http://www.acting-man.com/?p=17007
and...
http://hat4uk.wordpress.com/2012/05/21/euroblown-the-madness-round-up/
French President Francois Hollande and like-minded euro zone leaders are expected to promote the idea of mutualized European debt at an informal summit in Brussels this week, increasing pressure on German Chancellor Angela Merkel to drop her opposition to the proposal.
Senior EU and US officials said Hollande raised the topic of euro area bonds - bonds jointly underwritten by all euro zone member states - during G8 talks at the weekend and would again push it when EU leaders meet in Brussels on May 23.
He is expected to have backing from Italian Prime Minister Mario Monti, Spanish Prime Minister Mariano Rajoy and the European Commission, which has long been a backer of euro area bonds, producing a feasibility study on them late last year before the initiative was pushed to the background.
The rapid deterioration in the euro zone debt crisis over the past month, with Greece's potential exit from the 17-country currency bloc no longer taboo, has brought the idea back to the forefront, with many economists and policymakers arguing it would be one of the best ways of restoring market confidence.
"The euro bonds debate is back front and center and Hollande will have support from other leaders if he raises it,» one EU official said.
"It's not something that's going to happen overnight - there's a lot that needs to fall into place first - but there is a desire for a plan of action toward euro bonds."
The summit on Wednesday is scheduled to focus on growth and investment, with European Council President Herman Van Rompuy wanting leaders to agree specific steps to stimulate growth and create jobs across the EU.
Proposals are expected to include boosting the paid-in capital of the European Investment Bank and plans for 'project bonds' underwritten by the EU budget to finance infrastructure.
The aim is to agree ideas that can be formally signed off at the next summit on June 28-29.
But the victory of Hollande's socialist party in France has not only shifted the euro zone crisis debate more towards growth, while not abandoning austerity, it has also given renewed voice to ideas that Merkel has successfully pushed aside over the past two years, including debt mutualization.
Support for Greece Declared – Sort Of
The markets last week gave our vaunted policymakers on both sides of the pond something to chew over, and the G8 palaver this weekend was marked by the usual sotto voce declarations that the once again budding crisis would be stopped dead in its tracks by whatever interventions are required.
Considering the fact that the financial markets are nowadays seemingly mainly populated by traders suffering from a special form of attention deficit disorder (this includes the mindless computer trading programs of various types that are active in the markets), we can imagine that these declarations may create a short term bounce in 'risk' – whether it lasts for mere hours or a few days remains to be seen.
We are not trying to be facetious, nor do we want to appear arrogant. Anyone active in the markets today or observing them closely must have noticed that if the markets could ever be counted on to 'discount' fundamental developments in advance it is a phenomenon that only exists in the dimming memory of the old hands these days.
Instead markets tend to be yanked around by 'news', sometimes only for hours at a time, sometimes for days and weeks. It seems the effect is the greatest the more unimportant and unreliable the news item concerned is, specifically certain data points such as the US jobs report, or vague promises of official support like those uttered over this weekend.
However, as press reports on the G8 pow-wow point out, there was an undercurrent of discord at the G8 meeting hat could not be glossed over entirely, even as word was handed down that a new tack was going to be tried.
As Reuters informs us: „World leaders back Greece, vow to combat financial turmoil“. One wonders what that actually means. Will they kiss Greece better?
