The End of the Euro.

later12

I have been saying for a while now that the Euro would not live beyond 2013 in its current form, and over the last week I have become more certain about that than ever.

While "The Euro is our shared destiny" may have been Angela Merkel's defensive retort in the Bundestag recently, when she was accused of being un-European, most ovservors would have been quite justified in doubting such a position following on from the EU Summit.

In fact, what has emerged from the summit is that there is no rescue plan. There will be no fiscal integration. There will be no eurobonds. There will be no increase to the EFSF. There will be no bold action to save the eurozone.

The best that the Eurozone core can hope for is that the peripherals merely come right on their own, largely through fiscal austerity but also through emergency liquidity. This is, frankly, bananas.
If anything, this alone without any serious auxiliary measures (such as eurobonds) has been shown only to increase fretfulness on the markets, and liable to spread doubt from constituent country to constituent country. But what started with a Greek tragedy has now moved to Ireland, and is making eyes at such serious players as Spain, Italy and even France. The latter is particularly shocking, given its traditional place at the core of the zone's strength alongside Germany, but this has not prevented it from being listed for a possible credit downrating in the new year.

Even if the Eurozone could somehow survive this crisis and shuffle on like Lazarus, it will be nothing more than a transfer union: richer countries paying the way for poorer countries as a long term solution such as happens currently in Ireland between the poor regions and the rich regions. That too, is unsustainable, because Europeans tend to cling rather tenaciously to their national identities and to resent central European authority over regional interests. Quite right, too.

So what is to become of the Eurozone? Anyone see how it can survive 2013 and beyond under current policy? Is it time for tighter or smaller groups of European currencies that mirror their ideological and regional fiscal policies? Was the whole thing just a bit daft to begin with?

By the way, another interesting report came out in the last fortnight from the OECD which underlines the vast anomalies and bubble-inducing practices that came about as a result of this motley crew of European economies coming together under a common currency.

http://www.oecd.org/dataoecd/38/44/46673001.pdf (PDF)

Of particular interest is how German savings, arising from a strong export market and a weak domestic demand flowed downstream into capital hungry economies with large domestic demand and helped, in a very significant way, to create a serious, potentially suicidal, European debt crisis.

ei.sdraob

"The Euro is our shared destiny"

anyone else see the irony in the "Soldiers of Destiny" puttin such a strain on our "Shared Destiny" :P

Oscardela

The real issue now is whether the EU itself can survive, as most observers have been saying since before its inception that the Euro is doomed for reasons explained elsewhere. The question is will it pull down the whole EU with it.

oscarBravo

Oscardela wrote: »

...most observers have been saying since before its inception that the Euro is doomed...

I'd love to see some quantitative evidence for that statement.

FreudianSlippers

Oscardela wrote: »

The real issue now is whether the EU itself can survive, as most observers have been saying since before its inception that the Euro is doomed for reasons explained elsewhere. The question is will it pull down the whole EU with it.

I don't think that's a genuine "real issue".

later12

oscarBravo wrote: »

I'd love to see some quantitative evidence for that statement.

Hasn't Martin Wolf being saying so for years, citing interest rates in particular? I'm not sure if he's Eurosceptic, I'd doubt it, but I know he's had some serious reservations about the success of the Euro for reasons outlines in my original post.

He's always gloating about how right he was all along in the FT.

oscarBravo

later10 wrote: »

Hasn't Martin Wolf being saying so for years...?

That's one observer. I'm pretty sure that still leaves us a good long way short of "most observers".

later12

Well another high profile one I can think of is Roger Bootle, Director of Capital Economics. Even non Eurosceptics like David McWilliams were sceptical (according, admittedly, to himself). I was only a kid at the time and I can remember the various arguments against joining, suggesting that we were more similar to the UK and Denmark in economic terms than France and Germany. That was, it emerges, correct.

In fairness if you're looking for an actual list of observers and ticking off those who supported or opposed the Euro model, then you'll be waiting a long time. I'm pretty sure nobody's going to go to that trouble for an internet thread.

But really, I don't think the argument can be countered that the case against the Euro is long established and the risk of single currency was pretty broadly accepted.

oscarBravo

later10 wrote: »

But really, I don't think the argument can be countered that the case against the Euro is long established and the risk of single currency was pretty broadly accepted.

Absolutely. It's equally true that the case for the Euro is long established, and the advantages of a single currency are pretty broadly accepted. I think you'll find it hard to locate a single economic or fiscal policy proposal that doesn't have both risks and advantages, and both proponents and detractors.

Sure, the Euro is going through a rough patch at the moment. Despite what some observers would like to claim, this doesn't mean that there was never a valid argument for a common currency in the first place. There are lessons to be learned from the current problems, and those lessons are mostly about the problems inherent in allowing individual governments a free hand to purse insane economic policies within a currency union.

It seems to me there are two ways we can go: we can either demand that the sovereign right of a government to pursue insane economic policies be respected, and dismantle the currency union, or we can reign in the insanity.

If it comes down to a choice between nationalism and sanity, I have a fair idea which side I'm going to pick, but I'm also conscious that I'm probably in the minority.

Of course, it's a false dichotomy that I've presented, and we'll probably muddle through the crisis with the currency union intact and the insanity reigned in, for now. Which should see us nicely through to the next insanity-fuelled crisis.

later12

I fully agree with the above, however as per the original post the problem is not nationalism: I'm pretty sure the peripherals, even Greece, would muddle through an agreement whereby greater fiscal control is ceded to European Governance in return for a greater share of fiscal risk, e.g. Eurobonds.

