Lisbon Treaty ... will they or won't they?

[D_Tully Tunnelrat]

At New Year last I predicted on this board that a country would do just this in 2009. We have a couple of months to go, but I rather think the political issues over the ratification of Lisbon have bought a little time - maybe into the New Year. My personal view is that it is desperately hard to see how this can be avoided. I think it is a disaster - but more or less ineviitable, and if it doesn't happen there are even bigger disasters waiting in the wings.

That was bold of you. It would seem to be inevitable to me as well, but I would to loathe to make a bet on when it will happen. Spain seems a likely candidate given their real estate boom, which like the ones in the US and Ireland, was massively overbought. If deficits force them to cut the national budget, at what point does the civil unrest, due to 25%+ unemployment, destabilize the country, or their membership in the Euro currency? Pledging virtually all your national assets to the EUCB seems like an "all in" strategy; very risky. The Danes, as usual, took a bit more sensible approach.

The UK position (outside the Euro) is that sterling can devalue taking a lot of the heat out of our present economic woes. The US dollar is doing much the same - but the Euro is stuck way too high.

As Soros says, the dollar is a flawed currency, except for all the others. I think that applies to the Euro as well. Even if the Euro remains high, it will not be the region that drives world economic growth going forward. To the contrary, a strong Euro will diminish EU growth. The premise that markets are self-regulating, and efficient has been proven invalid the world over. The currency markets being one of the best indicators of this.

 

[Jason]

So what is a Wyoming USD worth?

Whatever someone will pay for it.

Within the British Isles and elsewhere in Europe (eg Denmark) we have the concept of different banks issuing one currency. There are eight UK banks issuing the pound, all with different designs (England, Scotland, Royal, Clydesdale, Ulster, Northern, First Trust, Ireland). All notes are in theory accepted anywhere in the UK - in practice you might have trouble with some, and overseas only Bank of England notes can easily be exchanged. Guernsey, Jersey, Man, St Helena, Gibraltar and Falklands issue their own pounds though their notes are not accepted in the UK. With all the talk of Scottish independence it is possible to consider a time when the Pound Scots is untethered from its 1707 peg with the Pound Sterling and Scotland has its own ready made currency (with three banks issuing it). This is pretty much what happened in the Irish Republic in the 1928 when the Irish Pound was uncoupled from its 1826 peg (initially re-pegged at one to one however) and went its own way - though in Northern Ireland the four banks issuing pounds remained on parity with sterling. In the UK there has never been a sense of the union of the kingdoms of England, Scotland and Ireland was some irrevocable decision and this has been reflected in something as basic as different banknotes.

The problem that the Euro has is that the notes are not visually different country to country (the coins at least have national symbols on one side). Uncoupling the Euro of any one country would be horribly messy. The biggest problem is not for the country devaluing and breaking away but for every other country - suddenly there would be visually identical notes in circulation which are actually worth less than their face value. The difference is in the serial numbers - actually the first element of the number is a national letter:

Portugal = M
Italy = S
Spain = V
Greece = Y
Ireland = T

The rotters at the ECB have even assigned a letter for the UK (J)

Article about Ireland leaving the Euro at Wise Up Journal - End The Recession By Leaving The Euro - Scared Even To Suggest It? *
An interesting discussion at Chances of Ireland leaving the Euro? - Askaboutmoney.com

However I can't find anything about Wyoming leaving the dollar.

 

[eurotop40]

It is interesting and very creative how, in any way, the so-called eurosceptics express their feelings:
Euro currency high = bad
Euro currency low = bad.

 

[Jason]

It is interesting and very creative how, in any way, the so-called eurosceptics express their feelings:
Euro currency high = bad
Euro currency low = bad.

In terms of exchange rate the Euro has to be at the right level (not a high or low level). But it has to be right for each economy within Europe, which is scarcely possible while there are separate economies and nations.

Therefore I can simplify:

Euro = bad

There was an interesting article in the UK newspaper The Daily Telegraph back in February:

Are Germans giving up on the euro – Telegraph Blogs

This suggests that Italy cannot stay within the Euro, but that leaving is meltdown economics. There is something breathtakingly stupid about the creation of a single currency without a planned exit route.

 

[eurotop40]

...

Therefore I can simplify:

Euro = bad

...

This should be none of your business since you are out anyway.

