Alla valutaunioner i historien har antingen
lett till en stat eller spruckit.
Varför skulle EMU vara så
annorlunda?
Anders Lindberg, Hässelby, SvD Synpunkt
14/8 2003
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The End of the Euro Is Closer Than You Think Europe has always been a disunited continent, with broad ethnic, cultural, linguistic, political, and economic divides. ... Italy’s Threat to the Euro Italy, the Eurozone’s third largest economy, is coming under increased market pressure fueled by doubts about the country’s economic outlook and the sustainability of its public finances. SvD har tittat närmare på de fem värst drabbade länderna som utlöste den europeiska skuldkrisen. The euro may be approaching another crisis. The backlash in Italy is another predictable (and predicted) episode in the long saga of a poorly designed currency arrangement, in which the dominant power, Germany, impedes the necessary reforms and insists on policies that exacerbate the inherent problems, using rhetoric seemingly intended to inflame passions. A Euro Tragedy - a clear mistake, a triumph of a political ideal of European unity over basic economics. As the /book/ title indicates, this is not a pros versus cons assessment. The author provides a clear (and accessible for non-economists) account of how the idea of the Euro began to dominate the political discourse of particularly the French elite and how Germany leaders agreed on the condition that they determined the design Ashoka Mody, “Euro Tragedy: A Drama in Nine Acts” Moderaterna inför EU-valet: "Vi är i grunden positiva till en gemensam valuta" The reason the Italian political crisis caused so much angst was the ill health of Europe’s banks The Italian Trigger Germany, joined by the Dutch, Finns, and Austrians, runs a monster $1 trillion plus trade surplus with the rest of Europe and the eurozone. Italy is not Europe’s only problem. The big Kahuna is Germany, which spent years offering generous vendor financing to the rest of the continent to entice the purchase of German goods. The result: a giant trade surplus for Germany and giant, unpayable debts for those who bought German goods. Greece, for instance. The Italians have no solution for their debt. Greece has been in a seven-year depression. And while some of the other countries are improving, unemployment rates in most of Europe are still lackluster to say the least. Since the eurozone crisis began receding in 2012, too little has been done to fix the underlying problems of the single currency Despite grand plans for eurozone reform from Emmanuel Macron, the French president, talks at a summit later this month are likely to produce only limited results. Italy - snap parliamentary elections, perhaps in October It would be fitting if the European Union were to come to a sticky end because of Italy. Italy's insurgents enrage Germany and risk ECB payment freeze Germany’s finance minister’s obsession with surpluses will damage EU neighbours We know for certain that Germany will not agree to a central eurozone budget to weather macroeconomic shocks. The daily nominal trade-weighted exchange rate of the euro has increased by almost 7 per cent over the past year. For an economy with an extreme degree of export-dependency this is a big move. Italy is too big to fail and too big to save. If the global economy turns down, it will take Italy with it. The next global recession will entirely reshape the Brexit debate Do not be fooled by the current recovery. Extreme monetary stimulus has papered over the deformed structure of monetary union. It has bought time but that time has been squandered. The eurozone can’t fix its problems until it agrees on what went wrong in the first place. Right now the crisis appears to have gone away. But it has mainly been masked by an avalanche of printed money from the ECB and a cyclical economic upturn. When you drive interest rates down to close to zero, and chuck €1.2 trillion of freshly minted money, it is not that surprising if you get 2.7pc growth. It would be more worrying if you didn’t .Here is a recipe for disaster. Eurozone reformers act as if the crisis never happened You start off by taking the two most toxic financial instruments of the past 20 years, and then merge them.
My guess is that those countries with strong bonds of patriotic cohesion and tested institutions will best survive this ordeal by fire. Almost by definition, these are nation states, all for one and one for all. It is hard to believe that Latin Europe will tolerate a second round of hairshirt austerity imposed by Germany through its near absolute control of the policy machinery. Interndevalvering (Ådals-metoden) Jean-Claude Juncker’s Roadmap for European Disaster The institutional changes recommended by euro-area elites will likely exacerbate global imbalances. As national currencies were replaced by the single currency, investors came to believe that devaluation risk had been eliminated. One of the interesting ideas we discussed was the “re-nationalisation of fiscal policy”. Europe Needs More Than a Bundle of Bonds The European Financial Stability Facility and ECB’s Coeure calls for clarity on Greece debt relief before QE inclusion ECB faces impossible choice between German overheating or Italian debt storm Emmanuel Macron and the battle for the eurozone Beleaguered pessimists of the eurozone, searching for the next threat on the horizon, A group of leading economists and thinkers for the Jacques Delors Institute warned in a seminal report last year that EMU states will have to accept a supra-national system with a pooling of debts - anathema to the creditor bloc of Germany, Finland, Holland and Austria. “At some point in the future, Europe will be hit by a new economic crisis. We do not know whether this will be in six weeks, six months or six years. But in its current set-up the euro is unlikely to survive that coming crisis,” they said. Ambrose Evans-Pritchard, 3 April 2017 Either political integration catches up with economic integration, or economic integration needs to be scaled back. Italy Most of us hoped never again to have to pay attention to spreads between the bonds of different countries that share the same currency. It seems appropriate to repeat the petunias comment today, because once again it seems we need to start worrying about Greece, and about peripheral European bond spreads. For those uninitiated in The Hitchhiker’s Guide to the Galaxy, the only recorded thoughts of a bowl of petunias as it suddenly came into being and started to hurtle towards the ground were “Oh no, not again!”. Populists threaten EU break-up “After Brexit last year, if enemies of Europe manage again in the Netherlands or in France to get results The European Stability Mechanism gave the green light to a series of modest measures Policymakers seem to think the European project will be safe Mr Macron is the opposite of a souverainiste: Remarkably, real domestic demand in the eurozone was 1.1 per cent lower So long as the eurozone fails to deliver widely shared prosperity, It was, said a hoarse, red-eyed Matteo Renzi, an “extraordinarily clear” result. Britain’s decision to leave is the most striking but, in the long run, The Retreat from Hyper-Globalization Factor-price equalization - Faktorprisutjämning How December 4th Could Trigger The "Most Violent Economic Shock In History" Spreads on Italian bonds have widened to about 200 basis points over German bunds. The Eurozone desperately needs to strengthen its institutions relative to nation states, Italy is preparing a €40bn rescue of its financial system as bank shares collapse on the Milan bourse
Brexit vote might drive the rest of the EU member states towards decisions they should have taken 10 years ago, “I’d never believed in the efficient market hypothesis or the rational expectation hypothesis. Adair Turner, Martin Wolf FT Lunch June 2016 I hate to say it, but I fear that we are in for a new round of euro zone troubles. Continued very low level of inflation expectations in the euro zone. As a consequence, nominal GDP growth also remains very weak across the euro zone. Germany should leave the euro zone in order to save the union, Bara en person. Angela Merkel. Mervyn King: the eurozone is doomed The eurozone is doomed to fail and will lurch from crisis to crisis unless it is broken up, according to the former governor of the Bank of England. In his new book, Lord King claims that steps towards fiscal union will not quell tensions in the 19-nation bloc and could even tear it apart. He warns of a looming “economic [and] political crisis” triggered by endless bail-outs, austerity demands and pressure from the “elites in Europe” and the US to create “a transfer union” to solve the eurozone’s woes The rout in European financial markets last week was a watershed event. Donald Tusk, the president of the European council, David Cameron scrapped a debate at the European parliament on Tuesday and scheduled a meeting with Jean-Claude Juncker, president of the European commission, amid fears that a proposed settlement geared to keeping the UK in the EU could unravel because of growing European objections to the concessions promised to Britain. Europe’s leaders find solutions that are temporary, barely satisfactory and designed chiefly
Whether it concerns terrorism, immigration, homegrown political extremism, the eurozone’s unity, unemployment, lacklustre economic growth or even Europe’s military defences,
Like Cavafy’s imaginary state, or like the Holy Roman Empire, which lasted for 1,000 years before Napoleon put it out of its misery in 1806,
The EU did not collapse suddenly like the Roman empire. Early 2005 may be considered the apogee of what was then called the European project. The previous spring, 10 states of central and eastern Europe joined the EU, making it the largest commonwealth of liberal democracies in European history. That union was proposing a constitutional treaty, popularly known as a “European constitution”. A single currency, the euro, appeared to be working well — and for many Europeans there was a sense of all-round optimism.
