http://www.thetraderswire.com/george-soros-three-months-to-save-the-euro/
( Interestingly , the Soros speech has been pulled from his website - did he hit too close to the truth or step on the wrong toes...... )
http://www.silverdoctors.com/breaking-g7-to-hold-emergency-euro-zone-talks-tuesday-on-spain/
Even if the answer to all those questions was different, here is one more key question:
Will the market wait for it? Of course not.
Impossible to Keep a Nannycrat Down
Nonetheless, it is impossible to keep a nannycrat down.
Münchau concludes with "I am, however, mildly encouraged by the sheer number of people in Brussels, Frankfurt, Paris and in Rome, who are now openly advocating a multi-stage fiscal union. There really is no alternative."
No doubt Münchau will be even more encouraged by the June 3 Wall Street journal headline Germany Signals Crisis Shift However, inside the article, the details are the same collection of fluff promises found elsewhere.
Merkel wants control over national budgets (something she actually cannot promise without a referendum), and France does not.
Meanwhile France wants eurobonds. Yet on June 3, for the 1000nth timeMerkel Rejects Debt Sharing as Obama Urges Europe ActionSecret Plans?
Virtually nothing has changed. And that is why I am sticking with what I said on June 3 in Another Meaningless Nannycrat Rumor: Europe Mulls "Secret Plan for New Europe"
For some inexplicable reason Münchau is mildly encouraged by all this hot air from nannycrats. I propose the only way to be encouraged by useless talk by nannycrats is to be a nannnycrat.
What Hollande Must Tell Germany
Financial Times columnist Martin Wolf writes What Hollande must tell Germany.What can Hollande possibly tell Germany that has not been said by economic writers, nannycrats, and eurocrats 10,000 times or more?
The answer of course is "nothing".
Devaluation: The Last Option?
Finally, Financial Times columnist Jeremy Siegel proposes Devaluation – last option to save the euro
A devaluation of the euro while leaving the eurozone intact would do very little if anything for the relative competitiveness of Spain, Greece, or Italy vs. Germany.
Reportedly, Greece needs a 60% devaluation of the Drachma. Spain may need a 30% or 40% devaluation of the peseta. What does Italy need?
See the problem? Even IF Germany were to agree to higher inflation, it cannot agree to differing rates simultaneously. The practical side says Germany would not agree to higher inflation in the first place and even if it would, certainly 30% is not in the ballpark.
How long would it take Spain to be competitive to Germany if inflation in Germany was 6% and inflation in Spain 0%? My answer is forever.
The notion that inflation in and of itself cures anything is fundamentally flawed, and especially flawed between countries on the same currency.
Obama's Imaginary "Crisis Cloud"
President Obama got into the act, warning Europe to end the "Crisis Cloud".For a discussion of Obama's imaginary cloud as well as my first take on "nannycrats", please see Obama Seeks End to "Crisis Cloud"; Cloud? What Cloud?
Also see my original post on the "nannyzone" written June 2, 2011, nearly one year ago today: Trichet Calls for Creation of European "Nanny-State" and Fiscal "Nanny-Zone"
No Cloud, Only Clouded Judgements
There is no cloud, only clouded judgements by economic writers, nannycrats, eurocrats, prime ministers, and presidents.
The euro project is a failure. It was ill-conceived in the beginning, poorly executed throughout, and together with fractional reserve lending helped destroy Ireland, Spain, Portugal, and Greece.
With such a dismal track record it is somewhat a mystery why anyone would want the damn thing.
No alternative? Really?
Wolfgang Münchau says "There really is no alternative."
Of course there is an alternative. How about a serious discussion of how best to breakup the eurozone?It is time to focus on reality instead of the impossible. The reality is the eurozone is going to bust up and nannycrats better get used to the idea or the markets will impose that break-up in their own messy way.
The "obtanium" is a eurozone breakup.
The "unobtanium" is a fiscal nannyzone. And without a fiscal nannyzone and common bonds, the eurozone cannot stay intact.
Eurozone Breakup is Destiny
A breakup is destiny. The important question is "how?"
I discussed this last week on Capital Account with Lauren Lyster.
* * * *
Slow-and-Painful or Over-and-Done?
The slow, painful, and highly disruptive breakup is for Greece to exit, followed by Spain, followed by Portugal, followed by Ireland, and ultimately Italy.
The least painful way is for Germany to exit now.
Why?
Germany would immediately have a credible currency. Greece and Spain would not. Greece is highly likely to experience hyperinflation if it exits.
If Germany and the Northern countries exit, then the ECB can print at will. It can do what Spain and Greece wants.