The problem is the core economy, in particular Germany, and the German reticence to burden itself with shared risk. The problem is domestic concern, not nationalism itself. It is the most un-European of positions.
It was the Germans, after all, who most vociferously opposed Eurobonds back in the 1990s. That was a mistake, and they are repeating the same mistake again by their denial of the necessity of European structural reform. That will, if they persist in it, be Europe's downfall.

SkepticOne

oscarBravo wrote: »

If it comes down to a choice between nationalism and sanity, I have a fair idea which side I'm going to pick, but I'm also conscious that I'm probably in the minority.

I think you are still in the majority though this is gradually changing. What I think you will see is various commentators who may have silently had their reservations about the single currency coming out of the closet.

McDave

As I see it, the Euro has enormous political weight behind it. The EU cannot be an international economic player without the Euro, and its political and foreign policy prospects would be equally stillborn without a rock solid economic and fiscal core.

I expect the major drivers behind the EU and the Euro (France and Germany) to put the heat on the underperformers to do their bit in rectifying their obvious imbalances. If the so-called PIGS (plus Belgium and Italy) can demonstrate their willingness and ability to sort our their fiscal situations, then it's full steam ahead for the Euro.

In short, I don't see the Euro collapsing. Most EU countries are basically prosperous. With the appropriate support, they can stay the pace. 10 years hence, IMO the Eurozone will be widely perceived to be a paragon of economic and democratic virtue.

later12

McDave wrote: »

I expect the major drivers behind the EU and the Euro (France and Germany) to put the heat on the underperformers to do their bit in rectifying their obvious imbalances. If the so-called PIGS (plus Belgium and Italy) can demonstrate their willingness and ability to sort our their fiscal situations, then it's full steam ahead for the Euro.

Put the heat on? How exactly? The heat is very much on and the capital markets do not appear impressed, in fact I think the magnitude of their lack of enthusiasm will only be fully expressed next month.

The Eurozone itself, the Commission, the EFSF and the ECB have very limited control over Ireland's economic policy, apart from its liquidity flow which is their strongest lever as I can see, and it would be madness to interfere with that without capital investors taking a hike as things currently stand. So I'd be interested to see how this heat ought to be applied exactly?

McDave

later10 wrote: »

Put the heat on? How exactly? The heat is very much on and the capital markets do not appear impressed, in fact I think the magnitude of their lack of enthusiasm will only be fully expressed next month.

The Eurozone itself, the Commission, the EFSF and the ECB have very limited control over Ireland's economic policy, apart from its liquidity flow which is their strongest lever as I can see, and it would be madness to interfere with that without capital investors taking a hike as things currently stand. So I'd be interested to see how this heat ought to be applied exactly?

Germany in particular is making it very clear to the likes of ourselves and Greece that we have to sort out our fiscal imbalances internally. It's a process of risk management. If the countries which have allowed their economies to spiral out of control are seen to take internal countervailing measures, then countries like Germany will feel less prevailed upon to bankroll miscreants. It also puts less pressure on the stability fund, and slows down the advent of day that the Eurozone needs to consider increasing the €750bn threshold.

The bodies you mention don't have control over the Irish economy. However, if we decide to play silly buggers on the issue, that's information they can use to stiff us if push comes to shove. And make no mistake, any country which thinks there is a blank cheque to bail out its fiscal irresponsibility is in for a rude awakening. Not that Greece or ourselves don't actually know the score.

The capital markets will line up Portugal and Spain next. Both countries are furiously trying to put their fiscal houses in order. If they can broadly address their issues, the markets will move on to Belgium and then Italy. After that, the markets are going to look pretty silly going after countries that are effectively towards the top of the OECD tree. At that point it will become clear to the markets that their attempts to drive political wedges between the Eurozone states will have failed and they'll simply back off, having done the Eurozone some service.

later12

McDave wrote: »

Germany in particular is making it very clear to the likes of ourselves and Greece that we have to sort out our fiscal imbalances internally. It's a process of risk management. If the countries which have allowed their economies to spiral out of control are seen to take internal countervailing measures, then countries like Germany will feel less prevailed upon to bankroll miscreants.

But Ireland already has undergone serious contraction and continues to impose very real austerity measures in line with targets... the markets are still not impressed. Their beef is not with Irish austerity in our case, it is with the fragility, as they see it, of the European monetary project.

In brief, the problem is that they are wary of a currency exchange risk, the fact that there is a risk of Germany returning to the D-Mark is enough reason for them to worry. Germany is not committing itself with enough totality to this European currency. if the Eurozone will survive in the long term, that must change.

It also puts less pressure on the stability fund, and slows down the advent of day that the Eurozone needs to consider increasing the €750bn threshold.

The Eurozone needed to start considering that six months ago. The EFSF was supposed to be too big to require an extension of its facility; it wasn't. It does not impress anybody.

The bodies you mention don't have control over the Irish economy. However, if we decide to play silly buggers on the issue, that's information they can use to stiff us if push comes to shove. And make no mistake, any country which thinks there is a blank cheque to bail out its fiscal irresponsibility is in for a rude awakening. Not that Greece or ourselves don't actually know the score.