“The next decade, however, proved these to be grandiose illusions. A series of crises left European leaders reeling, starting with the rejection of the European constitution in referendums in France and the Netherlands, and continuing with a decade-long crisis of the eurozone, Russian annexation of parts of Ukraine, Islamist terror attacks, a British referendum on leaving the EU, millions of refugees fleeing the Middle East and Africa, as well as the growth of eurosceptic, anti-system and xenophobic parties across the continent. “Unfortunately, the European leaders who gathered for one of their innumerable summits in Brussels in December 2015 failed to acknowledge the depth of the union’s existential crisis, let alone to find answers that effectively addressed the growing disillusionment of their peoples The EU did not collapse suddenly like the Roman empire, with barbarian hordes occupying the bureaucratic palaces of Brussels. Its decline was more like that of the Holy Roman Empire. Rome, Habsburg and the European Union Unworkable and unreformable, the euro surely cannot survive another serious downturn I vastly overestimated the risk of /Euro/ breakup, because I got the political economy wrong I’m sorry to say that I completely missed the important of liquidity and cash shortages in driving bond prices in the euro area. If Europe cannot bend it will break That failure to be flexible about change is dangerous. A Europe that cannot bend is much more likely to break. There will be no serious adjustments of policy, since it will just be too hard to agree what to do.
“The decision to use the single currency to drive the European project forward was a risky one, Mr Fischer quoted EU founding father Jean Monnet in arguing that the history of Europe would be “forged in crises”. “All that has been done so far makes it very likely that EMU — the Economic and Monetary Union — will survive this crisis,” Mr Fischer said. Policy makers in Italy, Portugal and Spain say their economies and financial systems are strong enough to survive a Greek departure from the eurozone, On the other hand, a Grexit that was carefully managed and led to economic recovery in Greece, albeit after five to 10 years, A Greek departure from the eurozone would still be "negative", Accidental exit from the eurozone is quite likely — not because Greece or its partners want it A country is most likely to leave the euro if its government cannot meet its obligations, its banks close their doors, its economy is depressed and its politics are turbulent. Greece might soon be in this state. A chaotic exit may then occur. It is vital to avoid such a “Greccident”. Moreover, exit — particularly if unassisted — could cause grave economic and geopolitical consequences. Greece might plunge into an economic abyss. Abandoned by Europe, it might turn towards unfriendly powers. This would be a strategic disaster. Finally, Greece has already suffered the pains of austerity. From now on, things should get better, provided policy improves. To save the euro, let Greece go But, if so, this will not be the final act. The unfolding drama has exposed the fundamental weakness of imposing a common currency on such disparate societies Top of page Fundamental misalignments that have made life so unbearable for many Europeans. Germany had a surplus of 7.5 per cent of its economic output last year. Sustaining the Unsustainable Eurozone But this process has not occurred, and, as the interminable Greek crisis has shown, the eurozone remains rife with structural weaknesses and extremely vulnerable to internal shocks. This is clearly not sustainable. Despite efforts to promote fiscal-policy coordination, eurozone members’ budgets still fall under the purview of separate national authorities, and northern Europeans continue to oppose transfers from more to less prosperous countries beyond the very limited allowance of the European Union’s regional funds. Moreover, labor mobility is severely constrained by linguistic and cultural barriers, as well as administrative bottlenecks. And “ever-closer” political union has ceased to attract public support – if it ever did – and is thus not feasible today. It is a sign of low expectations in the handling of the Greek debt crisis
In theory the euro is forever. That is what all the law associated with it says. Whether Berlin likes it or not, the moment Greece leaves, those who control the world's huge pools of liquidity or cash Berlin, Paris and the rest simply cannot be confident the euro will be for all time if Greece is either bundled out the exit door or chooses to walk through it. "ever closer union" - The United States of Europe The banks in Greece will not open on Monday, I guess The euro is engaged in two dances of death. The risks of mutual misreading between Merkel and the markets on this are potentially catastrophic. ECB; expansion of so-called Emergency Liquidity Assistance by about 5 billion euros to Greece on Thursday The real risk for the eurozone is that Greek default and euro departure go relatively well The spectre of Greece's exit from the single currency - or "Grexit" - once again. Snap elections in Greece open the way for an anti-austerity government
Eurozone’s weakest link is the voters Secular stagnation
The second and third choices are not mutually exclusive. As the political union is firmly off the table, this leaves us with a choice between depression and failure – or both in succession. Financial markets have woken up to the possibility of a eurozone-wide economic depression with very low inflation over the next 10 to 20 years.
Secular stagnation – the idea that a chronic shortfall of investment might produce a long period of weak demand – also has disturbing implications for financial investors.
Eurozone policy makers face three choices. First, they can transform the eurozone into a political union, and do whatever it takes: a eurobond, a small fiscal union, transfer mechanisms and a banking union worthy of its name. Second, they can accept secular stagnation. The final choice is a break-up of the eurozone. The second and third choices are not mutually exclusive. As the political union is firmly off the table, this leaves us with a choice between depression and failure – or both in succession. Defiant France ignores the abyss Borders and budgets risks provoking political crises How the euro was saved Unbalanced and unsustainable – if something cannot go on forever, then it will stop /RE: If something cannot go on for ever it will stop. The Public Interest - nr 97 Fall 1989/ and http://en.wikiquote.org/wiki/Herbert_Stein/ Eurointelligence puff:
If something cannot go on for ever it will stop.
Since the euro was inaugurated in 1999, German unit labour costs have risen by less than a cumulative 13 per cent. During this time, Greek, Spanish and Portuguese labour costs have risen by 20 to 30 per cent, and Italian ones by even more. It is hardly surprising that Germany has a current account surplus of 6 per cent of gross domestic product The economic theory – such as there was – behind the creation of the euro was that the single currency itself, and the supposed impossibility of devaluation by members, would act as a harmonising force. But this has not happened and present relationships have become unsustainable. Herbert Stein, an economist active in Washington towards the end of the last century, said that if a policy or situation was unsustainable, it would not be sustained. But he did not indicate how long it would take for such situations to unravel. /RE: If something cannot go on for ever it will stop. The Public Interest - nr 97 Fall 1989/ and http://en.wikiquote.org/wiki/Herbert_Stein/ Meanwhile, it is in the interests of the eurocrats to make the problems seem as complicated as possible so that only a small number of so-called financial experts can even discuss them; and we have had one financial package after another and one guarantee after another to keep the structure going. But loans and guarantees do not make the unsustainable sustainable. There is only a limited number of ways that the situation could develop. First, “austerity” in the peripheral countries could succeed.
/Interndevalvering (Ådals-metoden)/ Second, the peripherals could continue to stagnate. Unemployment is now 22 per cent in Greece, 24 per cent in Spain, 18 per cent in Portugal, 15 per cent in Ireland and 10 per cent in Italy. The third option is unlikely, but included for completeness. Germany and other northern euro members could pursue more “expansionary” (read inflationary) policies, thus reducing the agony of the south. Alternatively it could continue to subsidise the peripherals indefinitely. The fourth option is for one or more of the peripherals to leave the eurozone. If I had to bet (which I don’t), my money would be on number 4. But I would not bet at all on when it will occur. The Holy Roman Empire was founded by Charlemagne in 800 and lasted until it was dissolved by Napoleon in 1806. The timescale of euro disintegration is anyone’s guess. More by Samuel Brittan at Financial Times More by Samuel Brittan at IntCom and nejtillemu.com Rome, Habsburg and the European Union This month marks the fourth anniversary of the May 2010 financial rescue of Greece. Ireland, Portugal, Spain, and Greece have made considerable progress in lowering their unit labor costs to 1999 levels relative to Germany.
Italy and France, meanwhile, have made considerably less progress on improving their international competitiveness. Europe’s banking crisis is unresolved. Loans to finance fixed investment continue to fall. Remarkably, the European Banking Authority’s latest stress test for the eurozone’s banks does not contemplate the possibility of deflation in its adverse scenario. Europe’s much vaunted banking union harmonizes deposit-insurance coverage but does not provide a common deposit-insurance fund. The associated resolution fund will possess only € 55 billion of its own capital, whereas European bank liabilities are on the order of € 1 trillion. The longer the crisis in the Eurozone drags on,
In Latin America it took nine years for growth to recover sustainably to the levels prevailing prior to the crisis in 1982.
East Asia’s crisis, in contrast, took the form of a v-shaped recession and recovery, with growth falling sharply in 1998, the year following the onset of the crisis, but recovering equally sharply in 1999 to levels nearly as high as before the crisis.
