If Germany left the eurozone
It may be unthinkable, but I'm not the only one thinking about it. Since my last post, both Capital Economics and Graham Turner of GFC Economics have independently put some numbers together to see what we'd be talking about if Germany took the high road out of the euro. The results are suggestive, to say the least.
As I discussed before, there would be a big upfront financial and an economic cost of Germany leaving the single currency - not to mention an enormous political price for walking away from a project in which so much has been invested.
The major economic cost would be the hit to competitiveness, because the new German currency would surely go up. It's up for debate how much this would force the much talked about rebalancing of the German economy. Listening to Germany's politicians and industrialists, you would expect it to have very little impact: in the world market, they tend to argue, German companies compete on quality, not price.
But there is no debate about what a revaluation against the rest of the world would do to Germany's national balance sheet. It would hurt. Capital Economics has come up with a back-of-the-envelope calculation - with a fairly sophisticated envelope.
It assumes that the new German currency would appreciate by 20%, which is roughly how much German industry has increased its competitiveness relative to the rest of Europe since 1995. Then it asks what that would mean for the value of Germany's net foreign assets - which, as the chart shows, are pretty large. Their answer is that a 20% appreciation would reduce the value of those assets by about E160bn, or 7% of German GDP.
That is a big hit. But remember that German creditors will also take a hit if these countries ultimately have to default. As the second chart shows, 7% of GDP looks manageable compared to the price that Greece or Portugal would pay, if they were forced out of the euro, and their domestic economy subsequently depreciated by 20-25%. (Though, as I said earlier, precisely for that reason, you would expect them to restructure in that instance as well.)
It's interesting to compare these numbers with the massive positive shift in the UK's balance sheet after the pound fell by 25%, on a trade weighted basis, in 2008. By the end of 2008, net foreign liabilities of £352bn had turned into net foreign assets of £92bn - even though we ran a balance of payments deficit throughout and exporters had not even begun to start taking advantage of the lower pound. Amazing what a little - OK, a large - depreciation can do.
Of course, it is precisely because they can't restore their national balance sheet and competitiveness the old fashioned way that Greece and the rest are now facing such a miserable few years within the euro.
But what if Germany left, what would the new eurozone look like? Graham Turner has done those numbers: he reckons that, without Germany, the euro area would have had a current account deficit of 1.9% of GDP in 2009. With Germany, there was a slight surplus of 0.6% of GDP.
Interestingly, the budget numbers would not be all that different. With Germany, the average budget deficit across the single currency area was 6.3% of GDP last year, and the average public debt ratio was 79.2% of GDP. Without Germany, the deficit would have been 7.5% and the debt ratio just slightly higher, at just over 81% of GDP.
Looked at that way, you wonder whether the periphery would get the depreciation they would need if only Germany left. Investors might not think the new euro looked very different from the old.
But imagine, as I suggested previously, that the other major surplus countries (Austria, the Netherlands and Finland) all joined Germany in this implausible departure scenario: then the average current account deficit outside this new DM bloc would rise to 3.4% of GDP. In Graham Turner's view, these remaining countries could enjoy lower borrowing rates, "if investors thought that a weaker exchange rate gave them a better chance of growing again".
Of course, there would be enormous legal and practical obstacles - but, as Capital Economics notes, these don't look insurmountable. And managing the status quo is not exactly a walk in the park.
The better reason to doubt that any of this will happen is that in European politics, governments rarely take the radical way out of a crisis when there's an incremental alternative, even if they both end up costing the same in the end. It's much more likely that countries like Germany will progressively contribute more taxpayer funds to supporting the euro with its current membership, and hope that their populations won't take to the streets.
Put it another way, the current European leadership have tended to put the "grand European narrative" before economics in their approach to European integration. But if they did put economics before everything else, what these numbers show is that a German exit from the euro might now be the best option available.
~RS~q~RS~~RS~z~RS~25~RS~)
I'm 
© MMXI
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The better reason to doubt that any of this will happen is that in European politics, governments rarely take the radical way out of a crisis when there's an incremental alternative.
Thats the problem, will the incremental alternative not be side lined by some major change forcing an uncontrolled collapse of this unstable union.
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Germany will not exit at the moment from the EU. That is a fact.
Chancellor Merkel has invested too much in saving the Euro and the German people are NOT in a mood to see good money thrown after bad.
The Euro will remain at least for the next 5 years.
However the European Commission in Brussels must now show a comprehensive determination to manage the Euro as an international currency. For them, it is better to spend the current EU budget on employing people who understand international finance, and restrain from financing 'wind farms in Latvia'.
The survival of the Euro and the Eurozone is dependent on the management of the Euro and how this management is perceived by the international community.
My first thought is to sack most of the commissioners in their nice new offices in Brussels, and bring in international financiers who understand the real world. Many of these commissioners are simply not up to the job of managing this crisis.
Also, please, get rid of these 'no-bodies' who are only there because of the Lisbon Treaty!
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This is a battle! On the one side, the Euro-politicians with their vision of a United States of Europe, on the other, the economists and the markets. I believe the pols will pay ANY PRICE to keep their vision on track. That includes making sure real people don't get a chance to express their views in any sort of vote. The Germans, unlike the French, are not keen to take to the streets and for that reason, my bet is that Germany will be the main,albeit reluctant, milch cow.
I also believe we will be hearing much more (misguided) talk about "Harmonsation". The Irish, contrary to many predictions, seem to have got away with their 12.5% Corporation Tax. Harmonisation, I believe, would be the kiss of death, with tax levels set to accomodate the least efficient, and eliminating any element of competition as a spur to greater efficiency and competitiveness in world markets. But then the Euro Visionaries don't know (or don't care) about such trifles.
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Stephanie,
Your "hope that populations won't take to the streets" in your last-but-one paragraph puts the finger on the right problems. Numbers and rational calculations are all right. But the big uncertainty is whether Joe Public will accept to be taxed to death when he feels no responsibility, when some banks boast huge profits,and when politicians multiply reassuring declarations for "the markets".
Governments must pray for the current weather to last a while.
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Stephanie,
Why do you give credence to the nuke-self option? They will only benefit bankers.
Europe needs one currency. It has one. Why do you think that the bankers want to destroy it? Can this be for anything except their naked self interest? Have we forgotten the economic destruction that the very same bankers unleashed upon us a couple of years ago?
We should join the Euro. We need to be inside the single currency. The only part of the economy to benefit by either destroying the Euro, or keeping the UK out, is the bankers. The jingoistic Little Englander xenophobes MUST be stopped, and we must remind that that the bankers destroyed the country. Bankers (and their economists) are not just part of the problem - they are the problem!
And don't say that economists think that destroying Europe is a good idea for it is these very same economists that justified the bankers and took an active role in destroying the Nation in the last decade. Why do you and we still listen to these proven and self confessed idiots? We must expunge their insane self-serving ideas!
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Sorry Steph but there is no way Germany is leaving the Euro, they might evict all the other members but without Germany the Euro is dead.
I think it more likely that portions of the european banking/finance industry will be nationalised and then europeanised and funded directly by the ECB freeing national governments from the stranglehold of private debt. (national governments will still have to struggle with their own debt problems)
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Perhaps the best way to look at Germany's exit from the Euro is to look at similar examples from history & geography :
1. Within the USA, the Civil War on the 1860s was similar with the Industrial North pulling away from the PIIGs in the South. Eventually the disaster was averted as it was in the interest of neither.
2. Within Europe, Britain pulled away from the PIIGS in Europe in 1688 politically speaking having created the Church of England to escape the Roman embrace. The resulting creation of America, Canada, Australia were a direct result of the 1688 decision.
3. Within the British Commonwealth, with independence for the colonies the key mega-trend, Britain pulled away from India et al after the War in 1945. Sterling used to be the common currency. The Rupee devalued down from 7.5 to 75 to one pound.Britain suffered a loss of position in the world order from which she never recovered. So, both Britain and India lost - each in their own way.
4. Within the 'West' politically carved - NATO - in 1945, differences led to France walking away along with Germany to create the European Union. The confrontation in 1971 over gold convertibility led to Nixon & Kissinger creating the Pacific partnerships with China et al.
5. When USSR collapsed in 1991, Russia pulled away and emerged faster and perhaps stronger than the other 'Stans'.
And finally, when Martin Luther broke away from the embrace of the Holy Roman Empire, German determination to succeed irresepctive of the PIIGS became the rallying cry for the 'Fatherland'.
So, Germany leaving the Euro will hurt both - Germany, like Russia, will remain strong.
The PIIGS-land will losse its currency value - probably by 30 %. But then it will learn to live in the real world. Nothing wrong with that - in fact probably the best course eventually.
The PIIGS will loose their reserve currency capacity - they will no longer be able to stuff others with their worthless Euros.
Germany will create new alliances following its departure - with America & Russia principally perhaps along with Britain (plus Canada/Australia), perhaps also with America's Pacific partners Japan & China.
In the long run, say 50 years to next meltdown, Germany , Russia, Britain will stand on their own while the PIIGS-union will become more like Latin America is to Nord America. The PIIGS-union will inch closer to 'Eurabia' given their ClubMed proclivity.
Sooner reality emerges the better.
Bottomline - the Euro will loose value, if Germany leaves.
Bottomline - new alliances will take shape.
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"20%, which is roughly how much German industry has increased its competitiveness relative to the rest of Europe since 1995."
The current situation is obviously unsustainable. So what alternatives are there other than Germany leaving the Euro?
1. German companies raise wages by 20% to remove their competative advangate (and see an accompanying increase in home-produced prices)
2. Germany introduces an export tariff on its own exports and uses the procedes to cut domestic taxation
3. Everyone else introduces an import tariff on German exports, and uses the proceeds to write off some of their their debts.
4. Germany gets its banks to voluntarily write off debts to other EU countries, and then the German taxpayer has to bail out their banks. This would then have to be repeated every few years.
5. Other EU countries default on their debts (to the German banks), and the German taxpayer has to bail out their banks. This would then have to be repeated every few years.
6, Germany taxes its own people every year and gives the money to other EU states to pay off the debts that they keep on building up.
Plenty of options, all fairly mad. I expect that they will go with (6), though it's hardly going to be popular with the German electorate.
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There are other factors at play in a proper examination of Germany's position at this time. For example one might look at what it is costing her to issue new debt. According to notayesmanseconomics.
"In an interesting development the German ten-year bund saw its yield rise too by 0.12% to 2.80%. Germany had a bund auction yesterday and for the second time in a fortnight it struggled somewhat. Should this trend continue and the German taxpayer becomes aware of this ( that there is an explicit cost to the bailouts right now), there could be further trouble for the Euro zone’s plans."
If we go back to the beginning of September Germany was having to pay some 0.5% less on its debt.So it is starting to look as if their is a cost to all the money Europe is borrowing,in effect, on Germany's credit rating.
http://notayesmanseconomics.wordpress.com
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With all due respect , this is total rubbish . This is wishful thinking coming from investment banks and hedge funds who are dreaming of reaping even more profits than they already have . Such a move would plunge most European economies into chaos with the following results : a) Germany would come out as the bad guy and b) German exports to the rest of Europe would plummet , Not to mention that this would be a fatal blow to EU's credibility for the next 20 years or so . You can say whatever you like about the Germans , but stupid they are not .
And by the way Stephanie , could you tell us what Capital Economics and GFC Economics think of the Federal Bank printing trillions of dollars or the Bank of England printing hundreds of billions of pounds ? It would make for a most interesting reading .
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#5 JFH
Well said young man!
Wasn't it in the Italian Job - We are the self preservation society?
But as I have previously said - It takes guts to get off (out of) a moving Merry go round (money go one way)
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7. At 12:19pm on 03 Dec 2010, PlanetEnglish wrote:
Perhaps the best way to look at Germany's exit from the Euro is to look at similar examples from history & geography :
1. Within the USA, the Civil War on the 1860s was similar with the Industrial North pulling away from the PIIGs in the South. Eventually the disaster was averted as it was in the interest of neither.
===========================
I,m not sure that 'the disaster was averted'. I thought that about a million people were killed in the Civil War, which some people think is still going on.
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An interesting analysis that raises far more questions than it answers.
Some of the assumptions made have to be challenged. Should Germany take the decision to leave, it assumes that its trading relationships with its former Eurozone partners would continue unaltered. That cannot be rationally assumed as the cost of German imports to them would rise significantly. It must also be remembered that the bulk of those exports are items where Germany does not have any quality advantage.
If Germany stays in the Euro then it will be called upon more and more to use its resources to fund the bailouts. How will the average Kurt and Gerda accept that - especially when they see resistance from the bailees to accept percieved subordination of their sovereignty.