I don't know what this means. A failure (a) of a country in the Eurozone to meet its sovereign obligations, and (b) of the Eurozone to bailout a member nation in order to assist it in its obligations would be an absolutely unmitigated disaster for the Eurozone in that particular order.
What's the information they can use to stiff us? The 14 countries apart from Ireland who contributed to the Irish bailout, as well as Denmark, Sweden and the UK, are doing so partly from a spirit of solidarity but significantly for very real and valid economic concerns about their domestic economies too. We genuinely are all in this together. The Germans have been waiting 20 years to get their economy to where it is, they have been struggling to get unemployment down to its current level all that time through seriously austere wage restraint, their IFO is at record levels, they do not want to go anywhere.

The capital markets will line up Portugal and Spain next. Both countries are furiously trying to put their fiscal houses in order. If they can broadly address their issues, the markets will move on to Belgium and then Italy. After that, the markets are going to look pretty silly going after countries that are effectively towards the top of the OECD tree.

I don't like the mindset that the markets are somehow targeting these countries. This bond crisis is primarily down to everyday fund managers selling their exposure to Irish, Portuguese and Greek bonds, increasingly so for Spain and Italy. They are not selling in order to hurt us, they are trying to remove themselves from a genuinely perceived risk.

The reason the contagion can (and in my opinion will) spread further up the tree is because of what I alluded to earlier with regards to us all being in this together. Nobody is too big to fall, not even Germany is immune from market concerns which if you watched the markets the week before Christmas, you will have seen. CDS on French debt were particularly telling, in fact.

The contagion has already started and the European governments need to do what they have always failed to do thus far; to take bold and decisive action before it is too late.

McDave

later10 wrote: »

But Ireland already has undergone serious contraction and continues to impose very real austerity measures in line with targets... the markets are still not impressed. Their beef is not with Irish austerity in our case, it is with the fragility, as they see it, of the European monetary project.

In brief, the problem is that they are wary of a currency exchange risk, the fact that there is a risk of Germany returning to the D-Mark is enough reason for them to worry. Germany is not committing itself with enough totality to this European currency. if the Eurozone will survive in the long term, that must change.

The problem with Ireland is there is no realistic plan as of yet as to how do deal with the Anglo/INBS 'casino' debts. Investors are (correctly) of the view that we cannot carry this burden alone, and that at least some of it should devolve onto the European banks who lent to the non-systemic banks.

The Euro structure has definite weaknesses, currently being exposed by the failings of countries with major fiscal imbalances which take them outside the Maastricht criteria. How I interpret Germany in all of this is that the German people and state are not prepared to bankroll irresponsible neighbours. However, if the problem countries are being seen to deliver results, this will make it easier for the German government to sell a more European solution to its electorate. A compromise will be possible when the likes of Greece and ourselves have shown ourselves to be capable of taking the hard road.

McDave

later10 wrote: »

I don't know what this means. A failure (a) of a country in the Eurozone to meet its sovereign obligations, and (b) of the Eurozone to bailout a member nation in order to assist it in its obligations would be an absolutely unmitigated disaster for the Eurozone in that particular order.
What's the information they can use to stiff us? The 14 countries apart from Ireland who contributed to the Irish bailout, as well as Denmark, Sweden and the UK, are doing so partly from a spirit of solidarity but significantly for very real and valid economic concerns about their domestic economies too. We genuinely are all in this together. The Germans have been waiting 20 years to get their economy to where it is, they have been struggling to get unemployment down to its current level all that time through seriously austere wage restraint, their IFO is at record levels, they do not want to go anywhere.

'Information' which can be used to make decisions. So if, for instance, Greece was utterly paralysed by protests against austerity, or our new government refused to impose public sector cuts or raise taxes, countries like Germany would know we don't mean business here, and that we don't have a sustainable position in a single currency. At that point Germany might feel a Euro with recalcitrant timebombs might undermine the whole project and either seek to lever us out, or leave themselves to form another harder, better-managed currency.

It's not a desirable scenario, but I'm sure there a number of strategies being considered by the main players. I'm personally of the view that when all the countries with fiscal problems have taken the appropriate steps to ameliorate their debts, an overall Eurozone package will be presented for adoption which will involve structural reforms and settlements for outstanding problems.

McDave

later10 wrote: »

I don't like the mindset that the markets are somehow targeting these countries. This bond crisis is primarily down to everyday fund managers selling their exposure to Irish, Portuguese and Greek bonds, increasingly so for Spain and Italy. They are not selling in order to hurt us, they are trying to remove themselves from a genuinely perceived risk.

The reason the contagion can (and in my opinion will) spread further up the tree is because of what I alluded to earlier with regards to us all being in this together. Nobody is too big to fall, not even Germany is immune from market concerns which if you watched the markets the week before Christmas, you will have seen. CDS on French debt were particularly telling, in fact.

The contagion has already started and the European governments need to do what they have always failed to do thus far; to take bold and decisive action before it is too late.

'Markets' is shorthand. There are of course genuine investors with genuine fears. However, there are also other funds taking punts on the Euro, and yet others who for political reasons want the Euro to fail. As of now, the Euro is not in the best position to deal with all the doubts being expressed regardless of the motives behind them.

On the Eurozone side, I personally don't think it is in the Euro's interest to go for a Big Bang solution. It could turn out to be the most expensive solution for the Eurozone members, especially those who bankroll it most. The current incremental approach keeps pressure on the PIGS to deliver actual change on the ground. If their budgets are knocked into shape, the larger Eurozone is fiscally fitter, and capable of sustainable future growth. We're faced with a once-off opportunity to change the delinquent mindsets in some very outdated and sclerotic public services (e.g. Greece, Iberia, and possibly ourselves).

SkepticOne

McDave wrote: »

We're faced with a once-off opportunity to change the delinquent mindsets in some very outdated and sclerotic public services (e.g. Greece, Iberia, and possibly ourselves).