Thanks Eurointelligence and Brad Delong for the link. Rolf Englund, Den Stora bankkraschen, Timbro, 1983 Internationella valutafondens roll i krishantering: fallet Asien
http://www.internetional.se/evas299.htm#asien Since the European debt crisis broke out in 2009,
Kommentar av Rolf Englund:
Förhoppningsvis går det att hitta hållbara vägar ur dagens djupa europeiska kris, men det blir inte lätt. Det vi beskådar är inte eurons kris. In the US, bank assets were close to 80 per cent of gross domestic product. The ECB is saying that it will seek to eliminate the threat of a break-up, except when this threat is most real,
Kommer Europa låta Bryssel ta över den ekonomiska makten eller läggs EMU-projektet ner? Resonerar man kring vad som är ”långsiktigt hållbart” så landar man lätt i slutsatsen att eurons dagar är räknade. "Lätt som en plätt" What is needed is a solution that is both politically feasible and economically workable Unsustainable and Disintegration Euron kollapsar i Spanien Martin Wolf: Would he conclude that the European currency union was a mistake? A Greek exit from the euro area has the potential to be RE: The Ultimate Article about EMU and the Eurocrisis Why the euro is doomed to fall apart: The bottom line, as brilliantly explained in the European Economic Advisory Group's latest annual report,
is that it is a balance of payments crisis, pure and simple, which the eurozone lacks the adjustment mechanisms to deal with Jeremy Warner, Daily Telegraph, March 16th, 2012  With Spain now front and center, the essential wrongness of the whole European policy focus becomes totally apparent.
Spain did not get into this crisis by being fiscally irresponsible; here’s a little comparison:  Paul Krugman, 7 March 2012 Events on the Continent have come to feel much like the drift into war.
There is a feeling of powerless inevitability about it. Jeremy Warner, 1 Dec 2011  Is this really the end?
Unless Germany and the ECB move quickly, the single currency’s collapse is looming The Economist print Nov 26th 2011 The greatest threat to the euro is that Greece will make a success of default and devaluation. 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. Germany should leave the euro zone in order to save the union, The euro is engaged in two dances of death. On the one hand, in an incredible reversal of practice during the global financial crisis—when central banks were at pains to conceal which institutions were receiving their emergency assistance for fear of compounding the adverse signals and therefore the crisis—
On the other hand, Syriza would like nothing better now than to see the yields on Spanish, Portuguese, or Italian sovereign debt relative to Germany jump, signalling broader market disquiet— that Grexit may be imminent and that the rump eurozone would be badly destabilized by it—so forcing ECB retreat. So Syriza, in league with Podemos in Spain and prevailing anti-euro Italian political forces, is openly threatening to blow up its own exchange rate regime, the euro, in order to make it work. The army of euro-philes and euroapologists including the IMF, casting themselves as what Krugman labels “Very Serious People” (VSPs), defended it as the best possible monetary-craft for Europe. The risks of mutual misreading between Merkel and the markets on this are potentially catastrophic. "After twenty years of service, I am ashamed to have had any association with the Fund at all," Some eurozone policy makers seem to be confident that a Greek exit from the euro, hard or soft, The euro is still vulnerable, and Greece is not the only problem Pamflett skriven av Joschka Fischer: Scheitert Europa? (Misslyckas Europa?). The euro is in greater peril today than at the height of the crisis
America’s experience in the 1960s should have warned the eurozone’s creators that tying national monetary authorities’ hands might not be such a good idea.
That would not be the case if the eurozone operated according to Robert Mundell’s vision of an optimal currency area, with labor and capital adjustments replacing exchange-rate adjustment, and shocks being homogeneous (rather than asymmetric). Moreover, Germany’s experience with reunification suggests that political union is integral to such a union’s success. The eurozone’s performance has not met any of these criteria. This parrot has ceased to be 
Youtube: This parrot is dead The future of the European economy and its single currency is more likely to be decided on the streets. Borders and budgets risks provoking political crises Remember Europe?
But the recent sell-off in global stock markets seems to have revived repressed memories. Today, with the eurozone economy still flatlining five years after its crisis erupted,
Some two or three years ago, the European Central Bank (ECB) would have been seen as revolutionary and courageous, Ilargi: Europe Is Crumbling Into Collapse Yves here. The word “collapse” may seem overwrought when applied to Europe, but cold-blooded, clear eyed colleagues who have good connections and have spent a bit of time there recently say things that are broadly similar to Ilargi’s take. Despite the conventional wisdom that the cost of a Eurozone breakup is catastrophically and thus will never take place, that confidence may prove to be the currency union’s undoing. Ideological rigidity about austerity is leading to policies that are crushing large swathes of the population. And Europe, unlike the US, had enough of a tradition of popular revolt that that uprisings, either on the street or in the ballot box, are real possibilities, as the sudden rise of the anti-EU right shows. Draghi’s recent speech at the annual gathering of central bankers in Jackson Hole has excited great interest, Italy's Renzi must bring back the lira to end depression The argument between Italy and Germany asks a question at the heart of the currency’s future Italy, with the same eye on domestic politics, worries about political credibility. This rests on a resumption of growth. Germany may be right to argue that a stable debt and deficit framework is a prerequisite for growth, but if markets conclude the remedy is killing the patient, then the whole system would lose credibility. Ferdinando Giugliano?
As La Guardia and Peet argue, the eurozone’s politicians made
Rolf Gustavsson i SvD 29 juni The Euro Crisis and Its Aftermath http://www.amazon.com/Euro-Crisis-Its-Aftermath-ebook http://www.project-syndicate.org/columnist/jean-pisani-ferry Jean Pisani-Ferry was the first Director of Bruegel from 2005-2013.
http://www.bruegel.org/about/person/view/27213-jean-pisani-ferry/ Jean Pisani-Ferry at Financial Times
We were asked: “What probability do you attach to Greece leaving the eurozone by the end of the year?” The consequences of abandoning the euro are highly uncertain, and few European leaders are willing to go there. Many explanations have been proffered. Yes, the French and the British were protesting their ineffective establishment parties.
Plus ca change, plus c'est la meme chose: The results in France are infinitely the more important
I Malmö levererade Persson, våren 2011, som vanligt utan manus, precisa formuleringar som hade kunnat gå rakt till trycket.
The EU authorities are now in a near hopeless situation. The two dominant parties of the post-Franco order in Spain saw their share of the vote drop to 49pc from 80pc last time,
Europe's "Fiscal Compact" has set in motion a doomsday machine, Full text of Ambrose Evans-Pritchard 28 May 2014 
European Spring:
As these books all argue, the crisis was always about more than whether financial markets would buy government debt.
The Euro Crisis and its Aftermath. By Jean Pisani-Ferry. To eliminate the monetary independence of 17 sovereign countries and create a major new world currency is a pretty big undertaking. Ett intressant inlägg kommer från tankesmedjan Bruegel i Bryssel. This month marks the fourth anniversary of the May 2010 financial rescue of Greece. Complacent policy makers and investors imagine the crisis is over.
Europe’s Plan Z - The Grexit gamble Peter Spiegel reveals how a secret strategy was developed to contain the firestorm from a Greek exit. June 15 2012 was the Friday before a parliamentary election – the second national vote in as many months – and the country appeared to be edging towards panic.
Unbeknown to almost the entire Greek political establishment, however, a small group of EU and International Monetary Fund officials had been working clandestinely for months preparing for a collapse of Greece’s banks. Plan Z was never used. Several senior officials said they were stunned Ms Merkel and Mr Sarkozy had aired the idea that the eurozone could be left voluntarily, something that had previously been vigorously denied. According to one participant, no single Plan Z document was ever compiled and no emails were exchanged between participants about their work.
How the euro was saved 
“Das ist nicht fair.” That is not fair, the German chancellor said angrily, tears welling in her eyes. A cornered Ms Merkel threw the French and American criticism back in their faces. If Mr Sarkozy or Mr Obama did not like the way her government ran, they had only themselves to blame. After all, it was their allied militaries that had “imposed” the German constitution on a defeated wartime foe six decades earlier. Greece was imploding politically; Italy, a country too big to bail out, appeared just days away from being cut off from global financial markets; and Ms Merkel, try as Mr Sarkozy and Mr Obama might, could not be convinced to increase German contributions to the eurozone’s “firewall” – the “big bazooka” or “wall of money” they believed had to grow dramatically to fend off attacks by panicking bond traders. And yet less than a year after that November 2011 night, the existential crisis for Europe’s single currency would, for all intents and purposes, be over. Strict budget rules were made inviolable; banking oversight was stripped from national authorities; and the printing presses of the European Central Bank would become the lender of last resort for failing eurozone sovereigns. Europeiska centralbankens (ECB) högste chef Mario Draghi Om man har en sedelpress går man inte i konkurs. President Obama was in France for a meeting of the G20. Euro stability more important than Greece, says Angela Merkel
Charlemagne If markets once seemed ready to push the weakest countries out of the euro, now it is voters who may pull their escape cord. Support for the European project, always fragile, will keep falling if it fails to deliver greater prosperity.