* * * *„World leaders backed keeping Greece in the euro zone on Saturday and vowed to take all steps necessary to combat financial turmoil while revitalizing a global economy increasingly threatened by Europe's debt crisis.A summit of the G8 leading industrialized nations came down solidly in favor of a push to balance European austerity – an approach long driven by German Chancellor Angela Merkel – with a new dose of U.S.-style stimulus seen as vital to healing ailing euro-zone economies. But it was clear that divisions remained."We commit to take all necessary steps to strengthen and reinvigorate our economies and combat financial stresses, recognizing that the right measures are not the same for each of us," the leaders said in a joint statement issued at their meeting at the Camp David presidential retreat in Maryland.The overarching message from the summit hosted by President Barack Obama reflected his own concerns that the euro-zone contagion, which threatens the future of Europe's 17-country single currency bloc, could hurt the fragile U.S. recovery and his re-election chances in November.With Greece's political and economic upheaval high on the summit's agenda and stoking concerns over instability in Spain and Italy, Group of Eight leaders sought to calm the situation. In the first line of their final economic communique, they essentially endorsed calls to broaden Europe's focus beyond German-backed belt-tightening, calling it "our imperative" to promote growth.Anxious to quell investor fears, the G8 said: "We reaffirm our interest in Greece remaining in the euro zone while respecting its commitments." But leaders offered no specific prescription for extracting Athens from its worsening crisis.It was unusual for the often-bland G8 communique to single out a relatively small nation. But fears that a political stalemate in Greece would lead to its departure from Europe's monetary union at unknown costs to the financial system and global economic stability have spooked markets. Greek voters this month toppled a government that had agreed to painfully austere terms of an international bailout plan, and uncertainty hangs over the next election set for June 17.Spain too has roiled markets by revealing huge bad loans in its banking system as it struggles to rein in its budget while facing recession. Merkel, increasingly isolated by a French-led push for a more growth-oriented approach, sought to play down the differences, saying: "Solid finances and growth belong inseparably together and should not be put into contrast."Obama, who has pressed Europe for more growth-boosting measures like those he pursued at home, used his closing statement to remind euro-zone leaders that the stakes were high and there could be "enormous" costs if they failed. "Growth and jobs must be our top priority," he said, reaffirming that Europe has the capacity to meet the challenge.Marc Chandler, currency strategist at Brown Brothers Harriman, said: "It is significant that a group as weighty as the G8 backs Greece and reinforces the idea that Europe needs a strong union. It strengthens its hand."In another move to shore up shaky global growth, the G8 leaders said they would monitor oil markets closely and stand ready to seek an increase in supplies if needed. While crude oil prices have declined by 10 percent over the past month, the threat of tighter sanctions on Iran loom next month. The G8 said the global economic recovery shows promising signs but "significant headwinds persist."The mountain cabins at Camp David where a shirt-sleeved Obama hosted the G8 leaders contrasted with recent tense meetings in European capitals about a sovereign debt crisis that just keeps getting worse. The economic communique endorsed a recent political shift away from the budget-cutting austerity that has been championed by Merkel and British Prime Minister David Cameron as the route to prosperity.Instead it recognized a need to combine budgetary discipline with a growth strategy. This strengthens the hand of newly elected socialist French President Francois Hollande before a crucial European Union dinner on Wednesday to discuss growth.Cameron, after an early morning gym workout with Obama, said he detected a "growing sense of urgency that action needs to be taken" on the euro zone crisis. London relies heavily on international finance and banking instability would strike a fresh blow to an economy already in recession."Contingency plans need to be put in place and the strengthening of banks, governance, firewalls – all of those things need to take place very fast," he told reporters.European leaders seemed keen to stress that they would stand firm in protecting their banks, after news of escalating bad loans raised the specter that rescuing Spain's banks would crash the euro zone's fourth largest economy.Hollande suggested using European funds to inject capital into Spain's banks, which would mark a significant acceleration of EU rescue efforts. But there was no direct mention of Spain in the communique or any indication of action leaders would take to combat the financial stresses.There already were signs of a softening in Germany's austerity stance as the meeting began.Germany's largest industrial union, IG Metall, struck its biggest pay deal in 20 years early on Saturday. The 4.3 percent pay increase, more than double Germany's inflation rate, will boost worker buying power in the euro zone's richest nation and lift consumption. That is something the United States has urged as a means to bolster overall growth throughout the world's second largest economic region.