There has been plenty of talk on here about the essential base of both the Euro and the EU. Perhaps we will now see from all of the governments just how far they are preapred to go in support of a political ideal.
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The question is, what event is actually capable of triggering the euro collapse. In other words, why has it not happened already, despite the fact that it is clearly in the interest of the German people, the largest and most economically powerful members of the bloc.
The answer is that there is no civil unrest in Germany, and the politicans self-interest has little or no interest otherwise. A manager always needs something to manage. A Euro politican needs a Euro, otherwise they are unemployed.
So, we can ask ourselves what is the likely proximal cause of the euro dissolution, in the same way as the assassination of the Archduke Ferdinand "caused" WW I
Historically, usually the tipping point is ~25-30% unemployment / starvation poverty required for the Strong Men and military juntas of Europe to take charge. Current unemployment maxes out in Spain at 20%, which just isn't bad enough (yet). British unemployment maxed at ~20% in the 30's, which caused limited unrest but did not bring down the state.
So exit from the Euro is really fairly accurately predictable - when unemployment reaches 25-30% in one or more of the countries, that will trigger. And because that will not be Germany first, although that would be a more orderly unwinding, then we can be pretty sure that will not be the trigger.
None of the small countries like Greece, Portugal, Belgium, Ireland, have sufficient liability to break the euro, even if they collectively default.
It has to be either Spain or Italy. The default of Spain on its own still isn't big enough. But it will bring down Italy, and that will break the euro. So we are looking for an event that could bring Spain's unemployment from 20% today to 25-30%. By quantity, Spain's industries are (ranked from top to bottom)
textiles and apparel (including footwear), food and beverages, metals and metal manufactures, chemicals, shipbuilding, automobiles, machine tools, tourism, clay and refractory products, footwear, pharmaceuticals, medical equipment
The most volatile are metals, automobiles, tourism.
So, to predict the fall of the euro to within 6-12 months, look for either - consecutive very bad wet summers in the Mediterannean (hits Italy simultaneously). Predictable next La Nina event ~2012-2013.
, or the end of the current metals commodity bubble. The latter occurs when China makes either major new finds on its own soil (3-5 year lead-time), or sends "military advisers" to help defend its acquisitions in Congo etc. I would suggest 2013-2014. Civil unrest lags by 1 year, installation of a military junta by another year, and dismantling of the euro by a further 6 months.
My prediction: I am reasonably confident that the Euro will not collapse before the end of 2013 (inertia), but the chances of it surviving 2015/2016 are probably fairly negligible.
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Couple of problems with Stephanie Flander's analysis:
a) What about the effect on German banks if PIIG countries did default
b) What about the effect on Germany if there was a federalised bond market?
Seems to me that Germany is going to go with b) if at least because of the unemployment levels that a Deutschmark surplus would cause, and many other reasons to do with consolidated energy buying, Russia etc...
A more useful analysis would have been on the topic "If the UK joined the Eurozone" and a far more likely scenario too.
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I fully agree with aegean ghost.
Let's please return the topic to the fact that UK debt is at 7.5 trillion pounds and at 540% of GDP.
When do we wish to join the Euro? After the UK sovereign default or before?
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Shame Capital Economics didn't explain their "fairly sophisticated envelope" because their conclusions look contradictory to me in a couple of cases.
Still, no matter, because neither Germany nor any other eurozone country will have much choice.
The head of the IMF, Strauss-Kahn, said that Greece and Ireland are on the lip of the abyss and Portugal, Spain and Italy are approaching it and if he is right, it won't be long before the whole tottering house of cards comes down.
Some other posters have commented on likely outcomes if Germany were to dump the Euro, and I won't add to those views.
I will confine myself to mocking those who continue to talk up the single currency and call for the UK to join:
Foolish fellows, we are witnessing the death throes of a mis-conceived, egotistical, politically-engendered abomination.
The sooner it's buried in the annals of history the better.
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5. At 12:07pm on 03 Dec 2010, John_from_Hendon wrote:
Europe needs one currency
Europe does not need one currency.
It could have one and the criteria originally set out to allow countries into the Euro was not followed resulting in a system with flaws that were known about.
It is the politicians who pushed and allowed a union between countries that did not qualify and has resulted in the mess they have now. It is not just the fault of the Euro but the underlying problems would come to light when some economic storm hit - from internal or external sources.
The Banks should take blame and so should the politicians with their central Banks who have also manipulated the markets.
The Community Reinvestment Act, a Jimmy Carter Law, was reinvigorated by Clinton. It opened the banks to law suits if they did not lend money to minorities in high enough numbers to satisfy the regulators.
The "CRA" pushed for lower lending standards, supported by the political establishment and all was OK so long as house prices continued to rise. Bear Stearns, a major underwriter of mortgage-backed securities, argued for the soundness of CRA loans and that they "do not fit neatly into the standard credit score framework."
The problem was that everyone was seen to be a winner. The same cavalier approach to risk assessment that informed the CRA pervaded the whole mortgage-lending arena. The Feds credit creating powers then helped feed frenzies like the housing bubble. AccuBanc Mortgage was forced to make loans of $2.1 billion in mortgages when it lost a discrimination case under the more relaxed lending criteria. Andrew Cuomo, who served under Clinton stated that "the institution would take a greater risk on these mortgages....give families mortgages they would not have given to otherwise.....and I am sure there will be a higher default rate on these mortgages."
So did we end up with a situation where unscrupulous lenders could dishonestly force sub-prime mortgages with unfavourable or complicated terms on helpless and uneducated borrowers (lets include some investors in here as well), and was there political pressure to encourage sub-prime loans. YEP!
Lets not forget Bush who in 2004 urged the Federal Housing Administration to lift the down-payment requirement on new home owners. With the Fed did he help keep interest rates at artificially low levels?
In 2003 Greenspan stated there was no housing bubble and the notion of a nationwide fall in house prices was unlikely.
We can all now see the damage that this "unforseen" housing bubble has inflicted and it has helped expose the inherent failings in the common currency. Those potential failings were seen - which is why, originally, there was an entry criteria for the Euro. If only it had been followed!
If you wanted to start on a journey to a common currency, or join one, may I suggest you would not start from here.
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@5
I disagree. I'm not Euro-phobic at all but there is a fundamental flaw in the currency. You cannot have monetary union without fiscal union, Ireland is a perfect example of that where low taxes created a business boom and inflation levels the Irish couldn't control, culminating in a massive asset bubble, now burst.
Of all the currencies left in Europe the Sterling is the most capable of staying independent and until someone decides to create a United States of Europe I can't see a compelling reason to join.
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6. At 12:16pm on 03 Dec 2010, BobRocket wrote:
Sorry Steph but there is no way Germany is leaving the Euro, they might evict all the other members but without Germany the Euro is dead.
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As I read the above article Ms Flanders is simply giving a view that a German departure from the euro might be the best option at the moment and in the light of available facts. So it might to solve the immediate problems and to maintain a cohesive EU for trade etc. If it did happen, I doubt that a new euro would be possible for a generation, but it could be resurrected.
If they don't leave soon, are things going to become more difficult and impossible? The costs will be higher both economically and politically as the markets seem intent on their course to pick the countries off one by one. If the ECB really is firm about backing any country in difficulties, then maybe they can all stay together, but Monsieur Trichet's words sound short term and will, if that is true, only postpone the evil day.
The question I have is - let's suppose they do leave, possibly with others named above. We will have a potential 2 speed EU, can it stay together for trade purposes? Will the disparity between Euro members and those outside it become unbearable just from an economic point of view? It may take many years, but the differences will grow and become more and more noticeable.
The EU in all aspects is man's invention; I doubt we have the design right yet, it needs to evolve, but that takes time I doubt it has, it takes patience I doubt the politicians have, and it takes will that I doubt the people have.
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GB joining the Euro and Germany leaving it is not going to happen regardless of the pros and cons of economics. It's the politics stupid.
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Ms Flanders, firstly thanks for continuing this discussion. As a part German, but English born and bred, even talk of withdrawing from the Euro is painful and, to me and most of my relations, it has unwelcome echoes of a 'wounded and deeply disappointing' sense of German History.
The ECB and the German Government have an difficut task. The Eurosoap has many strong and weak characters. What they say on stage may be very different to what they say in the wings. There are certain things that actors do not say to one another during the performance ('Prater Violet', I think). And as to what lays behind official script we can only guess .
The conjunction of the Credit Crunch and the interconnected Euro Crunch is mettle testing. I find, in Germany, that much TRUST , as a human capital resource, has gone for good. Trust in the elites involved in Governance, trust in other countries, trust in hard work and fairplay...
The will to soldier on down the Euro road is being eroded. If the Euro remains around, in its current form, to triumph in the end .... no one knows AT ALL.
If recent opinion polls in Germany are to be relied upon, the German Electorate want out of the Euro experiment. Even at short and medium term hurt.
Although your blog today prizes Pandora's box further, there is always proverbial Hope. Europe will continue, even though troubled times may still be ahead.
It takes courage to keep OPEN the discussion of Germany's withdrawing from the Euro .
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Well if you can think the unthinkable Steph
Perhaps you can do the undo-able
And the undo-able on a previous blog was convincing ‘anotherengineer’ of the existence of the debt based monetary system.
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It appears that the ECB is now monetizing the debt of Portugal and Ireland. See:
http://www.zerohedge.com/article/ecb-intervention-continues-trichet-accelerates-portuguese-bond-buying-forces-short-squeeze
This just proves the point made several times in this blog today, that short term steps to get through the current day/week are always more preferable to actually sorting out the problem. I think these guys must like the adrenaline rush of playing Jenga with sovereign finance. And you can guarantee they will not be affected as it crashes down.
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I suggested previously that running parallel currencies might have been a safer way of starting the Euro. At this point, it might be the safe way either to keep the Euro alive or to provide a softer landing for a Euro exit.
At present, all the Euro countries do sort of print a parallel currency in the bonds they issue and sell. However, those bonds come at the cost of spiralling debt. A fiat currency has no debt attached to it. With such a system, Ireland could pay its debts and Germany could protect its savings.
And the dreaded market and forex traders would take care of devaluing everyone's debts.
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Obviously this is a crazy idea. The shocking thing is that there does not appear to even be a plan at the moment! Slow incremental change means carrying on with the crisis, which is surely bad for everyone...
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16. At 1:25pm on 03 Dec 2010, Oblivion wrote:
Let's please return the topic to the fact that UK debt is at 7.5 trillion pounds and at 540% of GDP. When do we wish to join the Euro? After the UK sovereign default or before?
As regards the UK’s AAA rating:
I reckon you should be given:
The first is ‘A’ because you pay back the capital.
The second ‘A’ because you honour the interest payments
The third ‘A’ because you don’t water down the value of the gilt by printing more money.
Which rather suggests from a ‘true’ investor’s point of view the third ‘A’ is likely long gone but not admitted to, and the UK has already partially defaulted.
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19. At 1:51pm on 03 Dec 2010, Cameron wrote:
I disagree. I'm not Euro-phobic at all but there is a fundamental flaw in the currency. You cannot have monetary union without fiscal union, Ireland is a perfect example of that where low taxes created a business boom and inflation levels the Irish couldn't control, culminating in a massive asset bubble, now burst.
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I totally agree with you and as a person who actually lives in the Emerald Isle I can tell you that they still believe that having an ultra low corporation TAX will be the saving of us. I am not convinced as we have many head quaters and not so many industry. And the head offices run with a skeleton crew who add little to the economy. The rest as they say is history as we have lived the good life, we had the highest standard of living anywhere in the western hemisphere now we have the largest personal debt per head in the world. And what is frightening is that many are just walking away from it. Emigration is a big draw if you have crippling debts and negative equity the size of a third world country. One of my neighbours bought his property in late 2006 he now has over 600,000 Euro negative equity. He is looking at emigrating and just walking away from his house and the rest of his other debts. He knows that some institutions may try but it will be almost impossible for them to track him down and even harder to get anything out of him.
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Of all the currencies left in Europe the Sterling is the most capable of staying independent and until someone decides to create a United States of Europe I can't see a compelling reason to join.
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Again I totally concur on all of these points but in particular the creation of a USoE that is the only way the Euro could survive.
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#18. Dillers wrote:
"#5. John_from_Hendon wrote:
Europe needs one currency
Europe does not need one currency.
"
You work for a bank?
I'll raise you one Farmers Bank of China Yuan (a 19C Chinese banknote I happen to have), or one Continental (see 7.1 above)
Prosperity cones from cooperation and trade. A desperate collection of currencies ONLY benefits bankers.