It is slow moving variables — long term unemployment, gradual shifts in public opinion, and so on — that pose the greatest threat to the Euro’s survival.
Europe’s political leaders should remember what Ernest Hemingway said about bankruptcy.
German wages fell 0.2pc in 2013. Germany too is in wage deflation.
Whatever happened to the eurozone crisis? The Anglo-Saxon jeremiads have been proved wrong. It needs to be said at the outset that Europe is still enjoying the "Draghi effect": To politicians and officials the key question hanging over the euro was its survival. For the moment that question has been laid to rest. But to the public there is perhaps a more important question - does the single currency deliver prosperity or stagnation? Marknaderna skiter i hur det går för Spanien, Grekland, Italien och andra krisländer
Do you think that the euro will fail? Euron har redan kollapsat
I går kväll, efter att ha uppdaterat sidan om "När och hur spricker EMU?" stod sanningen helt plötsligt klar för mig. Strong Governments, Weak Banks
FORES presenterar en antologi där några av Sveriges kunnigaste ekonomer beskriver bakgrunden till krisen
Lars Calmfors: "Överlever euron?" Bokpresentation 14/11, Youtube, Highly Recommended Greece, Spain and Portugal need to devalue in real terms by about 30 per cent
A concern is that the monetary policy of the ECB is unsuitable for Germany and might even cause asset price bubbles. Europe Breakup Forces Mount as Union Relevance Fades Sieps uppdrag är att på ett självständigt och allsidigt sätt belysa aktuella europapolitiska frågor. SIEPS remissvar på Lissabon Sieps var en gång en förhållandevis aktad organisation med viss akademisk prägel. Debt loads rise faster than nominal GDP - The "denominator effect" So says Simon Tilford from the Centre for European Reform. Tentative signs of life after six quarters of contraction are deemed a vindication of shock therapy, even as the underlying crisis gets worse in almost every key respect.
Far from being on the mend, the economic crisis across the South is deepening. Real interest rates are increasing from already high levels," he said. 
Europe has not recovered. It has begun to stabilise, but only just, amid mass unemployment, with debt trajectories still spiralling out of control in Italy, Portugal, Spain and once again in Greece. Hur kan man undvika att inse att 25 procents arbetslöshet är en katastrof för land och folk?
Hollande Bids Adieu to EU Vacation Culture as Crisis Lingers The euro zone crisis could be largely over by the end of the year
"We are now only at a very small risk of the break up of the currency. "Except in Italy, where we have to ask in a post-Monti [environment] what happens next, the political risks to the euro have receded," Det vi beskådar är inte eurons kris. Once the French get into a full-scale crisis, it’s over. “Another possible fallout is getting rid of some of the countries that are being ruined by being in the euro, notably the southern European economies,” Christensen said. “It’s the political world that has been extremely supportive of the euro, not for economic reasons but for political reasons,” said Christensen, a long-time critic of the single currency and who now lives in Switzerland. Gloomsters buried the euro too soon
"Intellectuals" Why the Euro Zone Crisis is Over…Until September
On Sunday, Merkel's conservative coalition lost regional elections in Lower Saxony, one of the country's most populous states.
So far, Merkel's euro zone policy decisions have only been constrained by public opinion and Germany's constitutional court, I ett alltmer instabilt lapptäcke av IMF-åtgärder, europeiska länder utan egna sedelpressar och tecken på riktig depression
Martin Wolf och Rolf Englund om att den som har en sedelpress går inte i konkurs. The real risk for the global economy is in Europe. If the ECB imposes further austerity conditions (as it seems to be demanding of Greece and Spain) in exchange for financing, the cure will only worsen the patient’s condition. Likewise, common European banking supervision will not suffice to prevent the continuing exodus of funds from the afflicted countries. That requires an adequate common deposit-insurance scheme, which the northern European countries have said is not in the cards anytime soon. While European leaders have repeatedly done what previously seemed unthinkable, their responses have been out of synch with markets. They have consistently underestimated their austerity programs’ adverse effects and overestimated the benefits of their institutional adjustments. Will the dam break in 2007?
The EMU disaster is not at root a public debt crisis, and never was.
Whether you think this matters depends on whether you think the democracies of southern Europe will tolerate slow grinding depression – with no light at the end of the tunnel – for year after year. The denouement is hard to predict in such situations. Political upheavals are famously non-linear. But the situation in Spain is remarkable, with the added nitroglycerine of a ruling party determined to exploit the crisis to take power back from the regions, and Catalonia determined to resist with all means at its disposal. Data from Tinsa released today shows that Spanish house prices fell 11.3pc last year, and are now down 33.3pc from the peak in 2007. Eurozone governments’ determination to stop the liquidity crisis The ECB’s support cannot help in the solvency case because the central bank is not allowed, by its own legal definition, to write off or participate in a restructuring of any debt it holds. Germany was now ready to accept a two-year extension of the Greek programme, but there would be no new money, leaving Greece itself to fund the gap – something that is simply not going to happen. The refusal to let the European Stability Mechanism fund Spanish banks directly falls into the same category. Debt that has arisen in Spain will remain debt of the Spanish state as ultimate guarantor. Full textIn 2010, US banks had assets of €8.6tn. But those of the EU’s were €42.9tn. In the US, bank assets were close to 80 per cent of gross domestic product. Half of the world’s 30 biggest banks are headquartered in the EU. If the EU makes a mess of banking, it can explode the world economy. In brief, while individual US banks may be “too big to fail”, the EU has a banking sector that is not only too big to fail, but too big to save. Full textThe ECB action will not prevent countries like Spain from having a pretty terrible few years.
The ECB is saying that it will seek to eliminate the threat of a break-up, except when this threat is most real,
Spain and Italy are at the heart of the story, which could yet end with a breakup of the euro zone. The bottom line: If a bailout of Spanish sovereign debt costs €300 billion, then the Europeans may lack the funds needed to rescue Italy. Det som händer i Europa är stort, mycket svårt att greppa, och åtgärderna som föreslås är stundtals radikala. German, French or other savers may hold bank accounts, pensions, insurance policies. Investors’ panic does the opposite. They cannot repatriate capital that has been invested or consumed, but their attempt to do so has meant an abrupt halt of new funding. The periphery’s need to reduce current account deficits equally abruptly is the main cause of the recessions. By refusing to extend new financing, investors are ruining their chance of recouping their own investments. The way the eurozone’s imbalances are being unwound is poisoning what solidarity the monetary union used to possess. It is not sufficiently appreciated that these imbalances were driven by private investors. Welcome to Martin E. Sandbu's website. Euro Zone as We Know It Has Two Years Left If EMU Exists In 5 Years Fiskal Union Man bör fråga sig hur det kommer sig att vi i Sverige överför stora belopp inom vårt land mellan olika regioner ”Det handlar alltså inte om en gigantisk överstatlig finanspolitisk union”, det ser bara ut så. Debattartikeln är en bra sammanfattning av den inte mycket mer detaljerade tiosidiga rapporten, Breaking the Deadlock: A Path out of the Crises, varpå artikeln baseras. Mecenaten bakom rapporten är Institute for New Economic Thinking (INET); ett ungt institut grundat av George Soros 2009, en inte fullt lika ung legend inom valutaspekulation och välgörenhet. Liksom i juli 1914 vandrar Europa lealöst mot en katastrof av ofattbara proportioner INET, Council on the Eurozone Crisis Krisen i eurozonen kan fortfarande lösas, men för det fordras att Europas ledare förmår separera två problem: Detta är huvudpunkterna i det förslag för hur krisen ska lösas som i dag presenteras av en grupp av 16 europeiska nationalekonomer från de flesta av EU:s stora medlemsländer, inklusive fyra framstående tyska ekonomer av olika politisk färg. Utgångspunkten är att en lösning inte bara måste vara hållbar ekonomiskt men också politiskt möjlig att genomföra. Alla som var med om att skriva under Maastricht-avtalet som lade grunden till euron har ett ansvar. Alla måste vara med och dela på de kostnader som uppstått till följd av eurons brister och för det massiva krisprogram som fordras för att få tillbaka tillväxten i alla medlemsländer. En insättarförsäkring skulle som i Sverige kunna baseras på en gemensam fond uppbyggd genom avgifter på bankerna, men den skulle också fordra någon form av delat betalningsansvar, exempelvis via ECB, om kostnaderna för en kris skulle överstiga fondens resurser. En bankunion ger också hopp om en förnyad demokratisk legitimitet för det europeiska projektet. Medborgarna i den Europeiska unionen har med växande skepsis sett hur makt överförts till europeiska institutioner utan att åtföljas av motsvarande politiskt ansvar. Men de har också med tilltagande indignation följt hur bankerna och deras ledningar kommit mer eller mindre