 

[Jason]

This should be none of your business since you are out anyway.

It is the business of everyone in the world. If a currency as major as the Euro hits problems it will hurt every one of us. The UK is outside of the Euro and would be less hurt than Eurozone countries, but the UK, USA, the whole world would feel the effects of a Euro currency disaster.

 

[D_Tully Tunnelrat]

There was an interesting article in the UK newspaper The Daily Telegraph back in February:

Are Germans giving up on the euro – Telegraph Blogs

This suggests that Italy cannot stay within the Euro, but that leaving is meltdown economics. There is something breathtakingly stupid about the creation of a single currency without a planned exit route.

That was a fascinating article on how a meltdown might occur.

Since all paper currencies are inherently flawed (you can print as much as you like), it's very interesting to try and understand how they are constructed, so as to estimate how they may react in times of crisis. Perhaps this is why te currencies markets are the biggest trading markets in the world, and that everyone from Japanese housewives to cabbies, anywhere in the world, have an opinion on them.

Given the totally different economic dynamics of the Italian economy vs. Germany's, it's hard to see how the two could function under the same economic program. If the only in-euro "escape valve" is varying the interest rates, the spreads (between Italy and Germany), based upon debt as a percentage of GDP, would seemingly have to be far higher than they are today, as Germany is extremely unlikely to back Italian debt. This is the crux of the difference between the EU, and UK, US systems (both of which are deeply flawed, but have passed the test of time) where, in the case of the US, the Treasury, with Congress, can step in and make whole, at least temporarily, States that are in deficit. In the Euro zone, much higher interest rates now, in the case of Italy, would seemingly be a small price to pay as compared to the price of leaving the Euro zone later, for all the countries involved.

What do you make of the Czech President's withholding support for Lisbon?

Czech President Sees Lisbon ?Train? Hard to Stop (Update1) - Bloomberg.com

One thing I found fascinating in this article was that "much of the office’s (EU President) power has yet to be defined." How can you vote for a treaty giving undefined Presidential powers? And what role would then be relegated to duly elected "local" (Netherlands, Italy etc.) Presidents, and/or Prime Ministers?

 

[eurotop40]

It is the business of everyone in the world. If a currency as major as the Euro hits problems it will hurt every one of us. The UK is outside of the Euro and would be less hurt than Eurozone countries, but the UK, USA, the whole world would feel the effects of a Euro currency disaster.

This whole debate about Lisbon, the UK, Ireland is a mixture of romanticism painted with economic rationalization and a certain "suffisance" remembering past splendors. The irony od the whole thing is that right those economist gurus are responsible for the greatest debts and crashes. Most of these guys have proved being totally incompetent. Obviously, the war in Irak has opened a huge hole that no variation of interest rates can fill.Quite honestly, I much more fear a desaster of the USD since the US has no more original products to sell, having outsourced or dumped everything to China and India except Microsoft and the War industry.

 

[Jason]

What do you make of the Czech President's withholding support for Lisbon?

Czech President Sees Lisbon ?Train? Hard to Stop (Update1) - Bloomberg.com

I think the pressure he is now under will be beyond belief. The Eurocracy will be busy supporting anyone in the Czech Republic who opposes his stand, and discrediting anyone in the Czech Republic who supports him. He will find almost no-one supports him. There is already a hate campaign against him. He may come to the view that the Lisbon Treaty failing solely because he has with-held his signature is not good for the Czech Republic, and therefore sign for this reason. Indeed a view in the Czech Republic (eg from the Czech PM) is not whether he will sign but when.

The Czech Republic has decided to consider the Lisbon treaty through a parliamentary process (not a referendum) which needs ratification by the president taking into account Czech constitutional issues. But we do seem to be at the stage where these are just filibusters. The Czech Republic is a relatively young democracy and the "what ifs" are not fully worked out. It could be that the president will be impeached (how long does this take?) It could be that he will dissolve parliament (his prerogative) forcing an election which would in effect be fought on the Lisbon Treaty.

It could be that he will see the Lisbon Treaty as a lost battle but not a lost war. For the EU this does look very like a treaty too far - there are no plans for the next stage, unlike all previous treaties. His political party (Civil Democratic) and the UK Conservatives are linked in the European parliament. A Conservative win in the UK election would change the feel of European politics, even with Lisbon pushed through. Economic woes in the Eurozone may also cause problems for the European project - indeed it is possible that the high water mark of European integration has been reached.