(emphasis added)So let's summarize the bullet points: Greece will be 'backed', but no-one said how exactly. Presumably that is because they simply don't know.Next, they want to 'promote growth'. Well, who doesn't? Is a more bland, non-committal statement imaginable? The question that remains unanswered is: How exactly? The 'measures are not the same for all of us'. This can only mean that they are not of one mind.Mrs. Merkel is correct: growth and solid public finances are not mutually exclusive. However, if one wants to have growth, one better enact market-friendly reforms.The 'French-led push' is going in exactly the opposite direction – Mr. Hollande has yet to utter a single market-friendly word. He wants to increase both deficit spending and taxes – which represents what we would term a 'double blow to the economy'.So how exactly does this alleged combination of growth strategies and budgetary discipline 'strengthen his hand', or indeed dovetail even remotely with what the man has so far said?Protecting the Living Dead
We are not surprised everybody is 'keen to protect the banks' – after all, little else has been done since the beginning of the crisis in 2008. It was always clear – to us anyway – that the fractionally reserved banking system that has expanded credit with reckless abandon since the 'gold anchor' was finally thrown overboard in 1971 would one day blow up.This is a point that should by now be clear to everyone: is has in fact blown up. Its wreckage is held artificially aloft by a mixture of central bank intervention on an unprecedented scale and massive tax payer support, but it looks more and more like the titular hero of the movie 'Weekend at Bernie's'.In the movie the two hapless protagonists keep pretending that the long dead Bernie is still alive. It makes for lots of great slapstick and situational comedy when they prop up the freshly deceased between them trying to convince the whole world that he's still among the living.We understand the quandary of course: the system is so overstretched that letting it keel over seems a politically unpalatable prospect; depositors and savers might see their claims go up in smoke and the payments system could potentially freeze up for a while. On the other hand, the solution seems to be to essentially let the middle class and the poor bail out the bondholders of defunct banks and that is not a 'solution' at all. It will likely keep backfiring politically the way it has done in the last Greek election.Moreover, the extent to which central banks are propping up the tottering edifice with 'special measures' is harboring grave dangers as well. No-one quite knows at what point the flood of central bank created money might so to speak tip the scales; this is to say, at what point the unknowable threshold is crossed at which people begin to lose faith in the money the central banks issue. As a result we have the spectacle of central banks printing money with gay abandon while trying to keep 'inflation expectations' in check at the same time. The problem with this is that once the tipping point is crossed, there will probably be no turning back. Since 2008 we have seen plenty of 'non-linear' events take shape after all.Regarding the better 'relative performance' of the nations that print their own money, it is likely to be an ephemeral phenomenon. Consider the chart below, which shows the ratio of spending on business equipment to non-durable consumer goods in the US:
and...
http://hat4uk.wordpress.com/2012/05/21/euroblown-the-madness-round-up/
EUROBLOWN: The madness round-up
It turns out that Richard Bruton’s mis-spoken answer given on Irish radio last week (about a second referendum if the first result is a ‘mistake’) was almost certainly a relatively honest bloke giving a straight answer – rather than a chap in doubt about the arse/elbow alignment.
Unaligned Irish politician Shane Ross argued in yesterday’s Irish Independent that Fine Gael has gone for a quick referendum (by May 31st) for two reasons: first, to get a yes vote before the ClubMed chaos makes such a vote madness for any sane Irish person, and (2) to ensure time for a Second Go before the Fiscal Treaty curtain comes down, leaving the Irish out of Angela Merkel’s
Germanism Training Camp
fiscal union.
Germanism Training Camp
fiscal union.
Oddly enough – or perhaps quite deliberately – the IIF’s Charles Dallara was in Dublin last week, spreading doom and gloom about a Greek exit, and referring to the knock-on effect for Ireland as “somewhere between catastrophic and Armageddon”. Dallara is, of course, the man who negotiated the Greek sovereign debt deal, and so he would say that: the last thing his organisation wants is a whole string of ClubMed and peripheral defaults under which his members wind up with diddly-squat: even an 85% discount on the original loan is better than zero.
Meanwhile, discussions about how to directly recapitalise/shore up eurobanks directly are back on the Big Boys’ agenda now that Francois Hollande has slithered onto the French podium. Monti, Rajoy and Barroso want this because they can see what’s coming, and flirty Francois wants it because his banks (especially CreditAg) are profondement dans la merde. So while before, she was simply outnumbered, Geli in Berlin is suurounded, and the Vth army no longer exists. The grenades are being lobbed through the Bunker’s back door. Frau Doktor’s unshakeable will is about to be shaken again, but probably not stirred.