oskadda ut ur krisen samtidigt som skattebetalarna fått bära kostnaderna för deras misstag. För att eurosystemet skall fungera på lång sikt måste den europeiska centralbanken ECB ta ett ökat ansvar, inte bara för en bankunion, men också fungera som ”lender of last resort”. En viktig del i dess ökade ansvar vore att ge den nya ekonomiska stabilitetsfonden ESM en banklicens så att den kan låna från ECB. Allt detta kan ske utan att i grunden ändra ECB:s statuter. Det behövs med andra ord inte någon gigantisk överstatlig finanspolitisk union. Eurokrisen, fisksoppan och elitens olidliga dumhet Med en gemensam real ränta måste man ha en gemensam central myndighet/regering och stora transfereringar mellan valutaområdets olika delar The Institute For New Economic Thinking Så heter en ny rapport från The Institute For New Economic Thinking där 17 ledande internationella ekonomer utvärderar den ekonomiska krisen i Europa och ger tips på hur unionens politiker ska ta sig ur knipan. Deras grundtes är att Europa aningslöst rör sig mot en såväl ekonomisk som humanitär katastrof där ”en dominobricka efter den andra” den senaste tiden har fallit in i krisen. Senast ut: Spanien, som enligt experterna bara är dagar ifrån en allvarlig likviditetskris. För att angripa problemet vid roten anser ekonomerna att unionens länder bör lägga alla skulder som överstiger 60 av landets BNP, allt enligt Maastrichtavtalet, i en gemensam pott med Tysklands kreditvärdighet som garant. Europe is “sleepwalking towards disaster” “This dramatic situation is the result of a eurozone system which, as currently constructed, is thoroughly broken. The cause is a systemic failure. It is the responsibility of all European nations that were parties to its flawed design, construction and implementation to contribute to a solution. Absent this collective response, the euro will disintegrate,” they added in a co-signed report for the Institute for New Economic Thinking. Institute for New Economic Thinking They claimed the system could be stabilised immediately by creating a lender of last resort to back-stop the bond markets, either by mobilising the ECB or by giving the eurozone bail-out fund (ESM) a banking licence to borrow from the ECB. The lack of any light at the end of the tunnel is leading to a populist backlash in both the debtor and creditor states. The only question is whether the North or the South succumb to revulsion first. Had Greece still had its drachma the shortcomings of the country's financial accounts would have been much clearer for all to see much earlier Rubrik: The Wisdom of the Currency Crowd Extraordinary Popular Delusions and the Madness of Crowds IMF: IMF Executive Board Concludes Article IV Consultation on Euro Area Policies Själv röstade jag ”ja” till att Sverige skulle gå med i valutaunionen vid folkomröstningen 2003 Kommentar av Rolf Englund: Kommer Europa låta Bryssel ta över den ekonomiska makten eller läggs EMU-projektet ner? Resonerar man kring vad som är ”långsiktigt hållbart” så landar man lätt i slutsatsen att eurons dagar är räknade. Grekland lämnar sannolikt EMU. Men istället för att leda till att euron havererar så lär Greklands djupa kris bli ett tacksamt slagträ när EMU-lobbyn ska skrämma opinionen till att acceptera Bryssels nya maktfunktioner. ECB President Mario Draghi Nils Lundgren 2011: "I am sure the euro will oblige us to introduce a new set of economic policy instruments. "Lätt som en plätt" Artikeln om eurokrisens scenarier visar hur arbetskraftskostnaden per tillverkad enhet har förändrats sedan euron infördes. I Tyskland har kostnaden ökat noll procent medan tillverkning i Italien och Spanien nu är ungefär en tredjedel dyrare. Valutakursen för euron balanserar dock mitt emellan dessa båda ytterligheter vilket innebär att tysk export får turbofart av en svag valuta samtidigt som det omvända gäller för Italien och Spanien. Med den breda penseln kan man måla upp två huvudscenarier för framtiden. Eurokrisens scenarier: Jesper Stage och Magnus Henrekson Jesper Stage, professor i nationalekonomi vid Mittuniversitetet i Sundsvall, tycker att euroområdets makthavare borde fokusera på att få fart på ekonomin igen. – Inflationsmålet inom euroområdet borde höjas till åtminstone tre procent eller kanske mer. Med den inflationsnivå som gäller nu bygger man in massarbetslöshet i krisländerna under lång tid framöver, säger Stage. Jesper Stage är en av många ekonomer som skrivit under manifestet för ekonomisk sans som nobelpristagaren i ekonomi Paul Krugman skapat på Internet. Det beskriver i dramatiska ordalag hur misstagen från krisen på 1930-talet nu håller på att upprepas. Krugman tillhör den keynesianska skolan som förespråkar en aktiv finanspolitik. Men andra svenska ekonomer tycker att Stages och Krugmans syn på hur krisen ska lösas är naiv. Tillväxtreformer och uteblivna besparingar är kostsamma på kort sikt och kräver att Tyskland och andra stabila länder öppnar den stora plånboken. Det är inte rimligt, menar bland andra professor Magnus Henrekson som är VD på Institutet för Näringslivsforskning. – Med stor sannolikhet kommer man inte få tillbaks de här pengarna och det ska politikerna ta ansvar för gentemot sina nationella väljare. Som det ser ut i dag är väljarna inte intresserade av det utan kommer rösta bort en politiker som fattar ett sådant beslut. Magnus Henrekson, professor nationalekonomi SvD Näringsliv 27 juli 2011 Magnus Henrekson, VD på Institutet för Näringslivsforskning. Varför går det bra för Sverige? : om sambanden mellan offentlig sektor, ekonomisk frihet och ekonomisk utveckilng av Andreas Bergh, Magnus Henrekson Överlever EMU utan fiskal union? The dream of the unification of Europe goes back at least to the 15th century The so-called "rescue" packages for the troubled economies of Europe have involved insistence on draconian cuts in public services and living standards. The hardship and inequality of the process have frayed tempers in austerity-hit countries and generated resistance – and partial non-compliance – which in turn have irritated the leaders of countries offering the "rescue". The very thing that the pioneers of European unity wanted to eliminate, namely disaffection among European nations, has been fomented by these deeply divisive policies (now reflected in such rhetoric as "lazy Greeks" or "domineering Germans," depending on where you live). On the economic side, too, the policies have been seriously counterproductive, with falling incomes, high unemployment and disappearing services, without the expected curative effect of deficit reduction. So what has gone wrong? Two issues need to be separated out:
The problems we are seeing in Europe today are mainly the result of policy mistakes: Members of the Financial Policy Committee (FPC), the Bank of England’s risk regulator, The record of the interim Financial Policy Committee reveals members thought Det finns två huvudvägar för att rädda Europas ekonomi från en katastrofal utveckling - om man nu vill det. Om vi börjar i slutändan måste dels Grekland och dels Spanien och Italien förhindras från att bli så bankrutta att de måste lämna euron. För att motverka den ökande risken för en statsbankrutt måste Greklands tillväxt bli positiv istället för negativ. Den konventionella teorin säger att om ett antal år kommer åtstramningsåtgärderna att leda till att företagen börjar investera och expandera igen. Draghi also poured cold water on a third option Nouriel Roubini, once known as "Dr. Doom" for bearish views predicting the 2008 financial crash, The US is a federal nation state, not a federation of nations like the EU. The writer is author of ‘Land of Promise: An Economic History of the United States’ and a co-founder of the New America Foundation Hamilton probably would have scoffed at the idea that federal institutions devised to unite Massachusetts, Virginia and New York could unite Germany, Greece and Poland. In 1802 he wrote: “The safety of a republic depends essentially on the energy of a common national sentiment; on a uniformity of principles and habits; on the exemption of the citizens from foreign bias, and prejudices; and on that love of country which almost invariably be found to be closely connected with birth, education and family.” The respected economist and Telegraph columnist Roger Bootle summarises Not only must any agreement fit the needs of these three leaders. Hanteringen av Spaniens och Italiens statsfinansiella problem är förmodligen avgörande för EU:s framtid. What is needed is a solution that is both politically feasible and economically workable "Det finns ingen anledning till oro" Europa saknar de verktyg som är nödvändiga i en allvarlig kris: He said the eurozone crisis can have one of three outcomes. Number is two is not going to happen, so we are left with the bifurcation we have forecasting for a long time. Either they agree a full backstop – which can logically only come from the ECB, and which in turn requires a political union – or the eurozone collapses. Berlusconi says Italy should quit eurozone unless Merkel changes course Just in time for the G-20 Summit, On Monday morning EU Commission President José Manuel Barroso lost it when a Canadian reporter in shorts wanted to know why the North Americans should be responsible for the problems of rich Europeans. "We are not coming here to receive lessons in terms of democracy or in terms of how to handle the economy," Barroso fumed. "By the way, this crisis was not originated in Europe. This crisis originated in North America and much of our financial sector was contaminated by, how can I put it, unorthodox practices from some sectors of the financial market." Eurozone crisis explained Under no circumstances whatsoever could the eurozone members span a protective umbrella over Europe's big countries, like it has for the small ones.