The 'when the time is right' argument - it is never right - it is an excuse to maintain the monopoly (cartel) profits of the bankers.
When the Euro is weaker is the one opportunity we have to join at a sensible rate - we must join NOW or else forever be beholden to bankers.
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26. At 2:33pm on 03 Dec 2010, Fred wrote:
Obviously this is a crazy idea. The shocking thing is that there does not appear to even be a plan at the moment!
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Germany have had their treasury model a number of scenarios with regards to their or other members states leaving the Euro so I would suggest that there are some outlines down somewhere.
I would say that if the German press are even close to the public's mood then their days are numbered as members of the Euro. The return to the DM is all the talk.
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#19. Cameron wrote:
"@5
I disagree. I'm not Euro-phobic...I can't see a compelling reason to join.
"
I suggest you remove the banker supplied blinkers! Try manufacturing and trading with a highly volatile currency and you will understand why business prospers, the real economy prospers and the country prospers when the bankers are prevented from stealing the fruits of trade. That is why we need to join.
If we do not join ASAP you are admitting that the whole Nation has been defeated by the bankers!
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"It may be unthinkable, but I'm not the only one thinking about it"
I am not sure why you think that this is unthinkable Stephanie or that you were the only one. Martin Wolf at the Financial Times and Wolgang Munchau from the same place have been suggesting such things for some months now.Some time before your article.
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I am fascinated by this blog, but unfortunately for the wrong reasons. Seriously, one of the greatest disappointments for me as a European expat for many years in the UK about the British people is the hostility of too many Britons towards the Eurpean integration, our economy and apparently most of all our currency. Not just extremist politicians like Farage etc but also blogs like this one show it. What is this other than propaganda, hoping it will somehow be taken serious by someone and help to damage Europe by spreading nonsensic stuff like this? It is sad that I have to report back home all the time how little British approach to Europe seems to have in common with ours on the continent. My conclusion is very different from yours: It is not Germany or any other country that should leave the Euro (I have very much more faith in that currency than the pounds that I am earning). It is the UK that should leave the EU. It is too hostile towards its continental neighbours to be integrated, so no point of it being a member. Yes sometimes I have the feeling Second World War or even the Napoleonic Wars are still on. We can have some bilateral cooperation between UK and EU, but anything else seems too much too ask, even though I realise that not everyone in the UK will share the hostile views that we are bombarded with here on the daily for as long as I can think back: The Euro will collapse! Euro to collapse! No more Euro tomorrow! will the Euro collapse? can the Euro be saved? Is the Euro a doomed currency? Will Europe implode? Is Europe still there? And now? And now? For how many years has this been going on now?
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Hi JFH
No I don't work for a bank and cant say that I am that thrilled with the way they have treated small business' like ours. During the last recession we were paying 18% business rates on our loans. We are not overly happy with the way large bodies manipulate the market and the way the state in all its various guises constantly looks to regulate, more often than not ineffectually.
I believe the Euro could have worked and gradually more countries joined in. But sadly as I stated the politicians threw that opportunity away, it is not just the fault of bankers. If it is to survive it needs more than tinkering with but a complete overhaul and a managed break up if it is to be saved long term. Kicking the can down the road is no solution.
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I feel that Germany will not leave the EMU even if there may be a few billion Euros involved. That is only economics. Germany spent millions of lives and billions of DM in an attempt to control Europe. With the Euro it has most of Europe, indeed all of Europe, tucked under its belt. Why on earth would it retreat now?
All effective currencies have to be controlled from one site: the USD from Washington, sterling from London, and the Euro eventually from Frankfurt. I think the trouble with the Euro is that everybody is pretending that it is a jolly nice little agreement and nobody is any more powerful than the agreements. All that may change in the near future. I feel I can hear a collective sigh of relief in the investing/business world when a German hand controls the ECB.
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#33. markus_uk wrote:
"It is the UK that should leave the EU. It is too hostile towards its continental neighbours to be integrated, so no point of it being a member."
Don't believe all that every banker tells you about the UK attitude to Europe. True, we have a war warmongering xenophobic tabloid press run by and for an aged disgruntled republican, but don't believe the Sun. The Sun is about selling papers it is not a voice of the Nation. Do you believe everything in Bild reflects German National sensibilities? The best use for both is to be torn into neat squares affixed to a piece of string and installed in the outdoor WC.
The UK people voted twice to join and stay in Europe - We are as much European as any European. We have suffered egregiously in two world wars to protect Europe from itself - what makes you believe that the UK is not European enough?
All this negative nonsense about the Euro is the direct result of our obsession with banking and bankers. They are not the spirit of GB. They fulminate violently when it looks like one of their great money spinners will be taken away from them. But Europe must help the UK to vanquish its bankers. We(the UK) are is a desperate life and death economic struggle to seize back the country from its bankers. Argue for the UK joining the Euro and silence these idiot apologists for the bankers.
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#34. Dillers wrote:
"I believe the Euro could have worked and gradually more countries joined in. But sadly as I stated the politicians threw that opportunity away"
The blame Gordon Brown arguement!
I still have all of the publications of the Bank of England preparing the country to join the Euro. They still apply today. Much of the work and preparation has been done. All we need to do is to declare that the city of london is a foreign country responsible for itself and unable to call upon the people of the UK for support and bail-outs and we would be back in with a real chance of reestablishing the Greatness of British business and manufacturing. I say kick out the bankers.
Gordon Brown is ancient history and his legacy of total bank orientation of the economiy destroyed the country all we must do now is to expunge the evil banking powers. We are unforthuinately blessed with intellectual whimps in our regulators. These gutless dolts can't even own up properly for the collapse they caused. The UK must never again rely on banking and its fellow traveller 'fiancial services' to profitably employ its people. We must make things again - this is what re-orientation the economy is about. We unfortunately have a pair an complete amateurs running the important officies of stste (DC and GO) so we must re-educate these men. If we want to see a properpous trading Nation again - we must get rid of the bankers! No backsliding!
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The incremental approach is the hallmark of the European way, predicated as it is on the need to compromise at every turn, especially given the way that politics and politicking operate there. It is this much vaunted methodology that is held up as so superior to the UK's anglo-saxon system, and the reason why Europe, in the guise of the EU and its myriad of smoked suffused backroom johnny's and their decision making protocols, is ultimately promoted as the only game in town.
Well hello, it's not. No system is perfect, and no approach works in all situations. But in this case, somebody needs to grow some stones, make a decision, and promote it loudly and clearly from the mountain tops - otherwise all is fear, uncertainty and doubt and speculators will have a field day as they grow fat on the back of these mossy backed three toed sloths that pass for politicians sur le continent (perhaps thay should adopt one as their mascot).
Frankly, and as apocryphal as it might be, my approach would be along the lines of "Economic malaise across The Channel, Continent cut off". They created the fantasy that is the Euro, let them magic themselves out of the mess that resulted from their imaginings.
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When Germany leaves the Euro (EMU) then the EMU and the Euro and possibly the EU fall part anyway as there is no other country willing to fund the bail outs needed ... and if they do ... these are not laons as some countries willhave no intention of every paying anything back.
A structured an orderly withdrawal by all EU countries from the EU, possibly keeping the Euro as a reserve currency while negotiations over the future role of the EU/ECB/EMU etc can take place would now be eminently sensible.
The difficulty is in the implementation not the policy ... most now realise that the EU/Euro/EMU is a dead duck in practical terms.
I see some parralles with some countries and Latin American countries in the 1970's/80's and 90's ... but many have now recovered on their own and
without monetary union ... whatever a country has or does not have ... a country, any country as a sovereign cost centre ... has to manage 'it' properly.
Crash Euro - Crash!
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Germany competes on quality not price, Chinese compete on price, not quality.
This is still about the banks extorting from the governments creating higher debts than are necessary. One would think that since governments are heavily invested in the banks that they could negotiate a better rate. Until some control is exercised over the banks nothing positive can happen. Although some segments of the German economy are doing well other sectors will face the same fate as everyone else. The bankers have all the countries in a corner again and there is no leadership to take control of those who caused it all.Demand creates jobs...very basic concept...loaning money to businesses that have no demand is a waste of time...only politicians can talk about loans as creating growth when there is no demand, but of course one shouldn't expect honesty from the political. Bailing out banks was a major mistake as no provisions were made for their participation in the recovery. If the citizens purchase products produced within the national economy and not from overseas, things will get better. The problem is that primary investors have their money in Asia and would not favor a national recovery based on people looking out for their own national interests. Politicians do what the primary investors want, not what is good for the nation. Maybe it will all have to fall apart before things get better as no one gives up power willingly.
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If Germany and Ireland to too far apart economically to use the same currency, then shouldn't London and the North East also have separate currencies. London is much more productive than the North East. The North east will never recover unless it has its own currency, which it can then devalue against the GBP. If a country as small as Ireland needs its own currency, so so do all the regions of the UK and of other large countries.
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Hi JFH
Not sure about the "blame Gordon Brown argument" as I did not think he was in charge of allowing the first tranche of countries to join the Euro. I also thought he was not for joining the Euro when he was in office.
My point was the Maastricht treaty of 1992 obliged EU States joining the Euro to meet money and budgetary requirements. Why were those States that did not meet these requirements allowed to join?
I do not see that has anything to do with Gordon Brown or the Bankers.
Surely it is EU officials and the heads of States at that time who should be held to account for allowing countries in that had not met the convergence criteria.
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There is considerable angst over even discussions of German departure from the Euro. So long as the European Union was revelling in its bravado in challenging USA, this German departure was not on the cards. It is only when there is growing realisation that the rest of the world is not waiting for the re-emergence of Charlemagne's Empire, that the rest of the world prefers the english speaking world, that the EU will never be able to challenge the super-powerdom of the USA, that there is wilingness to consider options - especially as economically the EU mountain of debt is untenable with economic realities.
Particularly galling is the virtual single handed responsibility that Germany seems to be shouldering in bolstering the Euro and the PIIGS. Clubs function meaningfully when the responsibilities are shared.
The British Empire collapsed when Britain was left alone unable to shoulder.
The USSR collapsed when Russia was left alone unable to shoulder.
The EU is no different with Germany left alone unwilling to shoulder.
France should have thought it through when DeGaulle confronted the USA over gold convertibility in 1971 and forced Nixon & Kissinger to seek Pacific partnerships with China uber alles.
Britain similarly was unable to think it through when USA was jettisoned or even when India was jettisoned - withou the two, it had no chance of retaining its numero uno position.
But history is history - for exactly that.
Once the Rubicon is crossed, you can only learn from history, cant change it.
If Germans leave now, it is perfectly understandable.
PIIGS will need to reinvent the Holy Roman Empire once again, as they have so many times in history.
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17. At 1:37pm on 03 Dec 2010, fourbetwo wrote:
Foolish fellows, we are witnessing the death throes of a mis-conceived, egotistical, politically-engendered abomination.
At least you concede it is political. Though the invective was unnecessary and alludes to your Little Englander mentality.
From an economic perspective their is little advantage in leaving for any member. It will be very painful for any of the PIIGS to leave and little advantage for Germany. This is despite the very obvious economic flaws in the Euro.
So, full steam ahead to fiscal union is becoming more likely.
Given the more than slight economic resemblance of the UK to the PIIGS I would be surprised if any request by the UK to join would be entertained without laughter.
As for Sterling, all alone and sinking.
Finally, my free service to 'phobes and 'philes alike, todays closing rate:
£1 buys 1.17720 Euros (not a lot).
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#42 Dillers,
"My point was the Maastricht treaty of 1992 obliged EU States joining the Euro to meet money and budgetary requirements."
Why were both Gertmany and France allowed to break those very rules?
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45. At 7:25pm on 03 Dec 2010, foredeckdave wrote:
Why were both Gertmany and France allowed to break those very rules?
Exactly .. What hope.. But perhaps Germany sneaked in on a typo?
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45. At 7:25pm on 03 Dec 2010, foredeckdave wrote:
#42 Dillers,
"My point was the Maastricht treaty of 1992 obliged EU States joining the Euro to meet money and budgetary requirements."
Why were both Gertmany and France allowed to break those very rules?
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I doubt the Maastricht 'rules' anticipated the worst recession (depression ?) since the 1930s.
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#44 Richard Dingle,
Richard,
I have to agree with you that 'heat'from the 'phile' and 'phobe' crews add little to the quality of debate - that's what it is a debate!
As for, "So, full steam ahead to fiscal union is becoming more likely." I think that you will find that there is more than a little resistance to that. Just look at the the feelings reagrding sovereignty that are being voiced in Ireland.