Let me ask you this: in the absence of the single currency would you really care about the public services of Greece? Wouldn't you in normal circumstances regard it as primarily a concern of the Greeks themselves?

The existence of the single currency brings about a situation where we're forced to worry about Portuguese public spending yet for some reason this is being spun as an advantage of the Euro.

McDave

SkepticOne wrote: »

Let me ask you this: in the absence of the single currency would you really care about the public services of Greece?

No.

McDave

SkepticOne wrote: »

Wouldn't you in normal circumstances regard it as primarily a concern of the Greeks themselves?

The existence of the single currency brings about a situation where we're forced to worry about Portuguese public spending yet for some reason this is being spun as an advantage of the Euro.

'Normal circumstances' now means Greece inside the Eurozone. So any behaviour that impacts significantly on the Eurozone overall is of concern to all Eurozone members.

There is a view abroad that it was a mistake to even allow Greece into the EU, it's so far off the pace! But the decision was taken (and subsequently Romania and Bulgaria). Given the choice to start over, I don't think Greece would get into the Euro, and this would be definitely to the advantage of the single currency. But they, and Portugal and us are in. So now it's a case of crisis management and getting up to speed as best we can.

later12

McDave wrote: »

The problem with Ireland is there is no realistic plan as of yet as to how do deal with the Anglo/INBS 'casino' debts. Investors are (correctly) of the view that we cannot carry this burden alone, and that at least some of it should devolve onto the European banks who lent to the non-systemic banks.

I agree, the Irish banking system is the elephant in the room and a large amount of the perceived risk is down to the uncertainty surrounding and the fragility of the banking sector.
But again, this is actually (and by the way I have no sympathies for Irish financial officialdom) the fault of the core European economic leadership. Banking debt should have been seperated from sovereign debt two years ago and sent to an EFSF-like vehicle along with equivalent peripheral debt and all managed centrally, and have its hair cut accordingly through progressive and aggressive write downs. Basically a European NAMA. This would have ruled out crisis contagion at the root. But it didn't happen, again, because of a weak and cowardly European leadership who fail and fail again to act when they need to act.

How I interpret Germany in all of this is that the German people and state are not prepared to bankroll irresponsible neighbours. However, if the problem countries are being seen to deliver results, this will make it easier for the German government to sell a more European solution to its electorate. A compromise will be possible when the likes of Greece and ourselves have shown ourselves to be capable of taking the hard road.

That's true, but the question is whether countries like Greece and Ireland will ever look good, or look like we are gaining traction while Germany stand idly by. They could solve the European debt crisis next week by committing themselves to Eurobonds and removing the banking industry crisis management duties from peripheral governments and acting centrally.

On the Eurozone side, I personally don't think it is in the Euro's interest to go for a Big Bang solution. It could turn out to be the most expensive solution for the Eurozone members, especially those who bankroll it most. The current incremental approach keeps pressure on the PIGS to deliver actual change on the ground. If their budgets are knocked into shape, the larger Eurozone is fiscally fitter, and capable of sustainable future growth. We're faced with a once-off opportunity to change the delinquent mindsets in some very outdated and sclerotic public services (e.g. Greece, Iberia, and possibly ourselves).

But with Eurobonds for example, the core economies would have real control over peripheral austerity, as opposed to the complete absence of control that they can currently extend.
The Eurobond model that has been presented by JC Juncker for example, is arranged in such a way that interest rates on second hand bonds are variable from state to state depending on their situation as decided by a central European fundraising authority.

ei.sdraob

Opposition to the Euro Grows in Germany

McDave

later10 wrote: »

I agree, the Irish banking system is the elephant in the room and a large amount of the perceived risk is down to the uncertainty surrounding and the fragility of the banking sector.
But again, this is actually (and by the way I have no sympathies for Irish financial officialdom) the fault of the core European economic leadership. Banking debt should have been seperated from sovereign debt two years ago and sent to an EFSF-like vehicle along with equivalent peripheral debt and all managed centrally, and have its hair cut accordingly through progressive and aggressive write downs. Basically a European NAMA. This would have ruled out crisis contagion at the root. But it didn't happen, again, because of a weak and cowardly European leadership who fail and fail again to act when they need to act.

The solution you're proposing would only be possible if there was a much higher level of EU integration. This is the internal conundrum that's hard to reconcile, i.e. how to solve the crisis under current EU 'constitutional' and institutional conditions.

As far as I can see, there is no real appetite within the European peoples for much more integration than we have seen so far. Of course, technical amendments are possible. But anything which transfers extensive or meaningful powers from the member states to the EU is unlikely to pass muster. Also there have been national constitutional considerations of what the EU institutions can do, including a very interesting discussion of what constitutes the proper realm of a sovereign state in the German Lisbon case from last year.

So when it comes to the fiscal and financial behaviour of member states, the EU and ECB had limited capacities, and expecting them with their extant powers to exercise controls which really should have been exercised at national level is unrealistic.

As to what should have happened two years ago, I entirely agree the banking debt should have been considered separately. AFAIC Anglo and INBS should have been separated out and negotiations entered into with the ECB and national authorities to vest the risk of lending to those entities with the European banks concerned (that incidentally might have included substantial exposures for 'systemic' Irish banks). But we didn't do that. I suspect our Dept/Min of Finance didn't have a clue. I also suspect that the Commission and ECB got up to speed quicker than we did. But to expect them to intervene on our behalf is a bit too much. After all we were a sovereign state. And our 'higher' political and administrative cadres paid themselves like winners even though they acted like losers, reassuring our Eurozone partners that everything was under control.