World leaders must draw up a “concerted global action plan” to deal with the eurozone crisis at next week’s G20 summit In an article for news agency Reuters Mr Brown urged leaders to follow the example set at the 2009 London G20 summit, after the last credit crisis, when an international bail-out was agreed. Ivan Krastev, head of the Centre for Liberal Strategies, a Bulgarian think-tank, Paradoxically, the belief that the Union cannot disintegrate, backed by the economists and shared by Europe's political class, is one of the risks of disintegration. The Soviet collapse is the most powerful demonstration that the disintegration of the EU need not be the result of a victory of anti-EU forces over pro-EU forces. Apokalyps nu? Apocalypse Now..Ride Of The Valkyries The Euro’s 11th Hour Frustrated, European leaders have descended into the five stages of grief: denial, anger, bargaining, depression and — by some — acceptance that the euro could fall apart At the heart of the European quandary is the conundrum that ideas that are economically sensible are not politically feasible, while ideas that are politically possible make little economic sense. Since 2000, wages of German workers have increased barely more than efficiency has grown. Meanwhile, Greece’s unit labor cost (the average cost of labor per unit of output) has increased by roughly 40 percent. Greece is merely the most disobedient of a passel of problem children; by this all-important measure, the other 15 members are mostly sprinkled closer to Greece than to Germany. The stronger countries must also accept the need for fiscal transfers — subsidies to poorer euro zone members — just as states like New York pay far more in federal taxes than they get back in services and transfer payments. The euro zone may find another piecemeal solution and escape the hangman for now, but unless it attacks its more fundamental problems, it is doomed to a cascading series of crises that will ultimately destroy the common currency. Steven Rattner, a contributing opinion writer, is a longtime Wall Street executive and a former counselor to the Treasury secretary. Jag tycker att euron långsiktigt är bra en idé.Den bygger ett gemenskaptänkande vilket är viktigt i Europa givet vår historiska belastning och bakgrund Men den blev inte som det var tänkt. Fredrik Reinfeldt, Ekot Lördagsintervju 9 maj 2012 Europe’s economic outlook and market conditions remain “daunting,” European governments need to take “courageous moves towards fiscal and financial union” to break the link between sovereign risk and bank risk, he said. “Without the design and implementation of appropriate governance arrangements, monetary union is difficult to sustain,” Visco said. "I am sure the euro will oblige us to introduce a new set of economic policy instruments. 
The equity market seems to be thinking it. The bond market certainly is. If Spain, Ireland, Greece, Portugal and maybe Italy, broke free (with a combined GDP to rival Germany). In brief, the eurozone is now on a journey towards break-up Euro Crisis: Europas politiker har slagit in på en ekonomisk kurs som ser ut att leda mot sammanbrott. It probably is about time to judge the euro zone as a failed idea, Euron kollapsar i Spanien Bear Stearns, Lehman Brothers and Grexit calls into question Europe’s hapless politicians, having asserted that exit from the single currency was impossible, RE: The Ultimate Article about EMU and the Eurocrisis I had written repeatedly that the eurozone was a flawed construction that was likely to collapse. If that was the case, I was asked, would it not be better to break the whole thing up now? At this point, I heard myself becoming shifty and evasive – “The trouble,” I replied, “is that I keep being told that a break-up would cause a catastrophe. Until I can tell you convincingly why that’s untrue, I can’t responsibly advocate it.” But prevarication is no longer good enough. In the coming months, Europe may be forced to decide. It is true that the transition from here to there will be painful and dangerous. My colleague Martin Wolf laid out an updated version of the full horror scenario in Friday’s FT – involving a breakdown of law and order in Greece, and financial collapse across Europe. How could anyone responsibly run that risk? The answer is that the alternatives to eurozone break-up are inherently implausible and deeply unattractive. Without the option of devaluing their currencies, uncompetitive economies are left with “internal devaluation” – otherwise known as wage cuts and mass unemployment. It is true that countries such as Greece badly need economic reforms. But these reforms – conducted within the straitjacket of monetary union with Germany – are causing political and economic turmoil. In theory, the eurozone might rectify this error by moving to a real political union. Even if EU politicians were able to overcome such objections and create a real federal union, this giant new entity would essentially hollow out the powers of national democracies. Sacrificing national self-rule on the altar of the euro is inherently objectionable – and would invite a nationalist backlash across Europe. Suddenly, it has become easy to see how the euro A Greek exit from the euro area has the potential to be This is the first major revolt by any electorate against the eurozone’s austerity policies, Furthermore, Greece is just the tip of the iceberg. The swing against austerity by voters in the eurozone is manifesting itself in many different places. Until the end of last year, austerity economics had a surprising amount of political support inside the eurozone, and not just in core countries like Germany. ECB has apparently now said that it won't directly lend to some Greek banks that it judges to be technically "insolvent". David Cameron, Britain’s prime minister, will on Thursday warn that the single European currency could unravel Om att äta kakan, ha den kvar, eller sälja den på kredit till Grekland Should France Be Added to the 'PIIGS'? The euro currency is a malady that condemns at least a generation of Greeks, Italians, Spaniards, Portuguese and Irish to the economic infirmary. The economists and politicians who created the system still proclaim it can survive. Peter Boone is a non-resident senior fellow at the Peterson Institute for International Economics, a visiting senior fellow at the London School of Economics and an adviser at Salute Capital Management.
Today, there are about 8.5 trillion euros ($11 trillion) of sovereign bonds outstanding in the euro area, and more than $180 trillion in derivatives linked to interest rates These interest-rate derivatives -- known as swaps -- are held by large leveraged financial institutions (banks, hedge funds), or by pension and insurance companies with large, long-term liabilities. If interest rates rise, bond prices fall, and derivative contracts change in value (good news for people who have hedged into fixed interest rates and a potential disaster for those exposed to rising interest rates). Is there any hope for the euro dream? One potential way forward would be to create a European- level fiscal union that assumes all national debt, much like what Alexander Hamilton did as first U.S. secretary of the Treasury. That isn’t going to happen in modern Europe. Who could even ask them to do so? Bör alla avgå? Hur skall eurons Ja-sägare hanera sin besvikelse After Greek voters rejected austerity in last week's election Europe has been searching for a Plan B At the Chancellery in Berlin, the television images from Athens now remind Merkel's advisers of conditions in the ill-fated Weimar Republic of 1919-1933. Back then, the Germans perceived the Treaty of Versailles as a supposed "disgrace." Now, the Greeks feel the same way about the austerity measures imposed by Brussels. And, as in the 1920s in Germany, the situation in Greece today benefits fringe parties on both the left and the right. Expelled from the eurozone, Greece might prove more dangerous to the system than it ever was inside it The writer is a senior fellow at the Peterson Institute for International Economics and author of ‘Eclipse: Living in the Shadow of China’s Economic Dominance’ A substantially depreciated exchange rate would set in motion a process of adjustment that would soon reorientate the economy and put it on a path of sustainable growth. What is the evidence? Just look at what happened to the countries that defaulted and devalued during the financial crises of the 1990s. Suppose that by mid-2013 Greece’s economy is recovering, while the rest of the eurozone remains in recession. The effect on austerity-addled Spain, Portugal and even Italy would be powerful. Voters there would not fail to notice the improving condition of their hitherto scorned Greek neighbour. The ongoing Greek tragedy could yet turn out not too badly for the Greeks. But tragedy it might well be for the eurozone and perhaps for the European project. If the eurozone gives way on /Greece/, what chance would there be of painful austerity being continued, The big danger for the rest of the eurozone is not that Greece makes a complete horlicks of monetary independence The big danger for the rest of the eurozone The game would be up. Bank deposits would flee from these countries and end up with German banks which, through the Bundesbank, would recycle them to beleaguered banks in the periphery. In the process, Germany and the other northern countries could end up taking on the risk of the whole banking system of peripheral Europe. "Eurodämmerung" Eurodämmerung Some of us have been talking it over, and here’s what we think the end game looks like: 4b. End of the euro. Krugman alltför optimistisk om tidsplanen för Eurodämmerung De människor som mobbade EU till att anta en gemensam valuta, Regeringen bör utlysa nyval The political turmoil in the Netherlands has sent a disastrous message that could thwart Merkel's master plan to save the single currency.