BTW, given that very little has actually been done to address the UK's economic problems then I would remind you that £1 buys 1.17720 Euros today whereas not so long ago it bought 1.09 Euros. Like it or not, in the present circumstances the UK is far better off (at least in the short/medium term) staying well clear of the Euro.
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I am English, then British (where UK comes i've no idea) and then European, oh and a royalist, so I am and have always been a subject of this realm. BUT! He who stands alone, dies alone.
I was always taught to never poop on your own door step (for one thing it makes the whole house smell). We need the protection of another currency i.e. the euro, it may in some eyes be weak but there is a lot of it (as per the Russians in WWII). The euro also needs sterling and so the two should be pegged. I do not believe that we could stand a 17% devaluation and the likes of Spain would suffer because of this devaluation. So like it or not we are already dependant upon each other. Being joined at the hip means; that if we are financially targeted, it effects the euro and visa-versa, this I believe will stop some of the unscrupulous speculators dead in their tracks and make them seek self gratification further a field i.e. they cannot poop on their own anymore!
As for Germany leaving – find a life without blinkers. Who says we need education – Educators, who says we need coal – minors, who says we need mobile phones – etc, etc, etc and who says we need the city – THE CITY! ‘and economists’.
For those of you who believe that we should not be joined in some way to the euro, then you must accept by default that you are for joining the $ and therefore want to be the XX or XXX state of America, after all they have been looking for a new Cuba, Korea (Soul) threw them out. We cannot be an integral part of the commonwealth any more and we are too small to act independently. If there is another option please do tell.
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#41 bankok swan
From an economic perspective spot on, but politically not possible. As I see it, either you are a country, a member, or a federation - what ever you chose to be, there will be good bits (economically speaking) and bad bits to your territory and the good bits will have to support the bad bits (eg the USA) - Germany has the choice - pull out or support the less viable parts of the Euro-zone
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Yeah yeah, Germany really wants a 20 percent rise in its currency. Why didnt I think of that. Yeah the German workers dont like the PIGS. Fine the German workers can put themselves out of work. Oh maybe not, not when they think about it. This is just Merkel playing to the gallery. The lady protesteth too much I methinks. Just like Nancy nearly scuppered the american rescue 08 then spun on the spot. Just take a look at the monologues from the time - We will not have taxpayer money bailing out blah blah blah. We will listen to the voice of the hard working american citizen. We will not bail out.. We... We will save the american citizen in their hour of need. We will take the necessary steps to secure the future blah blah blah. We are the saviour of the people. Give it a break. Why does anybody listen to a politican under stress, they are bad enough when they are not under stress.
As for all the xenophobia on this board, extraordinary. Lets put the world back into the middle ages. Some of these people would be scared of somebody from the next town let alone another country.
The EU has to become stronger and move to fiscal union. However the UK refused recent requests that all member budgets were presented to the EU in the first instance for vetting for compliance with the EU criteria. Seems reasonable to me, you join a club, the club rules say you have to do this and that and they ask if you are actually doing it. Obviously it is much easier to allow a minority of countries to cook their books and cause a crisis. I must have it wrong.
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If I were Germany I would make sure that I got my gold, that is currently stored in the US, back on home turf sharpish.
The Euro is run by the bankers as is every fiat currency. I have no idea where this fallacy that we can run to the Euro to escape the bankers comes from?
If the arguments in favour of going into the Euro are so compelling then the government will have no qualms in asking the people of Britain in a vote.
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47 RD
Maastricht 'rules' were written in a period where the problem was seen as inflation.
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Too often these blogs turn into slanging matches between pro and con Europeans or nationalists of various varieties. However, I am rather surprised by the comments of Markus_UK @ 33 concerning the hostility of the British towards Europe and the EU.
Markus
I wonder if you’ve spent too many years in Britain and started to believe the claims of the British and their press. The fact that you refer to the rest of Europe as the continent sounds too British.
I am British and have spent most of my working life outside of the UK, mainly in other parts of Europe. I can assure you that hostility to the EU is far from the UK monopoly some of the British press would have you believe. In the popular European culture, the sources of problems in life are: immigrants, the rules from the EU, the Euro, the government of whatever country you are in and, possibly, the bankers. I do agree that the opposition to the EU has a wider political voice in the UK, but that is probably because (and I realise no one in the UK will believe this) the popular voice reaches more in to the political world there.
I’d suggest that the British are more open to constructive European partnership and integration than you suggest. However, in many ways, they have more to lose than citizens of other countries. It may look archaic, but the British democracy and the systems of the British state have evolved over 1,000 years. There are a lot of faults, but I can say that, overall, most of the other systems in Europe are worse, even far worse; so much that the idea of political, fiscal or many other types of union should be frightening for a lot of countries. I’m not making a Britain is best claim. All the European countries could learn a lot from each other. One of the themes in Germany, especially in industry, is an emphasis on quality (and perceived quality). If manufacturing in the rest of Europe is to survive, we must all follow that example. The efforts the French government and society has put into defending and strengthening its industries put the UK to shame. I can make a list that goes on forever. Sadly, the EU has not succeeded as an organisation for sharing strengths and learning from others. Beyond that, having done work for the EU in Brussels, my impression is that the organisation is a terrible mess that could not make a success of anything.
You feel the British are still fighting WWII, well I’m afraid you’ll find that everywhere. I well recall a meeting with a couple of German engineers, extremely able and intelligent men. However, once work was finished and we’d moved on to social stuff, I had the very uncomfortable feeling that I’d slipped into one of Leslie Howard’s propaganda films set in the 1930s. However, I don’t regard that as typical of modern German society. I can assure you that there are people with all sorts of ideas in all countries. On average, all people are all the same. It is a great injustice to regard any group, national or other, as better or worse.
Anyone in Britain who wants the Euro to suffer a catastrophic failure is a fool. The damage would run far and wide and way beyond this continent. In fact, though a lot of contributions to this blog are rightly critical of the Euro, most are suggesting or asking how things can be put right. Some, even now, see currency union as a missed opportunity for the UK.
In summary, by all means criticise the UK. On almost any topic you’ll be right and we deserve it. But, to say that we are excessively hostile to the EU and our neighbours is totally untrue.
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#47 Richard Dingle,
Richard,
As you know I am ver loathe to have to point out some flaws in your argument :)
The breaking of the Masstricht rules by France and Germany (got it right this time!) was before 2007
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@40, ghostofsichuan wrote:
"Germany competes on quality not price, Chinese compete on price, not quality."
I'm old enough to remember several decades ago someone using almost the same words except it was Britain instead of Germany and Japan instead of China.
I wonder where things will be in a few decades time?
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52 You sure love your gold. BTW The british public have had decades of tagrag fleet street journos telling them about continentals in strange clothes wanting to take their chocs and bangers and pint away.
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55. At 8:25pm on 03 Dec 2010, foredeckdave wrote:
#47 Richard Dingle,
Richard,
As you know I am ver loathe to have to point out some flaws in your argument :)
The breaking of the Masstricht rules by France and Germany (got it right this time!) was before 2007
Before 2007, but not before 1990 and the unification and associated costs (avg 80 BN Euros pa).
I can't speak for France.
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#59 Richard Dingle,
You are now trying to mix 2 very different things and I'm not quite sure why.
Masstricht Rules have nothing to do with re-unification.
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52. At 8:15pm on 03 Dec 2010, truths33k3r wrote:
The Euro is run by the bankers as is every fiat currency. I have no idea where this fallacy that we can run to the Euro to escape the bankers comes from?
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From this I deduce that you accept that the ‘banker’ are controlling every turn of this crisis, and that given the present set of parameters, there is no escape.
And from that I take it that you feel that the British government is either too weak or that their hands are bound.
Would it be fare to say this: there is more strength in number then in the individual i.e. the sum of it’s total parts is greater than the sum of the individual parts (well I know what I mean). I am putting it forward as if it is a war, not a physical war but a war of attrition. A game of power and control if you will and I for one am not comfortable with who is winning.
That is my basic reasoning – increase the odds and you’re more likely to win.
So over to you – why wont it work?
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The major economic cost would be the hit to competitiveness, because the new German currency would surely go up. It's up for debate how much this would force the much talked about rebalancing of the German economy. Listening to Germany's politicians and industrialists, you would expect it to have very little impact: in the world market, they tend to argue, German companies compete on quality, not price.
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Interesting statement, Stephanie, but would it? The markets might decide that Germany outside the Euro (and possibly the EU?) might become the weak linkless piece of chain rather than the strongest link in an increasing chain made up of a mix of weaker and the weakest links? After all, the argument many put forward pro EU/Euro is that western and central European countries cannot survive alone in the post post-modern world.
Secondly, there might be a loss of market - not with the old EU club, but because Germany might be seen by the New Economic Powers as slightly suspect, seeking a new personal hegemony without the 'brake' of the rest of the EU, especially Britain.
Thirdly, Britain might benefit from Germany leaving the Euro, finding new partnerships between them and the existing position of a semi-independent UK essential in routing trade from north-west, east, west, south-east and south-west. If the pound were to be perceived as such by the markets, it might take some or all of the growth you appear to suscribe to a New Dm.
Finally, in the price quality matrix, the levels of production relating to high quality are smaller than low quality. Looking at our world, by and large, it is harder to make lots of money producing low volume, high quality products. It can be done, but it is not easy and maintaining the position - in a rapidly changing economic world - may be rather fraught.
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re #54
Well put, thoughtful obsevation and analysis. Thank you.
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60. At 8:56pm on 03 Dec 2010, foredeckdave wrote:
#59 Richard Dingle,
You are now trying to mix 2 very different things and I'm not quite sure why.
Masstricht Rules have nothing to do with re-unification.
Maastricht Rules concern deficits.
Germany borrowed on the bond markets.
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36. At 5:15pm on 03 Dec 2010, John_from_Hendon wrote:
All this negative nonsense about the Euro is the direct result of our obsession with banking and bankers. They are not the spirit of GB. They fulminate violently when it looks like one of their great money spinners will be taken away from them. But Europe must help the UK to vanquish its bankers. We(the UK) are is a desperate life and death economic struggle to seize back the country from its bankers. Argue for the UK joining the Euro and silence these idiot apologists for the bankers.
37. At 5:25pm on 03 Dec 2010, John_from_Hendon wrote:
I still have all of the publications of the Bank of England preparing the country to join the Euro. They still apply today. Much of the work and preparation has been done. All we need to do is to declare that the city of london is a foreign country responsible for itself and unable to call upon the people of the UK for support and bail-outs and we would be back in with a real chance of reestablishing the Greatness of British business and manufacturing. I say kick out the bankers.
If we want to see a properpous trading Nation again - we must get rid of the bankers! No backsliding!
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John, Are you really willing to take on tax rates that high? We learnt many lessons in the last thirty years. One is that it is foolish to tax too much at the bottom of the heap and not enough at the top. The other is that people at the top of the heap are a lot greedier and hate tax much more than those at the bottom.
What do you think would happen to the work of creating a prosperous trading Nation if London's banks were ringfenced off from the rest of the country?
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61. At 9:35pm on 03 Dec 2010, common_man_123 wrote:
"That is my basic reasoning – increase the odds and you’re more likely to win."
I do not see it as a war between the bankers and the government. The bankers are the government. The revolving door between banking and politics is much more obvious in America with Hank P being ex Goldman Sachs etc, but it is a well known fact that Tony Bliar receives huge sums each year from the banking community.
The power lies in the monopoly power of issuing fiat money. Print your own money and you go to jail, Mervyn King prints billions and he is a hero that has saved the world. My argument is that the globalist elites want as few currencies as possible. The Euro provides a useful stepping stone but ultimately a global currency has to be the ultimate aim.
The government will not solve our issues, they are the issue. It is the individual against tyranny and this is why they hate gold as they cannot print it.
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66. At 10:10pm on 03 Dec 2010, truths33k3r wrote:
My argument is that the globalist elites want as few currencies as possible. The Euro provides a useful stepping stone but ultimately a global currency has to be the ultimate aim.
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I hear what you are saying but I cannot agree with the above statement, I would suggest that the opposite is true. I love playing strategy games, I was bought up playing them, from cards to most of the ‘*opolies’ and beyond. The more players you have the greater the opportunity to manipulate and win by a greater margin. You have to know what game you are playing: scrabble is a game of spelling words, NO! it is a game of using words to your best advantage. There may well be the James Bond villain out there that wants to rule the world but bankers need competition in order to manipulate.
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67. At 10:37pm on 03 Dec 2010, common_man_123 wrote:
"There may well be the James Bond villain out there that wants to rule the world but bankers need competition in order to manipulate."