A degree of urgency on this issue has been added by last week’s huge withdrawals of cash in Greece and Spain – what the FT this morning called ‘a slow-motion bank run’. Actually, there’s no such thing: like the gradual panic, a sign of early withdrawals will require just one bad bit of news to turn into a stampede involving small arms fire and terrified tellers.
Outside the eurozone but still inexplicably in the EU, UK Coalition politics show signs of getting a bit tetchy on the subject of the local dificulties being experienced by our friends in Brussels. Deputy Prime Minister Nick Clegg predicted that arguments in Britain about whether to pull out of the European Union would be “like a small side show compared to the rise of political extremism” in the next few years.
Reading the interview, it is clear that Tricky Nicky sees the British debate as getting in the way of his pet project by bringing up irritating little nit-picks like sovereignty, democracy and illiberal detainment/cross-border policing laws. It’s also obvious that he still regards the intrinsic problems of the euro and the EU as small hurdles a five-year could trot over on her pony, as opposed to the high-rise Beecher’s Brook they are.
However, if he wants to make our truculence bigger than a sideshow, there are now plenty of folks at the People’s Pledge willing to do so. What I find staggering is that Britain’s real situation – the equivalent of having a debate about whether or not to hghtail it off Krakatoa now that the sea has started bubbling away somewhat menacingly – seems not to have penetrated what passes for his consciousness.
“Everybody should be more active,” opined Mr Clegg, “At the moment, what’s happening is you have one emergency summit after another, you have one election after the other, you have one bail out after the other. This cannot carry on.”
Crikey, this man’s mustard isn’t he? Right everyone, after three “Get Active”. No summits, no elections and no bailouts. Doesn’t sound very active to me. But then Nick is a Liberal Democrat.
But nil desperandum, because those Berlin minds are as open as ever. German Finance Minister Wolfie Schäuble is up for a frest start, and was discussing the way forward with his newly installed French counterpart, Pierre Moscovici in Berlin yesterday – as European Union leaders prepared for a summit meeting in Brussels on Wednesday. Herr Schäuble said afterwards, “We’re all very pleased that France wants to offer new initiatives with its newly elected president. The German government is ready to talk about anything”. Then he ruled out any measures involving increased debt.
This came after three short Hollande-Merkel sessions last week, in which both leaders looked for a solution to the jump-start growth vs more spending cuts impasse. They obviously conducted the chats in their respective languages, and got nowhere.
Last Friday, Dave ‘Soundbite’ Scameron told the eurozone’s members they should either make up or break up. The betting is very heavily on the latter.
and....
Euro area bonds to be discussed at informal EU summit, officials say
Senior EU and US officials said Hollande raised the topic of euro area bonds - bonds jointly underwritten by all euro zone member states - during G8 talks at the weekend and would again push it when EU leaders meet in Brussels on May 23.
He is expected to have backing from Italian Prime Minister Mario Monti, Spanish Prime Minister Mariano Rajoy and the European Commission, which has long been a backer of euro area bonds, producing a feasibility study on them late last year before the initiative was pushed to the background.
The rapid deterioration in the euro zone debt crisis over the past month, with Greece's potential exit from the 17-country currency bloc no longer taboo, has brought the idea back to the forefront, with many economists and policymakers arguing it would be one of the best ways of restoring market confidence.
"The euro bonds debate is back front and center and Hollande will have support from other leaders if he raises it,» one EU official said.
"It's not something that's going to happen overnight - there's a lot that needs to fall into place first - but there is a desire for a plan of action toward euro bonds."
The summit on Wednesday is scheduled to focus on growth and investment, with European Council President Herman Van Rompuy wanting leaders to agree specific steps to stimulate growth and create jobs across the EU.
Proposals are expected to include boosting the paid-in capital of the European Investment Bank and plans for 'project bonds' underwritten by the EU budget to finance infrastructure.
The aim is to agree ideas that can be formally signed off at the next summit on June 28-29.
But the victory of Hollande's socialist party in France has not only shifted the euro zone crisis debate more towards growth, while not abandoning austerity, it has also given renewed voice to ideas that Merkel has successfully pushed aside over the past two years, including debt mutualization.