Europe’s Economic Suicide Spain’s fiscal problems are a consequence of its depression, not its cause. The most likely outcome... German inflation will rise The political elites of member states and much of their population continue to believe in the postwar agenda, if not as passionately as before. The most likely outcome... German inflation will rise and its external surpluses fall. Adjustment will occur Om man har en sedelpress går man inte i konkurs When the euro was being created, the economics profession split into three groups Their performance cannot be judged after five or 15 years. It’s understandable that people who felt a strong prejudice for or against the euro’s existence should feel the itch to make a point when things turn their way, but the point is bound to be misleading, and intentionally so. The reality, however, is that changes in the broad flow of history, which the euro certainly was, require a much longer view. There is no provision in any European Treaty for a country to leave the eurozone. Minns ni folkomröstningen om EMU 2003, Martin Sandbu, the economics leader writer for the Financial Times, vad har han att säga? Han fortsätter: The Irish left the sterling zone. The Balts escaped from the rouble. The Czechs and Slovaks left each other. The founders of the euro thought they were forging a rival to the American dollar. Common sense suggests that leaders should think about how to manage a break-up. Some may be doing so. But having described a split as bringing economic Armageddon, leaders dare not be seen planning for it. Greker, spanjorer, italienare och andra försöker nu ta sig ur det brinnande eurohuset. Detssvärre saknas förberedda nödutgångar. Euro Was Flawed at Birth and Should Break Apart Now Since the launch of the euro in January 1999, Germany and the Netherlands have experienced a growth slowdown and loss of wealth for their citizens that would not have happened had they never joined the euro. We know this to be true, because we can compare the progress of these two Northern European economies with that of Sweden and Switzerland, which kept their freely floating currencies in 1999 and continued to grow as before.
Charles Dumas writes: No wonder the Germans and Dutch are angry. But their anger should be directed at the governments that took them into the euro, not at the hapless citizens of Mediterranean Europe, who now are also suffering the effects of the common currency. Sweden and Switzerland didn’t have to make any such sacrifice of ordinary people’s prosperity, while at the same time they enjoyed stronger employment as well as budget and current-account balances. That leads to only one conclusion: The euro was a mistake from the outset. It should be abandoned in unison and soon. Källa: Bill Mitchell – billy blog Full text by Carles Dumas at Bloomberg Nouriel Roubini: markets are “schizophrenic” they cannot decide whether to reward or punish countries such as Hary Flam vill ha lönesänkningar i krisländerna U.S. Treasury Secretary Timothy Geithner warned heavily indebted countries not to resort to draconian measures to fix their budgets, "Economic growth is likely to be weak for some time. The path of fiscal consolidation should be gradual with a multiyear phase-in of reforms," Geithner said in remarks prepared for delivery to the House Financial Services Committee on Tuesday. "If every time economic growth disappoints, governments are forced to cut spending or raise taxes immediately to make up for the impact of weaker growth on deficits, this would risk a self-reinforcing negative spiral of growth-killing austerity," he said. Istället för att satsa oss ur kristider innebär arbetslinjen att vi arbetar oss ur de besvärliga perioderna. 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 Euron har redan kollapsat Eurozone members, stumbling from one crisis to the next, Faced with execution today or execution tomorrow, most people would choose the latter option. Who knows what might happen in between – an amnesty might be declared, the executioner might die. Hope springs eternal. This way of thinking has come to instruct European attitudes to the euro. Everyone now accepts that the euro hasn't worked out as hoped, but they would rather have it all breakup at some point in the future than face the immediate pain of having it breakup now. It seems unlikely, but you never know, in the meantime things might sort themselves out. We've just had write-downs on Greek sovereign debt of more than €100bn, and we can be pretty certain there's a lot more of that to come, both from Greece and the rest of the eurozone periphery. Yet perhaps oddly, Germans haven't really noticed it. It all looks like fantasy money which doesn't really affect them. Meanwhile, the periphery seems to believe the consequences of leaving will be worse than the price paid in never ending austerity of staying in. And all think the dream of European solidarity and unity still something worth fighting for. It’s hard to see how getting European banks to buy bonds from potentially insolvent countries Det vi ser är inte primärt en statsskuldskris utan en eurokris som har lett till en statsskuldskris. Detta ledde till att staten i Grekland, Portugal och Italien lånade upp pengar och finansierade en på sikt ohållbar efterfrågenivå som medförde stigande inflation i priser och löner och därmed obönhörligt sjunkande konkurrenskraft. I Spanien och Irland var det istället den privata sektorn som lånade för mycket, när räntorna blev så låga. Effekterna blev desamma. Priser och löner steg snabbare och den internationella konkurrenskraften försämrades kraftigt. Däremot blev det inte några budgetunderskott och växande statsskulder under processen. De problemen exploderade först när staten måste gå in och rädda banker samtidigt som efterfrågan säckade ihop och därmed skatteintäkterna samtidigt som utgifterna steg för arbetslöshetsersättning och andra krisåtgärder. Det vi ser är således inte primärt en statsskuldskris utan en eurokris som har lett till en statsskuldskris. Valutaunionen var ett mycket riskfyllt projekt som inte borde ha genomförts under detta historiska skede. Den hemska sanningen om John Hassler, Göran Persson och kronkursförsvaret Forskarna kommer att ha till uppgift att förklara hur det kom sig att så många i det ledande skiktet i Europas länder kom att vara för Kuriosa Danne Nordling 12 mars om EEAG, SNS och Spanien ”Situationen i euroområdet har fått utvecklas till en sådan djup kris att inga enkla lösningar längre finns att tillgå”, När euron infördes närmade sig obligationsräntorna i eurozonen varandra. På ekonomspråk heter det konvergens. – Initialt var det bra men utvecklingen gick för långt och riskerna på både mikro- och makronivå undervärderades, sade John Hassler när han presenterade rapporten. Utvecklingen ledde till snabbt ökande löner och priser i de fattigare länderna. Det betydde att dessa länders exportvaror blev dyrare och de tappade konkurrenskraft.
Förre finansministern Erik Åsbrink (S) var också en av kommentatorerna. Han varnade för alltför massiva interventioner i krisländerna. Krisländerna måste ta ner prisnivån i landet så att varor och tjänster blir konkurrenskraftiga. Och därmed få i gång en tillväxt. John Hassler, EMU, heder, sanning och rätt EEAG och John Hasslers pudel. Hassler sade bland annat att det var viktigt när man skulle genomföra åtstramningar och strukturreformer i krisländerna att man hade en story som folket köpte, liksom vid den svenska statsskuldkrisen i början på 1990-talet.
