: 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. 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. The Portugal page has moved here This remains for some time EMU bollar Gris med Europa Portugal ger upp, ber om krislån 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. Mr Socrates did not say how much aid Portugal would ask for. Portugal will follow Greece and Ireland to failure 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 More by Desmond Lachman at nejtillemu.com Standard & Poor’s downgrading of Portugal’s sovereign debt made clear that the primary cause 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. The Portugal page has moved here The total exposure of foreign banks to the struggling quartet of Portuguese debt yields soared to new records. The 10y bond hit 7.9% 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, 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).
The Portugal page has moved here William White, chairman of the Organization for Economic Cooperation and Development's Economic and Development Review Committee, William White, until recently economic adviser to the Bank for International Settlements To cover Portugal’s deficit and bond repayments for three years, Portugal PM Socrates' resignation overshadows EU summit 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%. Abril en Portugal - Julio Iglesias Skuldkrisen i EMU är av allt att döma på väg in i ännu en kritisk fas. Upptakten till helgens EU-toppmöte kunde ha varit bättre. 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. Ekot om samma Portugals regeringskris The opposition parties appeared to be responding to the public mood in Portugal, which had turned against the belt-tightening. 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. Portugal väntas i april be om ett stödpaket från EU och IMF, rapporterar Reuters med hänvisning till källor i eurozonen. * ECB intervened in the markets on Friday to prevent Portugal’s borrowing costs spiralling to “danger levels”
Portugal 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. Portugal planerar i år att låna upp 18-20 miljarder euro med nya obligationslån "Om den auktionen går dåligt ökar risken rejält för att Portugal inom kort måste följa Irland och söka hjälp", skriver SEB i ett marknadsbrev. Yep, Portugal’s 10-year debt is yielding more than 7 per cent Irish 10-year yields have been climbing to 9%, Greek 10-year yields to over 12%, 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. Portugal’s minority government is to unveil a tough austerity budget on Friday 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. Portugal 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. The European Cental Bank's bailout package is just a $1 trillion fig leaf covering the problem and Help Portugal Help Greece 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. 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. 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. 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. Portugal's economy 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. The Importance of Being Earnest EMU - en snabbkurs Värstascenariot för euron 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. I spent the best part of last week trying to figure out the mechanics of the eurozone’s €440bn bail-out fund. 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 I am aware of the commitment of Europe’s elite to the success of the European project. The IMF should impose default on Greece to end the charade The euro’s big fat failed wedding 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 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. The beginning of the end of Europe’s economic and monetary union as we know it. 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. 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 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. 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. Chancellor Angela Merkel has halted at the Rubicon. The fundamental problem with the euro project was overambition. 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. Chancellor Angela Merkel has halted at the Rubicon. “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. Greece threatens more than the euro The Future of the Euro 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. "economically absurd", "economically erroneous and politically dangerous", "a scandal", "insane" 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. 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'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. Full textChina and Germany unite to impose global deflation 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. If life in the eurozone becomes intolerable, exit will become the default resolution mechanism. 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. “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.” 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. Greklands ekonomiska problem tvingar EU att ta ett nytt steg ut i det okända. Annika Ström Melin, vårt lands mest kunniga journalist i detta ämne, ställer EMU-frågan på sin spets. Den meste Ja-sägaren, P J Anders Linder på SvD, tiger dock fortfarande. Det är inte oundvikligt 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. Full textP.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. "Nu behövs ett statsmannalikt ledarskap... Europas ledare, först och främst Tyskland och Frankrike" 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. 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: Joschka Fischer "Allt är inte frid och fröjd. Former Federal Reserve Chairman Paul Volcker is confident the /Euro/currency will survive 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. Greece last week solved its fiscal problem by creating a private sector problem of identical size. 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. Millions of migrants have arrived in Greece, Italy and Spain over the past decade. 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. 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 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. If you want to understand what is happening to the European Union’s constitution, the EU flag is a good place to start. EU, EMU, Marx och Den Enda Vägen 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. The euro was meant to be a monetary union but not a political one. Det som nu händer är precis det som kritikerna, bland annat nobelpristagaren Paul Krugman och andra, varnade för inför bildandet. 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. What once could be dismissed as simply a Greek crisis, or simply a Greek and Irish crisis, 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. Greece, Ireland, Portugal, Spain *
Det är en väldigt liten sannolikhet för att euron kommer att bryta ihop. 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. 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. 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. The two largest creditors to Ireland are /banks in/ the UK and Germany, 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? Euro Currency Union Showing Strains Is this funny, or not? 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. “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]. Årets upplaga av boken Europaperspektiv handlar om hur EU har hanterat den globala krisen - 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 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. 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. 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? |