Hollande can then have his fiscal union. However, would he still want that union if France instead of Germany is the main country backstopping the euro?
The "Real Alternative"
The choice is not between pain and no pain, but on how soon to get it over with. Bear in mind, Spain, Italy, and Greece have much to do whether the choice is slow-and-painful or over-and-done.
The PIIGS in general need to address work rules and pension reform. So does France. The immediate irony is Spain's prime minister Rajoy says he wants this "Nannyzone", but would he actually obey the dictates of the Nannycrats if they ordered Spain to live within it's means and change union work rules as well?
Clearly the answer is no, yet Rajoy argues forcefully for a "central nanny" enforcer.
Germany is Going to Suffer
No one should think Germany will get off Scot-Free. It's export machine is going to break down either way. Debts owed to Germany will be paid back in depreciated euros not Deutschmarks.
German banks can somewhat prepare for this scenario by dumping all external debt immediately.
There are hundreds of other details to work out.
However, there are thousands of very disruptive details to work out case-by-case if the nannycrats succeed in throwing billions or trillions more euros down the drain hoping to save the unsavable.
Enough is enough. It's time for economic writers to end these silly nannyzone proposals and instead concentrate on an intelligent discussion on how best to break apart the eurozone. The market is certainly moving in that direction even if the current crop of politicians is not.
http://www.examiner.com/article/market-rumor-pimco-and-jp-morgan-halt-vacations-to-prepare-for-economic-crash
Euro-zone governments have around three months to ensure the survival of the single currency, billionaire investor George Soros said in a speech on Saturday.
“We are at an inflection point. After the expiration of the three months’ window, the markets will continue to demand more but the authorities will not be able to meet their demands,” he warned in a speech at the Festival of Economics in Trento, Italy
The European Union is “like a bubble” – not a financial bubble but a political bubble — that could pop as a result of the euro -zone crisis, Soros said.
“In the boom phase, the EU was what the psychoanalyst David Tuckett calls a ‘fantastic object’ – unreal but immensely attractive,” he said.
“In retrospect, it is now clear that the main source of trouble is that the member states of the euro have surrendered to the [b]European Central Bank[/b] (ECB) their rights to create fiat money. They did not realize what that entails – and neither did the European authorities,” he said.
The euro zone needs a European deposit insurance scheme for banks, Soros said, as well as direct financing by the European Stability Mechanism (ESM) for banks, which “must go hand-in-hand with euro-zone-wide supervision and regulation.”
The “blockage” at the moment is coming from the Bundesbank and the German government, he said. German Chancellor Angela Merkel has been cautious about increasing Germany’s support for the rest of the Euro Zone
and.....
http://www.silverdoctors.com/breaking-g7-to-hold-emergency-euro-zone-talks-tuesday-on-spain/
TORONTO/BERLIN (Reuters) - Finance chiefs of the Group of Seven leading industrialized powers will hold emergency talks on the euro zone debt crisis on Tuesday in a sign of heightened global alarm about strains in the 17-nation European currency area.
With Greece, Ireland and Portugal all under international bailout programs, financial markets are anxious about the risks from a seething Spanish banking crisis and a June 17 Greek election that may lead to Athens leaving the euro zone.
"Markets remain skeptical that the measures taken thus far are sufficient to secure the recovery in Europe and remove the risk that the crisis will deepen. So we obviously believe that more steps need to be taken," White House press secretary Jay Carney told reporters.
Canadian Finance Minister Jim Flaherty said ministers and central bankers of the United States, Canada, Japan, Britain, Germany, France and Italy would hold a special conference call, raising pressure on the Europeans to act.
"The real concern right now is Europe of course - the weakness in some of the banks in Europe, the fact they're undercapitalized, the fact the other European countries in the euro zone have not taken sufficient action yet to address those issues of undercapitalization of banks and building an adequate firewall," Flaherty told reporters.
The disclosure of the normally confidential teleconference came as European Union paymaster Germany said it was up to Spain, the latest euro zone country in the markets' firing line, to decide if it needed financial assistance, after media reports that Berlin was pressing Madrid to request aid.
German Chancellor Angela Merkel and leaders of her centre-right coalition said in a statement: "All the instruments are available to guarantee the safety of banks in the euro zone."
They effectively ruled out Spanish calls to allow euro zone rescue funds to lend money directly to recapitalize Spanish banks, which are weighed down with bad property debts, without the government having to take a bailout program.
Berlin is pressing reluctant euro zone partners, including close ally France, to agree to give up more fiscal sovereignty as part of a closer European fiscal union.
A G7 source, speaking on condition of anonymity because of the sensitivity of the issue, said there were concerns about the risk of a bank run in Spain, which is struggling to recapitalize nationalized lender Bankia and smaller banks stricken by the collapse of a property bubble.
