Euro woes

Discussion in 'Politics' started by Jason, Jun 29, 2010.

  1. Jason

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    1st July is a big day for the euro. Though it is having lots of big days right now.

    A year ago the ECB as lender of last resort gave Eurozone banks loans worth around half a trillion euros. The ECB wants the money back on 1st July. They have considered that the banks might not be able to repay. If they need to borrow more money from the ECB they can borrow it - but only for three months. So there is a safety net, but if substantial use is made of the safety net the markets will conclude that the Eurozone and therefore the euro is in trouble. Banks will indicate how much (if anything) they need to borrow from ECB 30th June, and markets may well react to these intimations.

    Greece has had a demonstration-cum-riot (29th June) - of 10,000-12,000 people, shouting "burn parliament". This is a massive demonstration and with some violence, yet it has had surprisingly little news coverage. This may in part be because the Greek media is on strike. The immediate reason for the demonstration is that parliament is debating pension reforms. It is harder to think of clearer indication that the Greek government is not carrying people with it and that Greek austerity just isn't working.

    On 16th July Greece will try to issue some bonds - and again on 23rd July. The Greek banks are likely to buy them, so there are few doubts about the issue happening - but the price is likely to be horrible. In view of the riots it may be that Greece should rethink this bond issue.

    Then there's Spain. Strikes today, the Madrid metro closed, and big demonstration in Bilbao. Of course these are protests against austerity.

    At what stage do either the politicians or the markets conclude that the euro isn't going to make it, and indeed is doing more harm than good? The Spectator last week had a cover picture and story suggesting the probability that Germany would leave the euro. There are rumours on the internet that Germany is printing a new currency. The Spectator thinks Austria and BeNeLux would leave with Germany (and in effect accept a single economic governance) - but the real problem is for France.
     
  2. DexterMorgan

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    You're right!...France is caught in the middle. They (along with Germany) are the giants of the EU. But, their fiscal condition is much more precarious, and the French citizenry are used to striking and protesting at the drop of a hat. Also, consider that French governments are known to easily capitulate.

    Regrettably, I also believe the euro currency is finished. And it all comes back to the failure of the initial premise. An "economic" union is not the same as a "political" union. And with this "federation" of states all accountable to individual governments, it is unlikely one government will be willing to force hardship on their electorate for the benefit of other "electorates".

    So, I fully expect that Germany will leave the euro (it will be over a weekend, of course)...and then the euro will quickly collapse.

    We're in dangerous times, my friends. Don't listen to the lies being told at the G-20 conference in Toronto. And definitely don't listen to liars like our little U.S. Treasury Secretary or our Federal Reserve Chairman ("I see green shoots...!")

    Dexter
     
    #2 DexterMorgan, Jun 29, 2010
    Last edited: Jun 29, 2010
  3. sbat

    sbat New Member

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    Do either of you guys have links to relevant news sources or data?
     
  4. Bbucko

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    Those were my first thoughts.
     
  5. D_Tully Tunnelrat

    D_Tully Tunnelrat New Member

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    I agree, save that the economic consequences on a world wide basis would be a colossal disaster, dwarfing Lehman Bros. by a factor of 1,000. There would be no where to hide economically.

    I think it is now equally plausible, and perhaps ugly, that a political union will be forced at gunpoint down the throats of the EU citizens. If someone gives you an Armageddon either or choice, which way would you choose? I suspect that will be the premise behind a shot gun wedding to try and save the currency.
     
  6. sbat

    sbat New Member

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    Anyone have articles that elaborate on these points? Anyone?
     
  7. Jason

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    It has become an "emperor is in his birthday suit" story that no politician wants to be seen talking about as no-one wants to be blamed for talking down the markets.

    The EU is talking about "economic government/governance" (there is a translation issue). Cameron has got agreement that this would exclude the UK, but it would certainly include all Eurozone countries and perhaps all those pledged to join the EU. It means (in the first instance) that all Eurozone budgets would be pre-approved by the EU before being taken to the national parliaments that would do little more than rubber stamp them. A second stage is that bonds would be issued by the EU not by nation states, which arguably is the moment that the EU would become a sovereign state and the nations lose their independence.

    But the follow-through has to be enforcement. Greece has just had 10,000-12,000 people in a mass protest, along with another wave of strikes. The austerity measures only work if the people of Greece grit their teeth and get on with it. If they don't there is in theory the prospect of long-term subsidy from Germany et al, but this would need to be extended to Spain, Portugal and Italy. I think this is politically and economically unworkable. The unthinkable is that Greece has a national strike and the Greek army - perhaps with EU military support - breaks the strike. The gunpoint solution of fiscal union within an EU nation state would be no metaphor, rather a literal description.

    If Germany leaves with Austria and BeNeLux then these five would have a very close union, which maybe would suit them. But this leaves a Club Med supported primarily by France. Probably this doesn't work for France, so maybe France goes it alone. Quite what would happen to Finland, Slovakia, Slovenia and Ireland is anyone's guess. But it may be that a single Euro for Club Med would work. Or maybe Italy goes with France, or goes it alone - who knows!