Merkel has said she is not opposed to jointly underwritten euro area bonds per se, but believes it can only be discussed once the conditions are right, including much closer economic integration and coordination across the euro zone, including on fiscal matters.
That remains a long way off.
In its paper on what it calls «stability bonds», unveiled in November, the Commission said it was not an idea that could be deferred forever, saying the severity of the crisis - which has only worsened since - meant quicker action needed to be taken.
"While common issuance has typically been regarded as a longer-term possibility, the more recent debate has focused on potential near-term benefits as a way to alleviate tension in the sovereign debt market,» the paper said.
"In this context, the introduction of Stability Bonds would not come at the end of a process of economic and fiscal convergence, but would come in parallel with further convergence and foster the establishment and implementation of the necessary framework for such convergence."
That is language that Monti, an economist and former European commissioner, has supported in the past and is expected to second in the discussions on Wednesday.
"Whatever the timeframe was before on moving towards euro bonds, it's now even shorter because of the worsening in the crisis,» a second EU official said.
"There needs to be a discussion on jobs and growth, but there also needs to be a discussion on specific steps that can be taken towards euro bonds.
Several proposals, aside from the Commission's, have already been circulated for well over a year. One, called a debt redemption fund, was proposed by a group of German 'wise men'.
That proposal would involve mutualizing the debts of euro zone countries over and above 60 percent of GDP - the debt limit set out in the EU's stability and growth pact.
Another idea put forward by the Bruegel think tank would involve mutualizing all debt up to 60 percent of GDP, with any debt over and above that limit having to be underwritten by the specific country alone.
Economists have argued that the best way of restoring confidence in bonds issued by euro zone sovereigns is for the debt to be collectively underwritten by all the countries. However, that would put a large burden on Germany, the EU's biggest economy, to finance the debts of other member states.
As well as resolving the region's debt problems, EU leaders are also expected to discuss how to tackle a deepening banking crisis, with the banking systems in both Greece and Spain under severe strain.
One idea is to allow the European Financial Stability Facility, the euro zone's 700 billion euro rescue fund, to help recapitalize banks directly, rather than lending to individual countries that then lend it on to the banks.
That remains a long way off.
In its paper on what it calls «stability bonds», unveiled in November, the Commission said it was not an idea that could be deferred forever, saying the severity of the crisis - which has only worsened since - meant quicker action needed to be taken.
"While common issuance has typically been regarded as a longer-term possibility, the more recent debate has focused on potential near-term benefits as a way to alleviate tension in the sovereign debt market,» the paper said.
"In this context, the introduction of Stability Bonds would not come at the end of a process of economic and fiscal convergence, but would come in parallel with further convergence and foster the establishment and implementation of the necessary framework for such convergence."
That is language that Monti, an economist and former European commissioner, has supported in the past and is expected to second in the discussions on Wednesday.
"Whatever the timeframe was before on moving towards euro bonds, it's now even shorter because of the worsening in the crisis,» a second EU official said.
"There needs to be a discussion on jobs and growth, but there also needs to be a discussion on specific steps that can be taken towards euro bonds.
Several proposals, aside from the Commission's, have already been circulated for well over a year. One, called a debt redemption fund, was proposed by a group of German 'wise men'.
That proposal would involve mutualizing the debts of euro zone countries over and above 60 percent of GDP - the debt limit set out in the EU's stability and growth pact.
Another idea put forward by the Bruegel think tank would involve mutualizing all debt up to 60 percent of GDP, with any debt over and above that limit having to be underwritten by the specific country alone.
Economists have argued that the best way of restoring confidence in bonds issued by euro zone sovereigns is for the debt to be collectively underwritten by all the countries. However, that would put a large burden on Germany, the EU's biggest economy, to finance the debts of other member states.
As well as resolving the region's debt problems, EU leaders are also expected to discuss how to tackle a deepening banking crisis, with the banking systems in both Greece and Spain under severe strain.
One idea is to allow the European Financial Stability Facility, the euro zone's 700 billion euro rescue fund, to help recapitalize banks directly, rather than lending to individual countries that then lend it on to the banks.
But Germany opposes direct lending by the EFSF to banks, saying it is up to individual member states to ensure the stability of their banking sectors. [Reuters] |
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