Right now Klaus is a very brave man.

 

[798686]

I think Klaus said in The Times yesterday, that he couldn't hold out until the British general election. He apparently received a letter from Cameron in July asking him to do that, but has now said he couldn't and wouldn't. Apparently, if his opt out on the Charter of Fundamental Rights can be secured, then he will sign. He said Lisbon is not good for Europe or the Czech Republic, but it's a train that's gone too far and too fast to stop.

As far as the undefined role of the EU President (President of EU Council) is concerned - the choice of candidate will determine to a certain extent what the role becomes. Some countries are in favour of a smaller, more administrative figure (maybe Anders Fogh Rasmusson), but many realise that if they appoint someone like Blair, they'll basically be saying yes to a full-on European figurehead, who'll expand the role much beyond what many people want.

 

[Jason]

Yes I expect he will sign. Probably in years to come details will come to light of the threats that have been made to him to extract his compliance. Poor man.

The day he signs will be the day the Conservatives in the UK will come under enormous pressure to say just what they will do. This poll is from The Times 13 May 2009:

A new Populus poll for the Times has found overwhelming support for a referendum on the Lisbon Treaty, even in a situation where it has already been ratified by Ireland and the rest of the EU. 82% of people agreed with the statement, "If Ireland and other countries ratify the Lisbon Treaty on the future of the European Union, Britain should hold its own referendum on the issue"

I think the political challenge is to phrase the question correctly - strictly a referendum on Lisbon could be a referendum on leaving the EU, while I think something a bit different is needed. Presumably a UK government would want a clear mandate through a referendum to demand root and branch changes from the EU with respect to the UK's relationship with the EU.

Arguably a referendum has to envisage three options - status quo, semi-detached, leave.

 

[D_Tully Tunnelrat]

He said Lisbon is not good for Europe or the Czech Republic, but it's a train that's gone too far and too fast to stop.

I read that as well. Some articles paint the man as conservative-reactionary, but that may just be the brush they'd like to paint him with. Klaus does have gumption, and is a dedicated free-marketeer, neither of which probably endears him to large bureaucratic organizations, and their office holders. I would not want to be in his shoes right now.

As far as the undefined role of the EU President (President of EU Council) is concerned - the choice of candidate will determine to a certain extent what the role becomes.

Perhaps it is solely my Amero-centricism that keeps me from it, but I cannot imagine voting to staff the most powerful position in Europe, which comprises now 400M people, without very, very well defined powers.

It seems that each EU country is somewhat at liberty to determine their own relationship, given their Constitutions, to the EU, which still begs the question what degree of self-determination do national politicians still carry in a Federalist style Parliamentary system.

 

[798686]

Arguably a referendum has to envisage three options - status quo, semi-detached, leave.

I agree. Personally I'd prefer a Norwegian-style option. Autonomous but with trading agreements.

 

[Jason]

Perhaps it is solely my Amero-centricism that keeps me from it, but I cannot imagine voting to staff the most powerful position in Europe, which comprises now 400M people, without very, very well defined powers.

It seems that each EU country is somewhat at liberty to determine their own relationship, given their Constitutions, to the EU, which still begs the question what degree of self-determination do national politicians still carry in a Federalist style Parliamentary system.

In the Exhibit Hall of the National Archives in Washington DC the USA proudly displays an original copy of the Magna Carta. This is the document on which the English common law system and the English parliamentary system was founded, and which has given rise to the legal systems and parliaments of the Anglo-Saxon world and beyond. The US Bill of Rights in parts paraphrases Magna Carta. Key to Magna Carta and the Bill of Rights is the affirmation of law which applies to kings and presidents respectively, with the liberties of the individual guaranteed, and the constitutional history of the UK and the US has in a great part been an application of this fundamental concept. This view isn't US-centric - it is simply a view of the primacy of democracy and the primacy of equality beneath the law. Both are been flouted by the way in which the Lisbon Treaty is being pushed through and by the way in which a presidential system with ill-defined powers would act.

It is easy to understand that an American finds the idea of setting up a president for whom people don't vote and with ill-defined powers is very hard to get to grips with. The UK can't understand this either. Nor can many countries in Europe.