    My view is that we need a managed transition. We do need politicians to manage a change rather than waiting for the markets to force it through.
     
  8. Jason

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    Loads of them. Google Greece Euro Deafult ECB Spain - that sort of thing. Pretty much daily articles in the business pages of the UK quality press and I know lots of US and Continental EU coverage.
     
  9. sbat

    sbat New Member

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    got it. Thanks
     
  10. TomCat84

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    Keeps interest rates for the US$ fairly low, as people come back to the fold. Just wait until the Euro countries will have to start boosting military spending after the US withdraws troops. If the Euro folks think 5% cuts in services are bad (cry babies), they got another thing comin....
     
  11. Jason

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    Yes.

    There is a crisis of direction within the EU. The Europhiles who engineered the Euro expected that by now we would have had a Lisbon Constitution and a subsquent constitution. In fact we have a Lisbon Treaty (which is a bit less than a Constitution) which took years to ratify and which now looks unfit for purpose - and we have no prospect of a post-Lisbon treaty or constitution. Monetary union and political union are out of step. The reality is still that the EU is not a nation and cannot act with one voice on international affairs.

    I can see three solutions:
    1) The Europhiles manage to treat the present problems as a "beneficial crisis" bringing in "economic government" and a sovereign EU. Then the EU can look to a co-ordinated single international and military policy.
    2) The EU goes in for a period of naval gazing as the euro gets into ever bigger problems. The "variable geometry" of a "two-speed" or "multi-speed" EU may lead to inertia and loss of wealth and influence.
    3) The EU is reformed to a much less close union, or the euro fails and the EU effectively goes into reverse. Here we would soon be back to nation states.
     
  12. Joll

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    ^ All three are possible. It's hard to call at the moment.

    I'd say you've probably listed them in order of likelihood tho. :)
     
    #12 Joll, Jun 30, 2010
    Last edited by a moderator: Jun 30, 2010
  13. B_mitchymo

    B_mitchymo New Member

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    I have gone RIGHT OFF the idea of a Europe under a single government.

    I hope for option 3.
     
  14. Joll

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    Rubbish innit? And same. :biggrin1:

    I still suspect the first option is the most likely, tho...
     
  15. Jason

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    GOOD! I hope more and more people do.

    It is only just before last Christmas that the anti-democratic Lisbon Treaty was ratified in defiance of the will of the people of Europe. That was the high water mark of European integration. The tide has gone out a long way since then. But it needs to go out a lot further.

    Curiously it is not a political process which is driving the change but an economic one.
     
  16. swordfishME

    swordfishME Member

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    Would a political union mean that Germany, Italy, France etc. cease to exist as countries? There would be an EU government with a President, PM and Parliament (some of which already exist)
     
  17. sbat

    sbat New Member

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    #17 sbat, Jun 30, 2010
    Last edited: Jun 30, 2010
  18. dandelion

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    So as to carry on fighting the wars the US started? Against our own interests to have peace here?

    Thats not strange at all. It is economic benefit which drove creation of the EU.

    No, of course not. If anything really comes of this in the way Jason is proposing, it will only involve those powers needed to deal with a crisis. So centralised lending facilities and requirements for states to have balanced budgets. Which seem to exist already, really.

    Estonia was in the news yesterday about their preparations to join the euro. This debate is quite divorced from the real world and has a lot of wishful thinking.
     
  19. Joll

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    Economic benefit was used as a pretext to create it - political aims were the real driving force.
     
  20. Jason

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    More or less.

    The definition of a country can be hard to pin down. In the UK we are four nations in one sovereign state, and each of the four home nations certainly exists as an entity. Denmark is three kingdoms within one sovereign state. Germany has a lande system with considerable regional autonomy. Spain has much regional autonomy.

    A key test of what constitutes a sovereign state is where bonds are issued, as this is ultimately the locus of economic power and one of the key criteria of being a nation state. In the UK bonds are issued by the UK - if Scotland achieves its independence it will presumably then issue its own bonds. Denmark, Germany, Spain, indeed all the EU nations, issue their own bonds and are therefore on this test sovereign states.

    If the EU achieves "economic government" where all budgets are pre-approved by the EU parliament before being looked at by national parliaments, and if crucially the ECB is the sole bond issuing authority, then I think it would be reasonable to say that the sovereign state was the EU. The nation states would continue to exist as cultural areas with residual authority within their own territory. Once you have this level of economic union the unified foreign policy follows.

    Right now the "president" established by the Lisbon Treaty has limited powers and is "elected" by a stitch up over a good meal by the EU leaders who shout loudest. Ditto the foreign affairs representative. The Europhiles would like to see these offices develop in power. However they seem most reluctant to give any sort of democratic accountability.

    The choice now for the EU seems to be a rush to create a sovereign state, or some form of fragmentation. We are going to hear more about two-speed and multi-speed Europes, of variable geometry, of third ways. We're also going to see a split between the Eurozone (perhaps including those countries signed up to join) and the non-Eurozone, basically the UK. And the events around possible fragmentation of the euro are fascinating.
     
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