"There is concern on whether there will be a bank run in Spain that could have repercussions beyond the euro zone," the source told Reuters.
The United States, which holds the G7 chair, has long pressed Europe to deal more forcefully with its crisis. President Barack Obama, seeking re-election in November, has pointed to Europe's crisis as a problem for the weakening U.S. economic recovery.
"European leaders appear to be moving with a heightened sense of urgency," a U.S. Treasury Department official said.
"We're hoping to see accelerated European action over the next several weeks, including in the run-up to the Leaders' G20 meeting in Mexico," the official said, referring to a summit of the Group of 20 leading economies in Mexico on June 18-19.
"Movement to strengthen the European banking system will be of particular importance in this time period."
SPAIN TO TEST MARKET
Spain's borrowing costs have soared to around 6.6 percent for 10-year bonds with the risk premium over safe haven German Bunds reaching a euro era record. Madrid plans to issue 1-2 billion euros in 10-year debt on Thursday in a key market test.
The United States has said it is unwilling to provide more money to the International Monetary Fund, which could support the euro zone, and the G7 source said there was little prospect of the global community acting as one to contain the crisis.
A senior Brazilian official added to the pressure on Europe and in particular Germany. "We insist in our position that European countries with enough space to stimulate the economy, even via fiscal stimulus (not many that can do that), should do it now," said the official, referring mostly to Germany.
The euro climbed and safe-haven U.S. and German bonds eased off last week's record low yields as speculation mounted that authorities will act to overcome the crisis.
EU leaders hold a summit on June 28-29 and their chairman, Herman Van Rompuy, said he would put forward a roadmap for closer economic union by the end of 2012.
He said he would present the main building blocks at the summit, including banking integration proposals on "supervision, on deposit insurance and on resolution".
Germany, keen to limit liabilities for its taxpayers as the biggest contributor to euro zone rescue funds, has so far rejected proposals for a banking union with a joint deposit guarantee and a common resolution fund for failing banks.
Officials say such measures can come only at the end of a drive to closer fiscal union.
Before meeting European Commission President Jose Manuel Barroso in Berlin, Merkel said they would consider the "medium-term goal" of the need to put systemically important banks under a European supervisory authority.
"The world wants to know how we conceive the political union that will accompany monetary union, and we have to provide an answer to this question in the foreseeable future," she said.
Underscoring how complex the process of deeper political union in Europe is likely to be, a German government paper seen by Reuters said Germany does not expect Europe to take any final decisions on strengthening economic policy coordination between member states until the spring of next year.
CHINA EYES GREEK EXIT
China, another major G20 power, has instructed key agencies including the central bank to come up with plans to deal with potential economic risks of a Greek withdrawal from the euro zone, three sources with knowledge of the matter told Reuters.
The plans may include measures to stabilize the yuan currency, increase checks on cross-border capital flows and policies to stabilize China's economy, they said.
Euro zone officials have sought to persuade Beijing, which has vast foreign currency reserves mostly in U.S. Treasury bonds, to back the euro zone by buying its troubled countries' bonds. But Chinese officials have been reticent, concerned at the risks and mindful of Chinese public criticism.
In a ray of light, Portugal's international lenders said its year-old bailout plan was on track, boosting Lisbon as it seeks to avoid following Greece into a second rescue package.
and....
http://globaleconomicanalysis.blogspot.com/2012/06/multi-stage-nannycrat-proposals.html
Monday, June 04, 2012 10:58 AM
"Multi-Stage" Nannycrat Proposals; Devaluation - The Last Option? Note to Wolfgang Münchau, Martin Wolf, Jeremy Siegel at the Financial Times: Focus on the Obtanium not the Unobtanium
The stubbornness of economic writers, nannycrats, and eurocrats is nothing short of amazing.
No matter how many times Merkel rejects eurobonds and other transfer mechanisms, the vast preponderance of economic writers, nannycrats, and eurocrats keep proposing the same futile actions, over and over, and over again.
For example, Financial Times columnist Wolfgang Münchau writes How to build a fiscal union to save the eurozone.
One does not even have to read the article to know his proposal will never fly. Nonetheless, I did suffer through it. My conclusion is "it will never fly".
The reason it will not fly is that it requires both legislative changes and treaty changes, something rather obvious from the title I might add.Would the German supreme court allow it? Of course not. Would all the Northern states vote for it in this economic malaise? Of course not. Would German citizens vote for it? Of course not.
No matter how many times Merkel rejects eurobonds and other transfer mechanisms, the vast preponderance of economic writers, nannycrats, and eurocrats keep proposing the same futile actions, over and over, and over again.