We will have to disagree. What singles out banking is the lack of competition. In order to manipulate all you need to do is to control the rules of the game, and ensure that the vast majority of players do not.
"Competition is a sin."
John D. Rockefeller
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68 truths33k3r
The objective of business is to gain monopoly. The objective if government is to break monopoly, ie increase competition. The conflict is in debt fed consumer based economy a politican is in the situation of governing the device which gives short term economic growth, ie debt growth.
The only way forward is to move to more direct linkage between the electorate and the politican ie digital democracy, and conccurently take steps to de-emphasis consumerism. The problem is cultural not financial and to do with individuals.
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68. At 10:59pm on 03 Dec 2010, truths33k3r
Sorry I realised after I had writen '.....but bankers need competition in order to manipulate.' that it could be read two ways and unfortunately you have taken it opposite to what I was trying to say.
I was not saying competition between bankers but competition between individuals allows bankers to manipulate, therefore by reducing the number of individuals you reduce the opportunity.
The problem with quotes is that they are selective to prove a point. Winnie said ....yes I am drunk.... So we had a alcaholic running the country. I don't know this buts lets put 'Competition is a sin' into a context
A bankers convension and J D R is the key speaker and the main topic is interbank competition and how by undercutting each other many smaller banks are finding it difficult to servive. Now it's meaning is different!
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NBW - what is a digital democracy - facebook? how would it work?
Is the de-emphasis of consumerism to be done by force? Do you support the Cancun proposal that everyone in the west should be rationed (except for the rich, powerful and connected of course)? Is the climate change debate a great way of enforcing rationing? Is an elite group of technocrats a better way of distributing wealth that open and free trade?
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70. At 11:27pm on 03 Dec 2010, common_man_123 wrote:
"I was not saying competition between bankers but competition between individuals allows bankers to manipulate, therefore by reducing the number of individuals you reduce the opportunity."
I don't understand what you mean by this.
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Truths33k3r
Were the British Government manipulated into guaranteeing 7bln to Ireland? We already give money to the IMF and Europe and by definition therefore were already contributing? If we bought for 5% and sold on for 7% then on the face of it a good deal, but who’s making the 5%? But on the books we are in hock for another 7bln.
The question therefore is: could we have been put in this position if we were inside the euro?
And what about Spain and Santander?
Individual = Metaphor (schooling was long ago so I hope I’ve got this correct)
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5. At 12:07pm on 03 Dec 2010, John_from_Hendon wrote:
Stephanie,
Why do you give credence to the nuke-self option? They will only benefit bankers.
Europe needs one currency. It has one. Why do you think that the bankers want to destroy it? Can this be for anything except their naked self interest? Have we forgotten the economic destruction that the very same bankers unleashed upon us a couple of years ago?
We should join the Euro. We need to be inside the single currency. The only part of the economy to benefit by either destroying the Euro, or keeping the UK out, is the bankers. The jingoistic Little Englander xenophobes MUST be stopped, and we must remind that that the bankers destroyed the country. Bankers (and their economists) are not just part of the problem - they are the problem!
And don't say that economists think that destroying Europe is a good idea for it is these very same economists that justified the bankers and took an active role in destroying the Nation in the last decade. Why do you and we still listen to these proven and self confessed idiots? We must expunge their insane self-serving ideas!
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Opinions are like rear ends everyone has got one.
It was low interest rates, too low for too long, that was the "root" cause of the financial crisis causing the boom & bust with cheap money.
Low interest rates welcomed by the last Govt who were skimming all the tax receipts from the vast amount of transactions that were taking place, without a thought of where it was leading to as long as they got their bit to finance all the daft social schemes.
As far as the EU goes, no one in this country has voted for what we have now.
It has been IMPOSED upon us.
These pro european types MUST BE STOPPED before it is too late.
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Stephanie apparently wrote: It may be unthinkable, but I'm not the only one thinking about it.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Then you're probably wrong about the first bit.
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You get paid for these daydreams then, Stephanie?
Hey, that's some living.
Here's mine: 100% of divorce is caused by marriage. The sum total of misery caused by the former outweighs the happiness stemming from the latter. It therefore makes sense legally to derecognise the said arrangement.
Where's my wodge?
Aah. I'm not employed by the BBC...
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Morning Stephanie,
Germany, Netherlands, France will leave the Eurozone if and when it suits them. At the moment, it is in no countrys interest to do so, therefore it will not happen.
I see you published your theorem on Friday 3/12/10. I think that this day will go down in history as being the turning point in the financial crisis of 2007.
My reasons are,
1) I am completely fed up with the pronouncements of Jean-Claude Trichet who as a former French Central Bank head is making the European crisis worse by the day. He says one thing, hints at another, and the ECB act on a third. It's time for him to retire.
2) Weaker European countries have debts that they can NEVER pay off so defaults are both required and desireable. Only by this mechanism can some order be brought back into European affairs because then at least, bonds could be CORRECTLY priced (knowing the discount rate).
We are struggling along from country to country and what the market needs is certainty and they are getting none but fearing the worst.
3) Mr Bernanke is taking yesterdays unemployment figures as justification for his QE and further has hinted that he will not stop at $600 billion (my guess is about $3 trillion is required).
The consequence is that both the Euro and the Dollar are in a race to the bottom to make their exports competitive. This will all end in tears.
4) As UK shivers during this global warming, nobody appears to be taking any interest in what the EU, and by definition the UK, are doing with their energy policies. This is fraud on a grand scale but nobody cares because it hasn't hit them yet. Time to WAKE UP people, this concerns you and your children/grand-children.
5) As I stated in a previous blog, Oil is going up in price rapidly, not because of fundamentals of supply and demand, but because of speculation on the price by your State-Owned banks. Does no one remember what happened when it reached $150/ barrel(US)? This time it will probably peak at $200-$250/ barrel(US). What are you going to do then?
Other energy costs for electricity in particular are going through the roof.
All commodities especially foodstuffs and metals like copper are under the same inflationary pressures as traders try to make more and more money for nothing!
Please mark this day in your diary, Stephanie, the day the Western world finally went unstable.
Doesn't bode well for 2011, does it?
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This is a wee bit like the American Civil war. Then too the British government were on the side of Confederacy, trying to engineer a break up of the US. It didn't work then and it wont work now. To be fair I don't think the Brits want to break up the European union, but just to make sure a confederacy reigns supreme. And again I say: it wont work. A federation or chaos is on the cards. My advice to the Brits is start playing ball while you've got options don't repeat the past and leave it too late, so that you have to beg to join the Euro.
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#75. BLACK_PEARL wrote:
"It was low interest rates, too low for too long, that was the "root" cause of the financial crisis causing the boom & bust with cheap money."
Totally agree.
BUT
I totally disagree with your anti-foreigner/anti-Europe position. It is illogical, not based on an understanding of what makes the country tick and is likely to lead to conflict.
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#65. Up2snuff wrote:
"What do you think would happen to the work of creating a prosperous trading Nation if London's banks were ringfenced off from the rest of the country?"
The banks would collapse - BUT not be able to take the country with them again as they have just done. The banks need the riot act read to them and be absolutely assured of the very harsh consequences to the institutions and their staff at all levels if they create any more bubbles/crashes. Why not - expulsion from the country, confiscation of all property, withdrawal of citizenship and passport (If it is OK for us to deal with countries around the globe that do this and more - how can we not have a level playing field in consequences?) We must make these stupid banking idiots understand their wider responsibility and to that end I have been arguing for a tax system enforced National Maximum Income set at 20 times the National Minimum Wage.
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71 truths33k3r:
'what is a digital democracy'
It is where more active note is taken of the population via the internet and structured polls taken on a regular basis (on proposed policy). The Scots are looking at it. There were also suggestions and some experiments put in place by Jack Straw, mainly on side issues. It potentially erodes the domination of the electoral cycle on economics. It is resisted it would seem in some areas of government because it will remove power.
It does however fit with repeated aside comments from both the previous Lab admin and the Coalition. Both apparently thinking that the only way to defuse the pressure lobby groups and get some reality back into the budgets is to involve more of the population in decision making. Ie shared responsibility for outcomes.
'Is the de-emphasis of consumerism to be done by force?'
The de-emphasis of consumerism will be forced sooner or later by resource problems. The consumer problem is also an educational one. There is an imbalance between propaganda from commercial bodies and independent sources.
'Do you support the Cancun proposal that everyone in the west should be rationed.'
Not as such. Natural progression in the right direction is better than forced movement. It is progression which is important.
'Is the climate change debate a great way of enforcing rationing?'
A whole cost accounting including the use of transportation and resource impact is a better way. There is little point in doing something like charging for plastic bags if the bulk of packaging going in the bag is plastic and exceeds the bag. Flying fruit and fish around the world with tax free fossil fuels is an odd use of resource.
'Is an elite group of technocrats a better way of distributing wealth that open and free trade?'
There is no such animal as free trade, all markets are regulated. I dont have a problem with anybody providing a service. The issue is regulation of the market and consumers not buying damaging goods and services.
The principle problem is the detatchement of the modern consumer as an individual from the supplier as an individual. Since the 60s the emphasis has been to dehumanise or de-person the product by producers and retailers. The internet provides the opportunity to deal direct with a human. The de-humanised interface aids the abuse of workers and the environment. Few consumers want to abuse. In order to reinstate the human you need to work and interface in a differnt way. (That is what we do as an activity). There are implications - there is a higher cost on the interface, communication costs. It therefore suits some products and services more than others and in order to balance the cost the distribution system / supply chain has to be more efficient.
Somebody got upset becasue I commented that the credit crunch is small beer. As far as I am concerned it is if the environment continues to degrade. A recent report on this site advised that wetland birds were becoming homosexual due to routine mercury contamination of wetlands, one source of mercury being bruning fossil fuels. We are all part of this biosphere.
The political system has failed in part. Central to that is the fact that government(s) has become involved in debt growth in order to gain short term economic benefit which favours it as incumbent administration. Oppositions do not win elections, incumbents lose. The conflict is between government regulation of commerce to ensure sound sustainable process and government revenue gained from commerce. It has little to do with bankers at the heart of the matter. Not that I am greatly enthused about bankers, but at least you know what you are dealing with.
The media remain depressingly unobjective and playing to the emotional. Consider the football bid. The only report I have seen stating the obvious - the bid was lost because Russia gives better market growth potential than the UK was an aside in an interview with J O'Neil ex GS on an american channel. Instead the focus is on the fob-off of media reporting souring the plot. I doubt this reporting helped but it is also unlikely to be the reason for the outcome.
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81 jfh
The financial sector and business services will very soon comprise 30 percent of GDP. Why not get rid government and consumers also because they are part of the game also.
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#42. Dillers wrote:
"Hi JFH
Not sure about the "blame Gordon Brown argument" ... Surely it is EU officials and the heads of States at that time who should be held to account for allowing countries in that had not met the convergence criteria.
"
Politicians are liars - they have always been liars - they are constitutionally unable to tell the truth even if they knew for sure what the truth was. The same is true for officials and indeed all of us. Which of us has never said an untruth when we believe the truth would be hurtful?
The British lie to the Americans and we are good at it for the simple souls believe us. (see Wikileaks) We say to the Americans that which we think they want to hear - even when it is totally untrue! The same is true fro every Government, every country, local or parish council.
The last govenrment found that reality was so far from the reported truth that they introduced an enormously invaluable system of benchmarks and reporting systems to try to overcome this ubiquitous feature of real life. In part this did drive up standards, but it also encourage scheming individuals and organisations to develop even more resourceful schemes to appear to meet the required standards without doing so at all.
The entirely synthetic 'rage' over being misled by world football is another example.
A single currency is about economic efficiency, of course there will be issues of running they system when the parish councils, in Dublin, Madrid, Berlin, Athens get a bit stroppy, but that is how things are and we need to work together to solve the issues, but that is the key we need to work together to solve things as the greater good is the economic efficiency for all of Europe and all of its countries in having a single currency.
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#83. At 09:18am on 04 Dec 2010, Not Buzz Windrip wrote:
"81 jfh
The financial sector and business services will very soon comprise 30 percent of GDP.
"
The 30% shows us several things:
- How disastrous the economic policy of all governments has been in the last forty years.
- How much we desperately need to rebalance the economy and how urgent it is to get this process started.
- How much we need a National Maximum Income enforced via the tax system to make sure that the gross theft of the legitimate profits of trade and manufacture are no longer stolen by bankers (and footballers!).
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85 jfh
The Isle of Wight is about th size of Hong Kong. Why not lease it to the Chinese for 99 years and get it back when they have built it up.