McDave

later10 wrote: »

That's true, but the question is whether countries like Greece and Ireland will ever look good, or look like we are gaining traction while Germany stand idly by. They could solve the European debt crisis next week by committing themselves to Eurobonds and removing the banking industry crisis management duties from peripheral governments and acting centrally.

But with Eurobonds for example, the core economies would have real control over peripheral austerity, as opposed to the complete absence of control that they can currently extend.
The Eurobond model that has been presented by JC Juncker for example, is arranged in such a way that interest rates on second hand bonds are variable from state to state depending on their situation as decided by a central European fundraising authority.

It'll probably be enough to look competent!!!!

As for Eurobonds, they're not a victimless crime. If the Germans were to allow Bunds to be replaced by Eurobonds, their potential financing costs would rise, as Eurobond rates would reflect the higher overall risk in the Eurozone as an entity. That's not a price worth paying without a structure which systemically puts the pressure on to deliver fiscal and macroeconomic results.

As to control over peripheral austerity, it's a two-sided coin. If it is to be truly meaningful, it implies a greater transfer of sovereign powers to Frankfurt and Brussels. And even with that it wouldn't account for the domestic political flip-side which is the ability of national populations to resist centrally-imposed discipline on the ground. In short, there are certain powers the EU probably doesn't want to touch with a bargepole. Better to get member states to get themselves in line and have stronger economic governance, which implies central oversight, but local political commitment and decision-making.

McDave

ei.sdraob wrote: »

Opposition to the Euro Grows in Germany

There are definite changes afoot in Germany. They're done with reparations payments, and having come through a painful restructuring under Schroeder, there is fatigue with the notion of Germany as paymaster. I think it's fair to say Germans don't want throw structural and other funds down the drain in corrupt countries like Romania and Bulgaria. On top of which they certainly don't want to be blackmailed into bailing out Eurozone dossers.

Public opinion is also being conditioned (positively) by other developments such as the constitutional case on Lisbon and the (upcoming) bailout case. More hard yards are being put in constructively discussing Europe in Germany than for instance here.

Merkel's resistance to catchall Euro-level solutions is criticised as lacking vision. However, vision isn't a one-way street. All member countries need to have their own vision, or at least the positive role they can play in the visions of others. Merkel is positioning herself quite well to be able to head off precisely the kind of Tea Party opportunity mentioned in this article. Rather than criticising Merkel, it might be better if countries like Greece, Ireland and Belgium actually concentrated on getting their own sovereign positions in order. That will help Merkel sell the idea of an eventual high impact Eurozone-level response.

Meanwhile, here in Ireland we still have politicians playing silly buggers about when they can get the Finance Bill through, and dropping the ball completely on the banking debt (or at least the casino part of it).

EastTexas

Slovakia Leaving EU? Newcomer Nation May Be Looking For Exit
Interesting article on mounting Euro skepticism

Slovakia Leaving EU? Newcomer Nation May Be Looking For Exit

oscarBravo

...and yet, Estonia will join the Eurozone the day after tomorrow.

FreudianSlippers

It's a bigger loss for Slovakia than for the rest of the EU honestly.

EastTexas

ei.sdraob wrote: »

Opposition to the Euro Grows in Germany

From the article
“Time for Tea
Frank Schäffler, a Bundestag member with the FDP, has been endeavoring for some time now to start a Tea Party-style movement within his party. So far, the group, which he founded last September, has been little more than a meeting place for a handful of politicians who, frustrated by the ongoing demise of the FDP, have created a website with a few smart slogans.”

That’s not a TeaParty if it’s organized by politicians within their Party and not a grassroots movement by the people independent of the establishment.
I have been in Germany about a year now and IMHO they are very conditioned to go along with authority even as disillusioned as they are with their government.
They wouldn’t dare.

It’s not just the Euro but the incredibly low wages compared to the high cost of living, especially energy.
Germany tops world for shrinking wages
http://www.thelocal.de/money/20101215-31839.html
All those exports seem to just benefit their corporations who benefit greatly by this wage dump but not the people at all.
Besides dumping so much product of which a great portion is not even made in Germany on the Economies of their smaller neighbors in the Eurozone sans any customs charges has also hurt those manufacturing bases and contributed to the demise of their economies.

ei.sdraob

oscarBravo wrote: »

...and yet, Estonia will join the Eurozone the day after tomorrow.

ah another IMF run state joins the pack

anyways Putin mentioned Russia to use euro

if the above does happen then things would get interesting...

McDave

EastTexas wrote: »

Slovakia Leaving EU? Newcomer Nation May Be Looking For Exit
Interesting article on mounting Euro skepticism

Slovakia Leaving EU? Newcomer Nation May Be Looking For Exit

Ask the population in any member country about the Euro and you're likely to find a distinct lack of enthusiasm. So the sentiments reported in this blog piece shouldn't be surprising.

A debate on the options open to a country on EU or Eurozone membership are a hallmark of a healthy democracy. But you might expect nothing but trenchant Euroscepticism from an Austrian School commentator:

"Everyone with common sense can see that the system is ill," said Matus Posvanc, an analyst from the F. A. Hayek Foundation, a conservative think tank in Bratislava. He called attempts to bail out Athens futile "because Greece's bankruptcy is inevitable."

and a truly pointless contribution from and utter partisan:

The Czech Republic is yet to set a target date to join the euro, which President Vaclav Klaus has repeatedly described as a failure.