For example, Financial Times columnist Wolfgang Münchau writes How to build a fiscal union to save the eurozone.
One does not even have to read the article to know his proposal will never fly. Nonetheless, I did suffer through it. My conclusion is "it will never fly".
The reason it will not fly is that it requires both legislative changes and treaty changes, something rather obvious from the title I might add.Would the German supreme court allow it? Of course not. Would all the Northern states vote for it in this economic malaise? Of course not. Would German citizens vote for it? Of course not.
Even if the answer to all those questions was different, here is one more key question:
Will the market wait for it? Of course not.
Impossible to Keep a Nannycrat Down
Nonetheless, it is impossible to keep a nannycrat down.
Münchau concludes with "I am, however, mildly encouraged by the sheer number of people in Brussels, Frankfurt, Paris and in Rome, who are now openly advocating a multi-stage fiscal union. There really is no alternative."
No doubt Münchau will be even more encouraged by the June 3 Wall Street journal headline Germany Signals Crisis Shift However, inside the article, the details are the same collection of fluff promises found elsewhere.
The issues on the table fall broadly into two categories. There are ideas such as creating joint European bonds, a European-wide deposit insurance and more broadly a "banking union," which fall into the category of mutual liability for sovereign debt and European banks. These are ideas French President François Hollande backs, but have been anathema to Ms. Merkel unless power to enforce budget discipline is shifted to Europe, which would mean a sacrifice of sovereignty.
Germany is pushing again for far-reaching European control of national budgets, a fiscal-policy union, which would require member states to cede control of national budgets to some future European fiscal authority, an idea France staunchly opposes. There is little chance of a breakthrough in June, but German officials said a process is beginning.Got that?
"There will be no big bang at the June summit," said a German official. "But it would be a big step for Europe if we succeed in creating a structure for the discussion, establishing a method, asking the right questions and putting it all into a certain timetable hat would be significant for Europe."
Speaking to reporters at a summit of Baltic Sea Coast leaders last week, Ms. Merkel suggested she is willing to engage in discussion about any idea on the table.
"Of course, it is possible to consider how we are going to develop over the next five to 10 years," she said. "But if we are constantly censuring our ideas it won't work."
Merkel wants control over national budgets (something she actually cannot promise without a referendum), and France does not.
Meanwhile France wants eurobonds. Yet on June 3, for the 1000nth timeMerkel Rejects Debt Sharing as Obama Urges Europe ActionSecret Plans?
Virtually nothing has changed. And that is why I am sticking with what I said on June 3 in Another Meaningless Nannycrat Rumor: Europe Mulls "Secret Plan for New Europe"
More Holes Than Swiss CheeseThere is no plan. There is not even a plan for a plan. The secret plan is to develop a secret plan at the already scheduled June summit with "meat on the bones" coming later.
One look at the nannycrat participants led by Van Rompuy and Jean-Claude "lie when it's serious" Juncker, is all you need to do to know the plan has far more holes than Swiss Lorraine cheese.
I would have thought that no one could possibly take this seriously, even if such a meeting were agreed to.
For some inexplicable reason Münchau is mildly encouraged by all this hot air from nannycrats. I propose the only way to be encouraged by useless talk by nannycrats is to be a nannnycrat.
What Hollande Must Tell Germany
Financial Times columnist Martin Wolf writes What Hollande must tell Germany.What can Hollande possibly tell Germany that has not been said by economic writers, nannycrats, and eurocrats 10,000 times or more?
The answer of course is "nothing".
Devaluation: The Last Option?
Finally, Financial Times columnist Jeremy Siegel proposes Devaluation – last option to save the euro
The least disruptive route Europe can take is to sharply lower the value of the euro. This will help improve the trade deficit in the peripheral countries and bring some relief to their downward spiralling economies. Euro depreciation would push the German trade surplus even higher and cause some inflationary pressures in those few European countries that are still near full employment. Given the strong German labour market, a lower euro would be likely to raise German wages and help close the gap between German and other European labour costs. The mild inflationary effect of a euro closer to dollar parity would be far less painful for all concerned than forcing austerity or internal devaluation on the peripheral countries.Obvious ProblemsThere are two obvious problems with Siegel's proposals.
- Germany will not go along with higher inflation
- It would not help if Germany did
A devaluation of the euro while leaving the eurozone intact would do very little if anything for the relative competitiveness of Spain, Greece, or Italy vs. Germany.
Reportedly, Greece needs a 60% devaluation of the Drachma. Spain may need a 30% or 40% devaluation of the peseta. What does Italy need?