Then all these issues you wish to impose unilaterally on people will not be an issue to you. PS I see your hit list now includes footballers paid by private companies. No limits then.
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#86. Not Buzz Windrip wrote:
"85 jfh"
The difference between us is that I want to see the greatest good to the greatest number of people - and you want unbridled greed (i.e the failed trickle down system) Please wake up and smell the cordite! You are the discredited and failed past!
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One of the fundamental flaws of this argument is the premise that the populations of Europe trust bankers, and markets, more than politicians. Whilst politicians have a pretty deplorable image across the continent, few people really believe that they are the cause of this present crisis. So looking to 'the market' to solve a problem that it was instrumental in creating sounds like madness, whatever way one views it. Like appointing a hedge-fund manager to run a country...
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82. At 09:10am on 04 Dec 2010, Not Buzz Windrip wrote:
"The political system has failed in part"
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Is there even a single example of the political system in the UK delivering anything substantial and of lasting value to the people of this country in say the last 20 years?
82. At 09:10am on 04 Dec 2010, Not Buzz Windrip wrote:
"It has little to do with bankers at the heart of the matter"
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Utterly preposterous.
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89. At 12:10pm on 04 Dec 2010, stopsupportingcriminals wrote:
82. At 09:10am on 04 Dec 2010, Not Buzz Windrip wrote:
"The political system has failed in part"
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Is there even a single example of the political system in the UK delivering anything substantial and of lasting value to the people of this country in say the last 20 years?
No, not even the last 50 years.
It has been all about maintaining the status quo, all about running the country for the benefit of a clique.
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#82 NBW,
Digital Democracy,
From your explanation it appears as flawed as the present system. The problems of questionnaires are manifold and easily lead to manipulation and bias. You then have to consider the communication process itself. The one thing that it does not do is include the the populace in the decision making. The thought that it evokes responsibility for outcomes is as much a fraud as the Tory mantra of choice. It is more likely to lead to an abrigation of responsibility - "don't blame me you voted for it".
Consumerism,
History does not appear to support your contention. The resources demand today will not necessarilly be the ones in demand tomorrow. Consumers, in one form or another, have existed since the begining of time and they will continue to do so. You really should refine your definition.
Perhaps you should also consider that armies are consumers too. It could well be that they are employed to 'secure' resources in the near future.
Rationing
Will never be totaly effective and can only be used as an a short term measure. You only have to look at the UK WW2 experience to see that - even at the lowest level of rationing you could always get a 4 course meal at The Ritz (if you had the money and connections).
Global Warming
This whole issue is a mish-mash of poor research, information and analysis. Too many scientists and politicians have tried to ride to glory on the back of questionable research and over-stated analysis. Despite the advances in statistical modelling over the last 50 years nobody can yet tell us what the real consequences are or if it was caused by mankind or part of a much longer natural world cycle.
World Cup Bid
Perhaps you would like to look a little under the hype and see another set of factors. If FIFA had taken a 'wider' stance in its bid proposal document then none of the Western European countries would have bid in the first place. FIFA brought this scorn upon its own head. Add to that the problems of 'financial impopriety' that have dogged FIFA for years and their stubborn refusal to follow an IOC style response.
However, they are beeing very short-sighted. The fiancial power lies not with 'the developing football world'. Over the next few years just watch the true power brokers undermine FIFA totally - probably via the club structure.
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89 stopsupportingcriminals:
'...........82. At 09:10am on 04 Dec 2010, Not Buzz Windrip wrote:
"The political system has failed in part"
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Is there even a single example of the political system in the UK delivering anything substantial and of lasting value to the people of this country in say the last 20 years?...........'
> What do expect when an empire is lost and the structure is about running an empire. When manufacturing is shipped abroad. When the size of the UK economy is not large enough to develope novel technology and implement it as sales. that is why the opportunity of the financial sector was grabbed, because there was not much else to grab at. Critical to that dependency was regulating the city. the minute government got in bed on a profit share basis via tax streams then the whole thing fell appart.
''............82. At 09:10am on 04 Dec 2010, Not Buzz Windrip wrote:
"It has little to do with bankers at the heart of the matter"
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Utterly preposterous............'
The objective of commerce is monopoly. The objective of government is to prevent monopoly. It is matter of regulation. How difficult would it have been to regulate mortgages at the point of sale. Not at all it would seem, as it is being done now.
You can huff and puff as much as you like the issue is sound government and consumer habits. Tell me why one of the few prodcuts you can buy, a mortgage has no consumer protection rules about it. Particularly noteable when mortgages are most consumers biggest ever purchase. When mortgages have such an influence on the economy.
By all means do whatever you want to bankers. It will not sort the problem.
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90. RD
'Is there even a single example of the political system in the UK delivering anything substantial and of lasting value to the people of this country in say the last 20 years?
No, not even the last 50 years.
It has been all about maintaining the status quo, all about running the country for the benefit of a clique.'
> And the mechanism is democracy and less than 2/3rds turn out for an election, and the government is decided by less than 5 percent of those who vote in key locations. Wake up.
The housing market runs mormally on a 2 percent turnover. Double it and you have a boom and dramatically rising prices. Its not rocket science. It is directly related to government policy. It is known what the effects are. Wake up.
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At the moment there is an obsession with concerns about financial systems. What really matters is the real economy. Financial systems should be designed to serve the needs of the real economy. Abandoning the euro would badly effect the real economy of Germany, as Stephanie's blog confirms. Unfortunately governments at the moment seem willing to accept a great deal of damage to their real economies, by cuts which are bound to slow recovery from the recession for example, in order to prop up broken financial systems.
There is a risk that by running a scare campaign in Germany an unscrupulous political party could obtain power, and proceed to inflict serious damage on the real economy of Europe, just as is already being done in order to reduce "dangerous" deficits.
Money and debts or deficits denominated in it, are artifacts which are easily created or destroyed. Central banks do not even need to run printing presses to create more money, it is sufficient to change a few digits in balances stored in a computer.
Steady inflation, causing negative interest rates and a devaluation of the currency and a few large corporation insolvencies can surprisingly quickly deal with deficits, and result in a redistribution of wealth, which would be beneficial after so many years of the reverse happening under an excessively free market.
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"The political system has failed in part"
last 20 years/No, not even the last 50 years
-------------
This is not my experience
1975-79 = Ave, As long has I had money for Ale and Fags I was happy
1979-83 = Poor, Nest building, 13/14% int.
1983-95 = good, acheaving and building
1995-2000 = Excellent,
2000-05 = std deminishing quickly over this period
2005-10 = poor, atleast no high interest rate
So taking the lag into consideration I have been better off under a con government. therefore the system works for me in parts and I can not be included in any clique
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87. At 11:59am on 04 Dec 2010, John_from_Hendon wrote:
'..............#86. Not Buzz Windrip wrote:
"85 jfh"
The difference between us is that I want to see the greatest good to the greatest number of people - and you want unbridled greed (i.e the failed trickle down system) Please wake up and smell the cordite! You are the discredited and failed past!..........'
Not at all. I have said what I consider works. As far as I am concerned you have yet to propose anything that will work, all you want to is dismantle which will reduce functionality.
I find it hilarious when I am exporting, manufacturing ethically, using novel techniques, employing people, retraining people, that you think you can criticise me when by your own acount you have shut down a manufacturing facility decades ago and shipped the work abroad. I would say that was a discredited and failed past somehow.
Fraud and abuse does not mean a system is beyond use. It means more ethical policing is needed and better regulation is needed. Obviously these are needed because steps have been taken to do both. I have not exonorated the bankers I have said they are not front of the queue for attention. Please concentrate on who benefits from the bankers being a scapegoat.
I have previous said that there is no sign of the system being reformed in the way you seem to want for this to happen it has to be determined that a crime has happened and whether you and others like it or not the report on the FSA says there was nothing criminal. Therefore the door is shut on your ambitions in that direction. I am not shutting the door, somebody else has.
You principly post that interst rates are too low for your liking. It is being done to goive a breathing space. Furthermore when the banks want your money they will pay more for it. There is little linkage between BoE rates, Libor rates, high street deposit rates and high street borrowing rates. You also relentlessly go on about M King getting the boot. he is one man, The MC sets the interest rates.
Now I am afraid I have to get on becasue I appear to be one of the few who post who has work and I am overloaded.
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91 foredeckdave
I suggest you research some of the topics beofre you dismiss them. I do not have time to post a thesis or give links. I have posted short form comments. By defintion they do not include everything and they are not even intended to be an overview.
I really have to get on. I am in the real economy. I do not actually even need to be in this country.
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Why not 2 euros .... Euro "A" and Euro "B", with promotion and relegation.
Maybe add more leagues later, sell television rights.
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98. At 1:26pm on 04 Dec 2010, mikeknowitall wrote:
Why not 2 euros .... Euro "A" and Euro "B", with promotion and relegation.
Maybe add more leagues later, sell television rights.
Also merge with Sterling League (a third Doc Marten League) :}
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#97 NBW,
"I really have to get on. I am in the real economy. I do not actually even need to be in this country."
There we go as usual, making comments and running away - just par for the course from you as a poster.
I really don't care where you locate yourself. What I do object to is your inability to defend your statements. It appears that you have time to post but are then always too busy to answers questions. That leaves me to wonder what level of understanding you actually have concerning what you write.
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FDD
I take 5 and look at the board and sure enough there you are like a pop up toaster. Won that bet then. I work 7 days a week. I do not have to respond to anybody but if they ask for info I try to give brief comment.
I post about retail consumers and you comment that armies are consumers. Yeah right, I'll just pop down the high street and fit out my militia. They have a special offer on. Amazing what you can get mail order these days, chemical and bio.
I note you have posted fairly recently that you see the board as an opportunity to debate, fine go ahead and debate but not with me. I am not available to post on request. Defend my statements? Why? I've stated facts. You object? So what, its a public board run by the BBC.
You appear to oscilate between the people should have manna regardless, the end is nigh and protectionism. None are a way forward.
Regards
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*******************************
80. At 08:58am on 04 Dec 2010, John_from_Hendon wrote:
#75. BLACK_PEARL wrote:
"It was low interest rates, too low for too long, that was the "root" cause of the financial crisis causing the boom & bust with cheap money."
Totally agree.
BUT
I totally disagree with your anti-foreigner/anti-Europe position. It is illogical, not based on an understanding of what makes the country tick and is likely to lead to conflict.
*******************************************
Never stated I was anti-foreiger only anti EU.
I'll state again that NO ONE in this country has ever voted for what is in place now.
What right has a Govt to sign deals to give up any sovereignty let alone a single currency without a vote.
Nothing wrong with the various countries in europe operating on their own and trading with each other as they have always done, with their own currency, (which has been part of their identity as a country) and boarder controls.
If they 'mess up' that their problem not ours.
Learn by your own mistakes.
Hand outs are like benefits, 'living for free'.
We don't need an EU govt.
We are NOT part of some 'Borg collective'.
We are individual peoples with all the rich diversity that brings.
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#101 Windrip,
As usuual you either will not or cannot understand anything that is at odds with the tripe that you present.
"I work 7 days a week", "I am in the real economy" truly childishly pathetic culminating in " I do not actually even need to be in this country". One day you will grow up.
I see that you are at least consistant with your tactics as identified by torpare in a previous thread - equally pathetic. However, I will take your advice and not even attempt to debate with you as a debate requires what you certainly lack - intellectual capacity.
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Germany leave the EU?
Not going to happen!
The political price would be too high, and there will be unexpected impacts economically as well.
You have written one statement laying down: "Of course, it is precisely because they can't restore their national balance sheet and competitiveness the old fashioned way that Greece and the rest are now facing such a miserable few years within the euro." Let us not forget the cancerous impact that consultation taken with companies like Goldman-Sachs had on the manner of accounting (as in hiding debt), to say nothing of bundled derivatives with AAA ratings and other dirty tricks. Why do you think STUPID PIIGS are called STUPID PIIGS - because they accounted with pristine, certified balance sheets? Most of these STUPID PIIGS actually PAID for the consultations, which is why I can't figure out why Brussels had not found a legal methodoligy to sue the source.
Back to Germany: Germany will not quit the EU or the Euro.
Why?
Because Brussels has just begun to fix the financial mess traded into EU countries by its good friend across the o'cean. I think you know the one I mean. The EU is planning tougher trading rules for banks and brokers, especially re computerised trades which will face tough, TOUGH oversight.
The ECB is well-aware of the dark, filthy pools that are being created by automated trading - so fast so these computers hum.
What is happening within these pools?
Who is engaged in automated trading?
What will be the consequences?