He scoffed last month – when visiting German President Christian Wulff called the joint currency a "success story" – that neither the government, parliament nor the Czech central bank were ready to push to join the eurozone in the foreseeable future.

And on the basis of the information reported in the piece, the title of the article is frankly amateur and sensationalist.

EastTexas

ei.sdraob wrote: »

ah another IMF run state joins the pack

anyways Putin mentioned Russia to use euro

if the above does happen then things would get interesting...

Putin, who according to wikileaks leaked cables is in the habit of bringing a big dog to meetings with Angela Merkel because he knows she is terrified of dogs.
He WOULD say something like that just to get a rise.

McDave

EastTexas wrote: »

From the article
“Time for Tea
Frank Schäffler, a Bundestag member with the FDP, has been endeavoring for some time now to start a Tea Party-style movement within his party. So far, the group, which he founded last September, has been little more than a meeting place for a handful of politicians who, frustrated by the ongoing demise of the FDP, have created a website with a few smart slogans.”

That’s not a TeaParty if it’s organized by politicians within their Party and not a grassroots movement by the people independent of the establishment.
I have been in Germany about a year now and IMHO they are very conditioned to go along with authority even as disillusioned as they are with their government.
They wouldn’t dare.

It’s not just the Euro but the incredibly low wages compared to the high cost of living, especially energy.
Germany tops world for shrinking wages
http://www.thelocal.de/money/20101215-31839.html
All those exports seem to just benefit their corporations who benefit greatly by this wage dump but not the people at all.
Besides dumping so much product of which a great portion is not even made in Germany on the Economies of their smaller neighbors in the Eurozone sans any customs charges has also hurt those manufacturing bases and contributed to the demise of their economies.

German unemployment just keeps on falling. Western countries, including the US, are going to have to get used to the fact that major increases in per capita earnings and wealth are going to be harder to achieve the more competing regions get their economies in gear. The days of easy gains are over. The Germans recognise this and are simply trying to adapt.

Rather than lament unduly, maybe other countries should recognise this new reality and change their expectations. Not least us here in Ireland with our Rolls Royce higher tier public sector and semi-state wages.

later12

McDave wrote: »

The solution you're proposing would only be possible if there was a much higher level of EU integration. This is the internal conundrum that's hard to reconcile, i.e. how to solve the crisis under current EU 'constitutional' and institutional conditions.

That's a fair point. It is bureaucratically and/or diplomatically difficult. But it would work, and if the Eurozone is expecting an easier way out then I would suggest that the Eurozone, insofar as it shall continue to exist, will be disappointed.

As far as I can see, there is no real appetite within the European peoples for much more integration than we have seen so far.

If Europe does not become an integrated fiscal union it will become nothing more than what has been referred to as a Transfer Union: the core economies paying the way for the weak economies. Three things can bring down the Eurozone: further significant spread of rot, another debt crisis on the long term sparked by another cyclical bust, or a transfer union in the medium term. I would suggest that a transfer union is something which would satisfy neither the core economies nor the peripherals in the long run.

This is why I am so negative about the future of the Eurozone. There are so many ways in which it could fall, yet there is only one clear way in which it can definitely survive, and that is the method I outlined. And which apart from JC Juncker has little to none of the serious political backing it requires.

I also suspect that the Commission and ECB got up to speed quicker than we did. But to expect them to intervene on our behalf is a bit too much. After all we were a sovereign state. And our 'higher' political and administrative cadres paid themselves like winners even though they acted like losers, reassuring our Eurozone partners that everything was under control.

I agree entirely. We cannot blame the Eurozone for our mess, or the oversight of our elected political representatives on a domestic level. However in my opinion our own domestic failure and the parallell failures of the other peripherals only serves to underline the necessity of a more integrated European fiscal system. As you correctly point out, this is of course frought with constitutional and legal difficulties.

If the Germans were to allow Bunds to be replaced by Eurobonds, their potential financing costs would rise, as Eurobond rates would reflect the higher overall risk in the Eurozone as an entity.

True. It's a question of cost-benefit. If the peripherals continue to be picked off like lame antelopes then the German cost of borrowing will rise - it has already risen, in fact. However a European debt agency with resposnibility for raising funds through the sale of European sovereign bonds could onlend the funds at lower rates to Germany and France than it would lend to Spain or Ireland. The onlending would not have to be uniform and so the initiative to up our domestic fiscal policy and continue with austerity would still persist.

As for the issue about the German survey which one poster linked to, I wouldn't take it too seriously. Yes, the risk of a return to the DMark still exists and that is largely what still concerns fund managers about the European debt situation. However, it would be a nightmare for Germany, would probably cause a banking crisis in Germany, and would strip of them of their 20 year progress. Furthermore, sentimentality towards the DMark is mostly to do with older generations for obvious reasons and not something that we should be immediately alarmed about at this stage.

ei.sdraob

EastTexas wrote: »

Putin, who according to wikileaks leaked cables is in the habit of bringing a big dog to meetings with Angela Merkel because he knows she is terrified of dogs.
He WOULD say something like that just to get a rise.

Well Russia holds alot of euro's in reserve and Putin is a nationalist

saying things like that plays into their favour as it makes the currency move, he probably made alot of money for himself and buddies by saying what he did

EastTexas

McDave wrote: »

German unemployment just keeps on falling. Western countries, including the US, are going to have to get used to the fact that major increases in per capita earnings and wealth are going to be harder to achieve the more competing regions get their economies in gear. The days of easy gains are over. The Germans recognise this and are simply trying to adapt.