Hassler hade i slutet av sitt anförande en liten, liten pudel där han sade att problem hade blivit större och delvis annorlunda (TARGET) än vad han hade förutsett. Spreads on Italian bonds have widened to about 200 basis points over German bunds. Furthermore, the ECB should reintroduce the requirement that TARGET2 debts be repaid with gold, as occurred in the US before 1975 The fiscal compact – formally the Treaty on Stability, Coordination, and Governance in the Economic and Monetary Union Some economists warn that the German central bank faces hidden liabilities of 500 billion euros According to SPIEGEL, the German government has said it sees no such risks. But a Greek euro exit could still cost the German central bank billions. We first need to understand the root causes of the crisis. If you mis-diagnose the problem, you are highly likely to prescribe the wrong medicine, which is precisely what is occurring
European Economic Advisory Group's latest annual report Before the advent of the euro, such imbalances would be corrected through the natural market mechanism of free floating exchange rates. Actually what's been happening is the exact opposite of what should occur. In terms of their competitiveness, or prices, relative to one another, the surplus countries have been devaluing since the euro came into existence, while the deficit countries have been appreciating. /RE: Den som först i världen kom på denna lika allvarliga som ofrånkomliga effekt var, osannolikt nog, Stefan de Vylder, som skrev i Göteborgs-Posten 2002-10-22 / Or as the EEAG Report puts it, "the economies adopting the
euro locked themselves into a system with no feasible
adjustment mechanism. German savers are continuing to finance the deficits, in part through the bailout mechanisms which have been put in place, but also through the good offices of the European Central Bank. It works like this. ... German banks are suddenly flush with cash... Some of this money is on lent to the German economy, /the rest/ gets deposited with the Bundesbank. Quite obviously, this is an unsustainable model. It is simply not viable indefinitely to finance a customer who cannot pay his way. But generally you don't find that out until you demand the money back. (ECB) issuing over €1 trillion in short-term loans The Hundred-Billion-Euro Bomb Target 2 The EEAG Report on the European Economy 2012 Target 2 of the ECB vs. In the US similar imbalances have arisen since September 2008. Since the beginning of the Fed’s liquidity operations, the New York Fed has accumulated a large positive ISA account, while the Richmond and San Francisco Fed have accumulated a negative ISA account. They are not eliminated either. But how can this be? Why was ISA not settled in April 2011? Repeated rounds of self-defeating austerity have become the order of the day. Still others see the crisis as one of confidence, which can be addressed by setting up a rescue fund large enough to convince markets that they cannot undo the euro – a “big bazooka”. This, too, is just wishful thinking. The real cause, as long argued by Sir Mervyn King, Governor of the Bank of England, and now accepted by most leading economists, is a simple, old-fashioned balance of payments crisis. 172 German professors can’t be wrong A letter from 172 German-speaking economists published by the daily Frankfurter Allgemeine Zeitung (FAZ) lambasts the steps taken towards a banking union by euro-zone leaders at a summit last week in Brussels It has unleashed a counterblast from government heavyweights and their economic advisers, leaving the public even more confused.The 172 professors have certainly broken new ground. The most remarkable thing, says one FAZ reader, is that “so many economists could agree on a single text :-) – incredible.” Angela Merkel vs. 160 Angry German Economists
The crucial step is to agree on the nature of the /euro/ illness. Indeed, the balance of payments may matter more in the eurozone than among economies not bound together in a currency union. Hans-Werner Sinn of CESifo, in Munich, has done much to explain, in his words, that “the European Monetary Union is experiencing a serious internal balance of payments crisis that is similar, in important ways, to the crisis of the Bretton Woods System, in the years prior to its demise.” A special issue of the CESifo Forum, published in January 2012, is dedicated to this theme. Can one have balance of payments crises in a currency union? The Hundred-Billion-Euro Bomb Target 2 The Bundesbank is getting nervous about a counterparty risk if the euro were to collapse suddenly. So, the two “Target 2” professors deserve credit for explaining the detailed mechanisms of how a monetary union functions in the presence of a broken banking sector. However, it is hard to understand why everybody feigns surprise at the fact that current account imbalances can be financed indefinitely in a monetary union. (ECB) issuing over €1 trillion in short-term loans Frankfurter Allgemeine has the scoop of the day. This is a hugely significantly development, considering also that the Bundesbank has until recently denied the significance of Germany’s €500bn Target 2 imbalances. Source: Eurointelligence Hans Werner Sinn, the man who raised the Target 2 debate, writes in Frankfurter Allgemeine about how to fix the Target 2 imbalances. He said Europe’s south-west is now financing its persistent current account deficits through the money presses, as central banks now provide unlimited liquidity to the banking sector. That money, thus created, flows to Germany, where ends up at the Bundesbank as a claim against the eurosystem. He compares the Target 2 balances to equivalent balances in the US, which are much lower, which he says is due to different rules under which the system there operates. He proposes to create covered bonds – securities on property and other assets – created by the eurosystem to redeem the Target 2 imbalances. Source: Eurointelligence Capital flight "A Primer on the Euro Breakup: Default, Exit and Devaluation as the Optimal Solution." Tepper reminds us that "during the past century sixty-nine countries have exited currency areas with little downward economic volatility." He makes the case that "The mechanics of currency breakups are complicated but feasible, and historical examples provide a roadmap for exit." The real problem in Europe, he says, is that "EU peripheral countries face severe, unsustainable imbalances in real effective exchange rates and external debt levels that are higher than in most previous emerging market crises." The way through? "Orderly defaults and debt rescheduling coupled with devaluations are inevitable and even desirable. Exiting from the euro and devaluation would accelerate insolvencies, but would provide a powerful policy tool via flexible exchange rates. The European periphery could then grow again quickly with deleveraged balance sheets and more competitive exchange rates, much like many emerging markets after recent defaults and devaluations (Asia 1997, Russia 1998, and Argentina 2002)." The greatest threat to the euro is that Greece will make a success of default and devaluation. According to last week's plan, by 2020 the ratio of Greek national debt to GDP will be down to 120.5 procent. /RE: Man brukar säga att ekonomer använder decimaler i sina prognoser för att visa att dom har humor./ Since the beginning of 2008, Greek real GDP has fallen by more than 17pc. On my forecasts, by the end of next year, the total fall will be more like 25pc. Unsurprisingly, employment has also fallen sharply, by about 500,000, in a total workforce of about 5 million. The unemployment rate is now more than 20pc. So what's the escape route? Greece suffers from both heavy indebtedness and a lack of competitiveness. Attempts to cut back on the debt by austerity alone will deliver misery alone. Only measured austerity combined with economic growth offers a way out. But while Greece is so uncompetitive it is difficult to see where growth will come from. The solution offered by Germany and its allies is that austerity will lead to an internal devaluation, i.e. deflation, which would enable Greece gradually to regain competitiveness. Yet this proposed solution is a complete non-starter. If austerity succeeds in delivering deflation, then the growth of nominal GDP will be depressed; most likely it will turn negative. In that case, the burden of debt will increase. The only way out of this mess is a combination of default and devaluation, which can accomplish in a flash what it would take many years or even decades of deflation to achieve. Why can't the European political class that got us into this unholy mess see this? In my view, the greatest threat to the euro is that Greece will make a success of default and devaluation. Something like it has happened several times before, notably with Argentina in 2002, when it defaulted and devalued. The country went from an appalling financial crisis to growing by 11pc in the space of 18 months. Leaders of the euro area’s wealthier nations are increasingly raising a provocative question: The improvement, though, is largely cosmetic. The ECB has brought down bond yields by offering banks a no-brainer trade: Buy European government bonds yielding more than 5 percent with money borrowed from the central bank at a rate of 1 percent. The resulting demand from banks has buoyed bond prices and helped Spain and Italy issue more new debt. It also leaves financial institutions -- and the ECB itself -- more exposed to losses in the event of sovereign defaults or renewed market turmoil. Either way, the trend reflects just how fragile the euro area has become. If investors and regular account holders already see a difference between a euro deposited in Italy and a euro deposited in Germany, there’s a real danger that Greece’s withdrawal from the common currency would trigger bank runs and freeze government-debt markets. A spectre is haunting Europe: disorderly default Why Greece and Portugal ought to go bankrupt Two years ago, most European policymakers still believed that Greece would pull through. They lacked experience in managing financial crises. They did not even consult with policymakers in other parts of the world who had dealt with crises in previous decades. Armed with ignorance and arrogance, they ended up repeating everyone else’s mistakes. They thought they were clever when they came up with the idea of an expansionary fiscal contraction. And they thought that a voluntary private sector involvement (PSI) could really help. In some northern European capitals, policymakers are beginning to understand that the Greek programme has been an unmitigated failure. European Doubts Growing over Greece Debt Strategy Europe is now paying the price for the inability of its leaders -- together with the International Monetary Fund (IMF) and its managing director Christine Lagarde -- have still not been able to agree on effective therapy for improving Greece's economic health. They share the belief that, given the unforeseeable consequences, a Greek exit from the euro zone should be avoided at all costs. But it remains unclear how the highly indebted country can be nursed back to health within the currency union. The agreement means that private creditors will have to write down between 70 and 75 percent of their claims. In exchange, they will receive new bonds with longer maturity periods and significantly lower yields. The new bonds will be guaranteed by the euro backstop fund, which provides added incentive for creditors to participate in the swap. On Friday, German commentators argue that it is time for EU politicians to face the truth about the situation The Financial Times Deutschland writes: The conservative Die Welt writes: Merkel: I Won't Take Part In Pushing Greece Out Of Euro 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' (Reuters) - Riot police shielded Greece's national parliament Sunday as demonstrators gathered to protest against austerity measures on the eve of talks in Brussels on a 130-billion-euro ($171 billion) bailout 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. How much louder do the alarm bells need to ring before time is called on this absurd monetary experiment? Varför är Sverige en fiskal union? 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? Just nu är Italien och Spanien viktigast. 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 
The ongoing discussions of economic policy and principles since the Great Recession Maybe the idea is that the burst bubble reduces demand, and hence leads to lower production. 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, What the eurozone must do if it is to survive Not a bang but a whimper: the threat facing the eurozone Der Spiegel, the German news magazine, has caused a stir in Brussels by reprinting bits of an unusually gloomy internal report from the European Commission on the euro zone (the 16 countries that use the single currency). In particular, people have focussed on the report's finding that differing competitiveness among euro zone countries is "a cause of serious concern for the euro area as a whole." In a widely quoted extract, the report seen by Spiegel frets that: ...differences among euro zone countries "jeopardize confidence in the euro and threatens the cohesiveness of the euro area." British Eurosceptics who have been predicting the collapse of the euro since before it was even created will no doubt be nodding sagely and feeling vindicated. Comment by Rolf Englund;
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