Some of the ECB answers are a pleasure to read: e.g. all derivatives eligible for clearing must be traded on an electronic platform.
The European Commission will soon publish its plans for drastic reforms of the bloc's markets in a financial instruments directive (MiFID).
MiFID has striven for better protection of investors and there is evidence it has reduced trading costs per transaction and speeded up trading.
No one country on its own can tackle insufficently regulated and/or more opaque parts of the financial system. e.g. Significant reforms are mandatory in MiFID as regards the transparency and oversight of various trading instruments. It also says that derivatives contracts presently traded on the vast off-exchange market will be transacted on an electronic platform where they can be centrally cleared.
he document said all clearing-eligible derivatives that are "sufficiently liquid" should move to either an exchange, a multilateral trading facility (MTF) or a new category of trading platform to be defined in MiFID.
The consultation also proposes a new regime within MiFID to regulate the use of computer of high-frequency trading (HFT).This refers to ultra fast execution of trades which has raised concerns among regulators, particularly after what was called the "flash crash" on Wall Street in May when blue chips went briefly into freefall.
The EU executive outlines a specific regime for automated trading of which high-frequency trading would be a subcategory and proposes several requirements such as risk controls and ensuring that orders can only be canceled after a certain period, and of course, could be downloaded and subject to audit.
Why would Germany leave when the EU is beginning to create a safe environment for all financial transactions while shutting out those investment banks that seem to prefer black pools.
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On a different note, why is it that the UK is so adamant about standing in the shadow of the U.S and following in their footsteps like a little lost sheep, has the american dream that everyone idealized not turned out to be the American nightmare?
Isn't the U.S destined and already on a path of decline where there is no turning back for them? Where there is no more super power anymore just a lot of people who haven't woken up yet? It's almost like the country went to sleep looking forward to the American dream, which turned out to be the nightmare and the rest of the world is holding their hands instead of throwing a cold bucket of water on them..... The titanic hit the iceberg, the water is lapping around their ankles in the white house and the band still plays on while the brandy is still being toasted.
Logically it does not make sense, I just don't get it and i know legal beats logic every time but can anyone help me understand why there is not immediate disentanglement from the united states of denial
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@pjagoe(#105):
Sorry to disappoint, but this is not the place to ask questions. It's a blog for those who already know all the answers :o)
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Direct democracy would be a huge step forward. Switzerland has it. Digital direct democracy would be a quantum leap improvement.
Half the world's problems are down to election cycles.
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#107 Oblivion,
"Direct democracy would be a huge step forward. Switzerland has it. Digital direct democracy would be a quantum leap improvement."
Exactly how and why? Do you not see that there are major problems with both the questions asked and the methodology/technology used?
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This is a rather detached thought, but doesn't it al look to you a bit as an exercise in balancing a Furuta pendulum? (http://www.youtube.com/watch?v=OV7VlPasYYo&NR=1 and http://www.youtube.com/watch?v=T5vQedr4NPo&feature=related)(credits to Aegean Ghost and esp. Oblivion for inspiring this thought). The first example is rather simple - we have drive at the top of the upright arm... the second is much more volatile. If the analogy holds, and the banks are much in charge the conclusion would be - don't overload them with tier one capital - they will have felt too confident and thus tended to destabilise the system.
Let everybody load up as much debt as they can carry!
PS. on the opposite, a system with net savings seems analogous to the pendulum with the dependant arm pointing downwards - self correcting, but extremely boring! Most obviously Germans don't mind getting a bit bored.
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#109 - Suav
For a much more elaborate and complete work on describing the economy using dynamic systems, see Steve Keen's debtwatch blog. He applies engineering tools and techniques and successfully predicted the crisis by describing debt dynamics.
Somewhere in that blog he shows that today's economy is inherently chaotic (can break down, and self correcting features can fail) for one main reason: if it is possible to borrow money to speculate on asset prices, thus driving the asset prices up, and if this is done in high volumes, then when the asset price bubbles burst, the economy is left with unsustainable levels of debt without growth in real productivity. In short, leveraged asset speculation is the root of all evil.
In contrast, he also shows a stable, non-chaotic system, where endogenous debt money constantly increases : it is not inconceivable for banks to continue to issue debt, and continue to issue money therefore, as long as the borrowing is used to raise GDP causing real productivity increases.
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Dempster and AnotherEngineer,
this link hudson-to-hudson might help to clarify (or cloud) the issue, Hawkeye_Pierce posted it on Paul Mason's excellent Idle Scrawl
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The Polish byword for it is "Hit the table, hear the scissors jingle!" That's exactly what I supposed you to say. Thank you! (I red "Debunking Economics" and try to follow the "Debtwatch". I looked at his models briefly, but what you need doing is to analyse the underlying equations (a good "sine cura" but with "studio" at a local uni and a bunch of enthusiastic students does the trick...Anybody willing?). Always trust, and always check up (Chrushchov's motto). Keen's work as a whole has a Sraffian (read big industrial corporate) leaning, which isn't any wonder in Australia relaying on mining and construction.
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If Germany leaves the Euro zone, its the end of the euro...?
Isn't it...?
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It would be quite a suprise if they did, saying it was their brainchild from the start.
http://www.infowars.com/top-nazis-planned-eu-style-fourth-reich/
http://www.cuttingthroughthematrix.com/articles/Intelligence_Report_EW-Pa_128.html
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Its all very well arguing the chances of Germany leaving the Euro because of financial reasons alone, but they know there are other countries that want to quit the EU completely! I believe Germany would jump at the chance to join them, in the right circumstances. The UK, given a referendum, would vote to quit the EU, especially if they knew that Germany would as well. The German voters, given a referendum, would know they wouldn't be going it alone anymore and could almost certainly count on France to join the party as well. These 3 countries could return to the origins of the Union, where essentially, only trade agreements locked them together. Other countries would follow suit and we could all get back to the original idea of a Union as it was intended.
After all, who gave the Brussels Oligachs permission to create and run this EU/Euro pyramid scheme in the first place?
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Foredeckdave
Yes, I can see huge problems, but on the other hand, if we were in such a system and someone proposed parliamentary representative democracy as an alternative, I'd be even more horrified.
I think the main thing is that people are today much more informed than people think, but under a direct democracy people would I think take much more responsibility for what they choose to know,if you know what I mean.
When you have leaders doing everything for you, it's easy to be a numbskull that tows with the herd and views the media hype tv news in the same way as a soap opera. However, when every man and woman becomes continuously involved, I think there would be a snowball effect of continuous self-informing. People would take it upon themselves to propagandise their own views, and centralised media would diminish, as is the same today with blogging. Perhaps some meritocratic hierarchies in information quality would emerge, it would be interesting to speculate.
In any case, things would change. I definitely imagine an enhanced role for science and scientists, as the 'truth' of things would be important to decision making. (eg: subsidise beekeeping because scientists establish the relationship between bees and pollination of local habitat)
This is just what we need. The environment would also be tackled more effectively as externalities would become a constant topic of referendum and scientific enquiry.
All in all, the change probably wouldn't be a bad one, it certainly would not be worse than the charade we have at the moment, and I think a change like that would be FUN.
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These disparities and their potential effects have always been the arguments for slower expansion, elected centralised government and an element of centrally collected tax.
Most politicians have trouble in thinking about more than one term of office at a time - all the big players are thinking about their own political future in their own country and no-one has really been putting Europe first.
Short termism, I am all right, expansionist policies were always going to lead to something like this.
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Here are a few articles from the Economist about problems with the Eoro and how to leave:
How to resign from the club http://www.economist.com/node/17629757
No easy exit http://www.economist.com/node/17629745?story_id=17629745
Germans tired of paying out http://www.economist.com/node/17632957
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#119 Oblivion,
I'm all in favour of adding a sense of FUN into our political systems.
I think that you would find that the involvement that you seek would tail-off very quickly. As with any system, it is not the designers who have the power, it is the controllers. Therefore the advance of science and scientists, the search for the 'truths' of things and the creation of a continuous learning environment, would be manipulated. You can see, not only in our society, that these things have not come about. I also have to note that in universities I have met some 'scientists' whos views have ranged from right of Ghengis Khann to left of Screaming Lord Such!
I really hate to be seen to pour cold water on the idea as I share with you the need to change our political decision making systems. So perhaps the best way to achieve that (digitally or otherwise) is to concentrate upon adding more of a sense of FUN
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116. At 07:14am on 05 Dec 2010, Oblivion wrote:
Foredeckdave
Yes, I can see huge problems, but on the other hand, if we were in such a system and someone proposed parliamentary representative democracy as an alternative, I'd be even more horrified
Neither of you seem to grasp that more important than changing the personnel every 4 years or 24 hours is a free press (moderators please note) and an independent judiciary.
That is what we should be working towards and enschrining in a constitution (when we get one) rather than just changing the names of the people in high office.
Continuity and concsensus should be copper bottomed by making it impossible fo any single party to achieve power without gaining at least 85% of the popular vote.
Try thinking outside the box for a change.
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Back on topic.
The more you look at the EU project the more it looks on course for a federal Europe with centralised fiscal housekeeping. All the scaffolding is already in place, all the implicit arrangements and guarantees are there. All that is required is some formality.
The missing ingredient is leadership. We need new treaties to enschrine the mechanism in law.
What we don't need is a whole series of silly referenda that really prove nothing at all. There is nothing undemocratic about the last statement; referenda always have been about abdication of responsibility and lack of leadership.
115. At 11:53pm on 04 Dec 2010, Crystal Ball wrote:
'These 3 countries could return to the origins of the Union, where essentially, only trade agreements locked them together.'
Origins ? I suggest you do some homework; there never was any intention at all to just have a union based on trade. The origins of the EU always was about a new political future for mainland Europe and nothing else. By 'mainland' I am conceding that the UK maybe does not belong.
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Well said, Markus (post 33).
More Brits agree with you than you probably guess!
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#120 &121, Richard Dingle,
Richard,
Come on! The sun is shinning (well it is here anyway), lunch will soon be on the table, so we are all free for a little flight of fancy!!!
Why do you think the EU and ECB systems and regulations are as they are? They were never designed as a road-map towards, "a federal Europe with centralised fiscal housekeeping." Leaving the UK aside, the French are never going to agree to a system that takes control out of French hands. The Italians might but then they will continue to go along their own sweet way spending all of their efforts on not paying taxes. The Dutch and Danes will not accept it - why should they when they can quietly get on doing their own thing in their own way. The Irish might need it but their imbeded sense of soveriegnty will not allow them to.
Whilst the essence of the EU is a political union, all of the member states have ensured that they never allow control to pass to a body outside of their control.
Now there is a need for a stable and universilly accepted reserve currency and none of the major nations can agree on what that should be
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123. At 1:54pm on 05 Dec 2010, foredeckdave wrote:
Leaving the UK aside, the French are never going to agree to a system that takes control out of French hands.
FDD, master of the patronising one liner.
Do your research properly. The French are very much for it (certainly not De Gaulle but he is no longer on the scene), the Italians and Spanish would probably resist the most despite a more precarious fiscal position.
Incidentally your dependence on national stereotypes (comment about Italy) does allude to a lack of knowledge on the subject.
'Control' - what exactly is it without power. All this nonsense about a Federal Europe homogenising identity is just that, nonsense. Apart from the UK, none of the countries in the EU have a national identity in quite the same way they have regional identities and these would be preserved. Bavaria is still Bavaria (unfortunately :) ) despite German unification in 1871 and despite the EU.
Regional identities will continue, what is given up is something they don't have anyway which is fiscal independence. The terms of the bail-outs given to Greece and Ireland, and also in the near future to Spain and Portugal, mean a surendering of budgetary independence.
All that comes next is the formalities.
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#124 Richard Dingle,
I would love to see the evidence to support your contention that "The French are very much for it". An overview of French media does not appear to support it.
As for the use of stereotypes then I will accept that such shorthand can lead to false conclusions. However, in reecent discussions with friends in Holland and Denmark, when this issue was discussed, there was almost universal distaste for any concentration of fiscal power (though for differing reasons in each country). If you want to refer to Ireland then you need to look at their insistance of the retention of their sovereignty - no matter what the cost.
As for your talk about Baveria then I will return your note regarding stereotyping. As for your comment about national identities then try explaining that to a Frenchman (even a Bretton) or a Dutchman or a Dane. I feel sure that you will be left in no doubt that they do consider themselves to not only have a national identity but one in which they take great pride - despite their regional differences.
A fiscal union may be your wish but I believe that you will find that national sentiment will prove a far greater block than you are ready to admit.
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I think fiscal union is a given. Question is when exactly. Probably during 2011.