Rather than lament unduly, maybe other countries should recognise this new reality and change their expectations. Not least us here in Ireland with our Rolls Royce higher tier public sector and semi-state wages.

German unemployment keeps falling because they have redefined what unemployed means.
If you are on unemployment but are allowed to make and additional 1,- per hour, max 30, - a week you are considered employed and omitted of the statistics.
Also known as the 1, - Euro jobs.

If you are unemployed and the government sends you to an IT course for 6 months (learning how to use a computer) you are of the statistics.
There are tons of those programs they sent people to whilst they are on full unemployment.
People working in the huge low wage sector in Germany about 400, - per months are still on unemployment to 75%.
Subsidizing low wages with taxpayer money is welfare for corporations.
Loanworkers making to 2 to 3, - euro the hour part time are still 80 to 90% on unemployment but listed as employed.
It’s customary in Germany in many jobs to have to work for no pay for the first couple of months. Even though this is a revolving door for employers to get free labor and many of those people just move from company to company on full unemployment they also omitted of the statistics.
It’s actually mind-boggling and if they keep going like that soon they won’t be any “official unemployment” in Germany at all.

In other words, in Germany you can work your arse off, not get paid or hardly, still be on full unemployment but omitted of the unemployment statistics.
People are actually quit outraged about this here and call it Die Armutsindustry.
State subsidized poverty industry.
By some estimates the real unemployment figures are estimated as up to 3 times as high as the official ones.



Sorry for the OT

later12

east texas every country in Europe that I am aware of massages its unemployment figures, not least amongb them Ireland with its huge disparity between the Unemployment figure and the Live Register figure, as well as figures pertaining to those on the Back To Education programs which don't get counted anywhere as far as I know.

The point is that Germany's competitiveness, brought about by its wage restraint and labour policy, its IFO, and its low unemployment levels are not an overall mirage. They are very real.

EastTexas

McDave wrote: »

Ask the population in any member country about the Euro and you're likely to find a distinct lack of enthusiasm. So the sentiments reported in this blog piece shouldn't be surprising.

A debate on the options open to a country on EU or Eurozone membership are a hallmark of a healthy democracy. But you might expect nothing but trenchant Euroscepticism from an Austrian School commentator:

and a truly pointless contribution from and utter partisan:


And on the basis of the information reported in the piece, the title of the article is frankly amateur and sensationalist.

I said “interesting article” and not award winning journalism.


Here is another interesting article on the same topic, Slovakia’s decreasing confidence in the Euro’s future.
http://www.thedaily.sk/2010/12/15/top-news/is-the-euro-titanic-heading-for-an-iceberg/

Anonymous1987

Merkel is offering a change in tone, time will tell if these are just words to placate the market or will action follow.

Chancellor Angela Merkel vowed to defend the euro as “the foundation” of Germany’s economy and called for resolve to bolster the currency.
Europe is in the midst of a great test,” Merkel said in an advance text of a New Year’s speech to the nation. “We must strengthen the euro.”

http://www.bloomberg.com/news/2010-12-30/merkel-vows-to-defend-euro-as-foundation-of-germany-s-economy-wealth.html

old_aussie

Don't worry, your soon to be, new overloards will take care of everything.

http://beforeitsnews.com/story/324/621/Fresh_humiliation_for_eurozone_as_China_says_it_will_bail_out_debt-ridden_nations.html

later12

old_aussie wrote: »

Don't worry, your soon to be, new overloards will take care of everything.

http://beforeitsnews.com/story/324/621/Fresh_humiliation_for_eurozone_as_China_says_it_will_bail_out_debt-ridden_nations.html

It isn't just Europe, you know.

China is a significant investor in Australian government bonds -- used by Canberra to fund billions of dollars in emergency spending.
Market insiders believe China is buying 15 to 20 per cent of the $2 billion in Treasury securities being issued every week.
This would make China the single biggest lender to Australia, although details of who owns the bonds are cloaked in secrecy.
The program, authorised by Treasurer Wayne Swan, will leave Australia with a debt bill approaching $200 billion.

http://www.news.com.au/china-bankrolling-rudd-stimulus-plan/story-0-1225699555756

Anonymous1987

ei.sdraob wrote: »

ah another IMF run state joins the pack

Ahem...

Debt estimated by the European Union at 8 percent of GDP in 2010 will make Estonia the fiscally soundest country in a currency bloc plagued by budget woes that forced Greece and Ireland to fall back on European and International Monetary Fund aid.

http://www.bloomberg.com/news/2010-12-31/estonia-joins-euro-club-as-currency-expands-east-into-former-soviet-union.html

McDave

later10 wrote: »

If the peripherals continue to be picked off like lame antelopes then the German cost of borrowing will rise - it has already risen, in fact. However a European debt agency with resposnibility for raising funds through the sale of European sovereign bonds could onlend the funds at lower rates to Germany and France than it would lend to Spain or Ireland. The onlending would not have to be uniform and so the initiative to up our domestic fiscal policy and continue with austerity would still persist.

As for the issue about the German survey which one poster linked to, I wouldn't take it too seriously. Yes, the risk of a return to the DMark still exists and that is largely what still concerns fund managers about the European debt situation. However, it would be a nightmare for Germany, would probably cause a banking crisis in Germany, and would strip of them of their 20 year progress. Furthermore, sentimentality towards the DMark is mostly to do with older generations for obvious reasons and not something that we should be immediately alarmed about at this stage.