See the problem? Even IF Germany were to agree to higher inflation, it cannot agree to differing rates simultaneously. The practical side says Germany would not agree to higher inflation in the first place and even if it would, certainly 30% is not in the ballpark.
How long would it take Spain to be competitive to Germany if inflation in Germany was 6% and inflation in Spain 0%? My answer is forever.
The notion that inflation in and of itself cures anything is fundamentally flawed, and especially flawed between countries on the same currency.
Obama's Imaginary "Crisis Cloud"
President Obama got into the act, warning Europe to end the "Crisis Cloud".For a discussion of Obama's imaginary cloud as well as my first take on "nannycrats", please see Obama Seeks End to "Crisis Cloud"; Cloud? What Cloud?
Also see my original post on the "nannyzone" written June 2, 2011, nearly one year ago today: Trichet Calls for Creation of European "Nanny-State" and Fiscal "Nanny-Zone"
No Cloud, Only Clouded Judgements
There is no cloud, only clouded judgements by economic writers, nannycrats, eurocrats, prime ministers, and presidents.
The euro project is a failure. It was ill-conceived in the beginning, poorly executed throughout, and together with fractional reserve lending helped destroy Ireland, Spain, Portugal, and Greece.
With such a dismal track record it is somewhat a mystery why anyone would want the damn thing.
No alternative? Really?
Wolfgang Münchau says "There really is no alternative."
Of course there is an alternative. How about a serious discussion of how best to breakup the eurozone?It is time to focus on reality instead of the impossible. The reality is the eurozone is going to bust up and nannycrats better get used to the idea or the markets will impose that break-up in their own messy way.
The "obtanium" is a eurozone breakup.
The "unobtanium" is a fiscal nannyzone. And without a fiscal nannyzone and common bonds, the eurozone cannot stay intact.
Eurozone Breakup is Destiny
A breakup is destiny. The important question is "how?"
I discussed this last week on Capital Account with Lauren Lyster.
* * * *
Slow-and-Painful or Over-and-Done?
The slow, painful, and highly disruptive breakup is for Greece to exit, followed by Spain, followed by Portugal, followed by Ireland, and ultimately Italy.
The least painful way is for Germany to exit now.
Why?
Germany would immediately have a credible currency. Greece and Spain would not. Greece is highly likely to experience hyperinflation if it exits.
If Germany and the Northern countries exit, then the ECB can print at will. It can do what Spain and Greece wants.
Hollande can then have his fiscal union. However, would he still want that union if France instead of Germany is the main country backstopping the euro?
The "Real Alternative"
The choice is not between pain and no pain, but on how soon to get it over with. Bear in mind, Spain, Italy, and Greece have much to do whether the choice is slow-and-painful or over-and-done.
The PIIGS in general need to address work rules and pension reform. So does France. The immediate irony is Spain's prime minister Rajoy says he wants this "Nannyzone", but would he actually obey the dictates of the Nannycrats if they ordered Spain to live within it's means and change union work rules as well?
Clearly the answer is no, yet Rajoy argues forcefully for a "central nanny" enforcer.
Germany is Going to Suffer
No one should think Germany will get off Scot-Free. It's export machine is going to break down either way. Debts owed to Germany will be paid back in depreciated euros not Deutschmarks.
German banks can somewhat prepare for this scenario by dumping all external debt immediately.
There are hundreds of other details to work out.
However, there are thousands of very disruptive details to work out case-by-case if the nannycrats succeed in throwing billions or trillions more euros down the drain hoping to save the unsavable.
Enough is enough. It's time for economic writers to end these silly nannyzone proposals and instead concentrate on an intelligent discussion on how best to break apart the eurozone. The market is certainly moving in that direction even if the current crop of politicians is not.
http://www.examiner.com/article/market-rumor-pimco-and-jp-morgan-halt-vacations-to-prepare-for-economic-crash
Market rumor: Pimco and JP Morgan halt vacations to prepare for economic crash
On June 1, market rumors were coming out of a hedge fund luncheon stating that Pimco, JP Morgan, and other financial companies were cancelling summer vacations for employees so they could prepare for a major 'Lehman type' economic crash projected for the coming months. These rumors came on a day when the markets nearly came to capitulation, with the DOW falling more than 274 points, and gold soaring over $63 as traders across the board fled stocks and moved into safer investments.
Todd Harrison tweet: Hearing (not confirmed) @PIMCO asked employees to cancel vacations to have "all hands on deck" for a Lehman-type tail event. Confirm?Todd M. Schoenberger tweet: @todd_harrison @pimco I heard the same thing, but I also heard the same for "some" at JPM. Heard it today at a hedge fund luncheon.
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