Good post overall. I'd just throw this into the pot. I think a Eurozone-wide solution is in the offing. It's just about the timing, and about certain preconditions being met. The Germans are right about not being bounced into a premature response which would constitute an open-ended commitment on their part alone. Too early a solution will encourage miscreants to bag the benefits and avoid taking unpopular decisions with their immediate electorates.

The Germans need a technical solution which member states cannot easily row back on. Once the deal is struck, there will I suspect be a marginal cost for Germany which they will be able to justify to their electorate and legal system on grounds of the benefits which will flow from specified instruments of stabilisation.

McDave

EastTexas wrote: »

German unemployment keeps falling because they have redefined what unemployed means.
If you are on unemployment but are allowed to make and additional 1,- per hour, max 30, - a week you are considered employed and omitted of the statistics.
Also known as the 1, - Euro jobs.

If you are unemployed and the government sends you to an IT course for 6 months (learning how to use a computer) you are of the statistics.
There are tons of those programs they sent people to whilst they are on full unemployment.

Training schemes are a technique employed in many countries, not least Ireland. No news there really.

The €1 jobs initiative is indeed potentially open to exploitation. However, from my own direct experience of Germany the generous welfare system which obtained before the initiative was perceived by many voters to be too costly and indulgent. Of course others talked of the two-thirds society where reductions in the distribution of wealth was creating great divergences between the haves and the have nots.

We also have to consider the regional aspect, with sustained higher levels of wealth in the south and problems for the industrial heartlands in NRW, not to mention the eastern Laender.

In short, there is no easy or popular solution for the whole of that very diverse and divergent country. But what they are certainly succeeding in doing is keeping manufacturing industry in Germany and maintaining their exporting base.

McDave

EastTexas wrote: »

I said “interesting article” and not award winning journalism.

It's an interesting article alright. But I came away with the very definite impression that either the posters didn't fully understand the nuances of how the EU operates, or they were following an EU-sceptic editorial line.

I don't know what line Huffington takes on the EU generally. But it's a legitimate question to ask when presented with a headline and interviewee quotes that would not be out of place in the anti-EU Murdoch press.

later12

And on this topic, in case anybody missed it

http://www.rte.ie/news/2010/1231/euro-business.html

A leading British think-tank says the euro area has only a one-in-five chance of surviving in its current form over the next 10 years because of competitive imbalances between its members.
The Centre for Economics and Business Research said Spain and Italy would have to refinance over €400 billion of bonds in the spring, potentially sparking a fresh crisis within the 16-nation euro area.
'The euro might break up at this point, though European politicians are normally able to respond to a crisis,' said CEBR chief executive Douglas McWilliams in a list of 10 forecasts for 2011.

later12

McDave wrote: »

The Germans need a technical solution which member states cannot easily row back on. Once the deal is struck, there will I suspect be a marginal cost for Germany which they will be able to justify to their electorate and legal system on grounds of the benefits which will flow from specified instruments of stabilisation.

But as things stand the cost to Germany is becoming anything but marginal - as the Euro crisis progresses, so too do German bond yield increases and so too does the risk of Euro meltdown. Personally I don't think they can afford to stand idly by promising to battle on regardless when it is clear that bond markets are (quite literally) not buying it.

McDave

later10 wrote: »

And on this topic, in case anybody missed it

The key phrase in this regard is "in its current form". This could mean any option from, e.g.:

- a totally new currency;
- the exit of one or more member;
- the adoption of new stability criteria.

In other words, the study is keeping its options wide open and is not especially nailing any particular colours to the mast. I don't think any one doubts that in due course something essential will change in the Eurozone. I have a suspicion though that the existing members will stay on board a currency that will still be called the Euro.

McDave

later10 wrote: »

But as things stand the cost to Germany is becoming anything but marginal - as the Euro crisis progresses, so too do German bond yield increases and so too does the risk of Euro meltdown. Personally I don't think they can afford to stand idly by promising to battle on regardless when it is clear that bond markets are (quite literally) not buying it.

Yes, that's true. But Germany can absorb that cost in the short term, and will not feel in any particular rush to agree to a solution that is not structural. Moreover, the continuance of the crisis on a manageable level will have a parallel dampening effect on the value of the Euro, which can only help Germany's exports. And finally, the continued decline of the overall quantum of German debt will make it ever less dependent on raising loans to cover federal expenditure.

Those are conditions the markets can believe in, and which will ultimately result in the markets backing off, if and when the peripheral states bring their economies into better balance.

later12

McDave wrote: »

The key phrase in this regard is "in its current form". This could mean any option from, e.g.:

- a totally new currency;
- the exit of one or more member;
- the adoption of new stability criteria.

Or all of the above perhaps! I think that the most favourable prospect would be the third option, and indeed you are quite right the key phrase is 'in it's current form'. But I think I am less optimistic than you about the Eurozone's will - or even ability - to change.

Those are conditions the markets can believe in, and which will ultimately result in the markets backing off, if and when the peripheral states bring their economies into better balance.

What you say is true with regard to Germany, however I would just throw in the issue of inflation and price demands and the ECB's impotence with regard to reining that in for the foreseeable future if the spike in commodities continues on its upward trajectory, which it doubtless will. Now is not a good time for Europe starting to overshoot it's inflationary targets.

I don't think any one doubts that in due course something essential will change in the Eurozone. I have a suspicion though that the existing members will stay on board a currency that will still be called the Euro.

I'm not totally convinced but it is possible, and the change would have to be drastic.