What is more interesting is what will happen when it does. My guess is a sudden appreciation in EUR but for those countries nearby some short selling of their currencies. For the UK we can expect then a pretty sharp bout of CPI inflation some time in 2011 or 2012. I think it would be worth being in a UK based export business with domestic sourcing round about now.
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That these ideas are being debated by serious journalists suggests to me that nobody in Germany or outside of it stands to gain anything by such a radical change, except of course the grossly overpaid wretches in the upper echelons of corporate banking.
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125. At 3:35pm on 05 Dec 2010, foredeckdave wrote:
#124 Richard Dingle,
...there was almost universal distaste for any concentration of fiscal power..
Do you not understand that 'fiscal power is already concentrated'. The slightest utterance by Die Merkel and national budgets fall apart and have to be re-written, bond prices go up or down. Fiscal power is already concentrated with legislators in the slip stream trying to keep up.
'As for your talk about Baveria'. The Bavarians will always be Bavarians with or without the 'smiley'.
Regional identities are key and will remain. If this was not true I would be dead against any federal structure. Not just regional identities but also potent ones with a degree of self governance (probably more than they enjoy currently) and some tax raising powers (incidentally, the only decent policy the LibDems ever had was a 'local income tax').
Fiscal union will be a condition of transfers to the periphery. Transfers to the periphery are the only realistic chance of economic salvation for these countries. As a reasonable alternative, leaving -> own currency -> devaluation is not even on the table.
What is plain is that the Eurozone can either collapse or go forward to greater fiscal integration. There is no third way.
So collapse. For the PIIGS this will mean trying to service Euro denominated sovereign debt (if they re-denominate that is a default) in their new devalued currency. Trying to borrow new debt in their new currency, well think it through. Default is a given.
So staying in the Eurozone, accepting a shed load of new rules, and benefitting from transfer payments. The notion that if they had their own currency it would allow them to be competitive with the Germans is a pipe dream; it never happened when they were out of the zone.
PIIGS like turkeys won't vote for christmas.
FDD, the cold icy winds of economic reality are blowing your argument away.
So onwards to a Federal Europe.
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I'm not an economist, so cannot comment on many of the postings on this topic.
I just don't see the euro can be made to work between independent nations with different levels of economic activity. I can see that removing national independence from the picture makes life easier to move the cash about, very much like the SE of England subsidising the rest of the UK. But it still isn't liked by those doing the paying, and I suspect the greater the language, cultural and geographical distances are, the less liked and unconditional the largesse is.
My belief is that the union of european states is nothing more than hangover from reaction to the horrors of WW2 and the pain of post war recovery. The eu has become a self sustaining bureaucratic and political mass that is now difficult to turn, like an out of control supertanker. Some good has been achieved, yes, but is this really the best way forward?
The mixture of countries in the EU will never match their economic performance, so the weaker ones will always require subsidy from the stronger, just to remain as poor relations. Perhaps as some states are in the USA, 140 years after the end of their civil war, even with a common currency and language.
The problem is to balance that subsidy at a level that is acceptable to those paying, i.e. Germany, but still maintaining the viability of PIIGS. For ever.
As I said, I'm not trained in economics or politics, but thats how it looks to me. Never going to work the way it is.
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129. At 5:40pm on 05 Dec 2010, myneerkop wrote:
I'm not an economist, so cannot comment on many of the postings on this topic.
Still, you sum up 'where we are' rather well.
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#129 Richard Dingle,
"FDD, the cold icy winds of economic reality are blowing your argument away."
No they are not, You are certainly being either myopic or over-optimistic. Now please give me some links to support your contention regarding French reaction.
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131. At 5:55pm on 05 Dec 2010, foredeckdave wrote:
#129 Richard Dingle,
"FDD, the cold icy winds of economic reality are blowing your argument away."
No they are not, You are certainly being either myopic or over-optimistic. Now please give me some links to support your contention regarding French reaction.
FDD, times are hard but I decline the offer of being your unpaid research assistant.
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120. At 12:51pm on 05 Dec 2010, Richard Dingle wrote:
Continuity and concsensus should be copper bottomed by making it impossible fo any single party to achieve power without gaining at least 85% of the popular vote.
Try thinking outside the box for a change.
=========================
well that's certainly way outside the box.
I suggest 85% of those eleigible to vote!
Are you suggesting that all the parties get together and offer us a single choice?
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Sadly there is no federal election due in Germany until Sept 2013, giving Merkel a free reign for a couple of years.
She's already treding a fine line playing both sides of the field and trying to appeal to german conservatives, but as yet its only lip service.
As the crisis heats up which it will, since some countries are basically bankrupt and won't be able to repay regardless of bailouts etc. Then her stance will shift as the election approaches.
Whilst the politicians are beholden to their EU vision, they are also beholden to their local voters and the germans didn't want the Euro and will certainly start to get increasingly fed up with paying for sloppy latin nation's messes......
So none of this will happen yet, but there will certainly be a shift towards discussing this.
We also have to consider Italy that has some quite right wing characters in its politics, with Berlusconi out of the picture and Italians prone to doing what suits them best, we could perhaps see Italy throw the towel in on the Euro. Its large enough to go it alone and smart and tricky enough to see all the benefits.
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133. At 6:02pm on 05 Dec 2010, AnotherEngineer wrote:
120. At 12:51pm on 05 Dec 2010, Richard Dingle wrote:
Continuity and concsensus should be copper bottomed by making it impossible fo any single party to achieve power without gaining at least 85% of the popular vote.
Try thinking outside the box for a change.
=========================
well that's certainly way outside the box.
I suggest 85% of those eleigible to vote!
Are you suggesting that all the parties get together and offer us a single choice?
In a word yes. If they want to be really radical and for example want to dismantle the most successful health system in the world, let them get 85% of the vote, rather than do it on the back of a minority fudge.
Choices tend to be synthetic anyway. What we need is continuity and good governance.
Add to that a constitution, more buttressing of press freedom and independence of the judiciary.
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Just for FDD.
A groundswell towards a Federal Europe...
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/81479...
A federal Europe, with more sovereign power ceded to the centre, is the best defence against any future crisis, the head of the International Monetary Fund has declared.
Warning that "the sovereign crisis is not over", Dominique Strauss-Kahn, the IMF managing director and a likely French presidential candidate, called on the European Union to move responsibility for fiscal discipline and structural reform to a central body that is free from the influences of member states.
Barack Obama will back a federal Europe
http://www.telegraph.co.uk/comment/5005351/Barack-Obama-will-back-a-federal-Europe.html
http://www.businessinsider.com/why-the-real-result-of-the-greek-crisis-will-be-a-more-federal-europe-2010-3
Europe is set to become more federal under secret plans being drawn up in the capital of Brussels, according to Der Spiegel.
The German paper reports that an economic government for the Euro zone is being designed and will be implemented as part of a post-Greece overhaul of the continent's government.
The point is, taxi drivers will not influence policy in this direction nor will the average Fritz or Raul or Pierre in the street.
BTW, not bowing to mob opinion is not the same as being undemocratic.
There is momentum.
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134. At 6:13pm on 05 Dec 2010, Richard wrote:
We also have to consider Italy that has some quite right wing characters in its politics, with Berlusconi out of the picture and Italians prone to doing what suits them best, we could perhaps see Italy throw the towel in on the Euro. Its large enough to go it alone and smart and tricky enough to see all the benefits.
I agree Italy's position will be interesting but it is a country more regional in character than national (similar to Germany).
I would expect a federal Europe with fewer members than present which might not be a bad thing.
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Of all the macro-risks we face at the present time, Germany leaving the Eurozone strikes me as probably the least credible. There's a nice summary by Niels Jensen of Absolute Return Partners of the "dirty dozen", ie. the real macro events we should be losing sleep over - http://www.stockopedia.co.uk/content/the-december-absolute-return-letter-the-dirty-dozen-51156/
In his view, these are:
1) High yield priced for perfection
2) The risk of double dipping
3) Japan's Debt Mountain
4) Beggar Thy Neighbour devaluation strategies
5) Too Hot to Handle Capital Flows
6) Chinese Inflation running out of control
7) Rising food prices leading to civil unrest
8) India's current account deficit
9) European sovereign risk
10) Massive refinancing programme
11) Premature monetary tightening
12) Israel launching a pre-emptive strike on Iran’s nuclear facilities
Clearly the financial crisis has explored the folly of monetary unity without fiscal / political union, but the idea that Germany might abandon ship as a result is just wishful thinking on the part of British Eurosceptics!
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138. At 6:50pm on 05 Dec 2010, Macronomist wrote:
Of all the macro-risks we face at the present time, Germany leaving the Eurozone strikes me as probably the least credible.
Interesting link and a good sanity check.
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MACRONOMIST
Like most mainstream economists and commentators you miss the biggest problem the macro economy faces, namely expensive and scarce oil. This in turn leads to expensive and scarce food, coal, gas, copper, iron, aluminium, phosphates, plastics, pharmaceuticals, fertilisers, etcc.. All of this leads to high real inflation and less disposable income which leads to reduction in consumption and stagnation/ recession/ depression.
The end of the ability of suppliers of oil to meet world demand is the elephant in the macro-economic room for the whole world.
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140. At 7:21pm on 05 Dec 2010, Sage_of_Cromerarrh wrote:
The end of the ability of suppliers of oil to meet world demand is the elephant in the macro-economic room for the whole world.
Elephant ? No, Red Herring.
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#132 Richard Dingle,
"FDD, times are hard but I decline the offer of being your unpaid research assistant."
Nobody is asking you to be my research assistant. YOU made the claim and I am asking you to prove it. Nothing more or nothing less.
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#136 RD
I see your links are really up to date Richard :)
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A lot of this stuff is way above my head.
Let's refer to Italy first- a while since I either worked or did business there, but my abiding memory is of style, but mainly for eccentric attitudes to business and personal taxation and to employment practices. African in the south, Germanic in the north, they say. A nation with a similar population and land area to Britain, but totally different, and under migration pressure from Africa. I suspect that this culture will not within the foreseeable future fit easily with northern european ways.
Next, strategic materials- I have not forgotten the sixties when we were told that they'd all be gone by the eighties. We forget that challenges like the oil crisis of the early seventies drive innovation, not collapse. We are adaptable, and have defeated all threats to date.
I am a believer in smaller is better-as Mr Schumaker I think. Big organisations are unresponsive and lose their way. I think the present path of a united europe hive offers only stagnation and decay.
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143. At 8:04pm on 05 Dec 2010, foredeckdave wrote:
#136 RD
I see your links are really up to date Richard :)
Apart from taxi drivers, and Danish friends with whom you shared a smorgasbord, can you offer any links to the contrary.
Out of date ? Straus-Khan is the current head of the IMF and a possible French presidential candidate.
I am well aware of the opinion on the streets (in Berlin, Madrid, Dublin, etc) but it is fickle.
What counts is the dominant mood in the 'corridors of power' in European capitals.
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RICHARD
Red Herring? In the words of John McEnroe "you can not be serious", please explain.
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#145 RD
Your link http://www.telegraph.co.uk/finance/financetopics/financialcrisis/81479... does not work.
As for Straus-Khan, how is that really any endorsement of French attitude? I believe that you will find that there is plenty of opposition to IMF style interventions.
As for "can you offer any links to the contrary.". Are you morphing into Windrip? Come on YOU made the claim.
BTW I can't remeber the last time that I took a taxi or talked to its driver. I think that it could have been in Las Palmas.
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#145 RD
I was speaking to some traders at the bank, and their opinion is that fiscal union is a given too. The liquidity management department is responsible for selling out of certain states, but they kind of have to. As long as there is some collective belief that there is a risk, then there is a risk, and these guys are bound by policy. They are very reactionary. I think everyone knows that it's just a matter of time before the Eurozone starts to operate its own bond market.
The question again is when. There are still some countries with their own currencies, like the UK, who will almost certainly experience a devaluation in their currency when it happens.
Sage of Cromerarrh
Some people who are very well informed seem to think that the oil prices are dramatically overinflated by otc derivatives manipulation. Apparently the oil price should be in the order of 10 times lower.
It would be very interesting to "go there" and explore - last time I did I found myself swamped in complexity. Someone did a write up of some very shifty arrangements between an investment bank, BP, and some co-owned oil bourse, but I forget the details.
The commodity bubble previously was a consequence of the housing boom in the USA, as far as I can tell. Basically new money was being created at a rate of knots, the whole world was experiencing rapid growth (china, for eg), and the belief was that commodities were short for a sustained expansion. I don't see that happening again now.
What is interesting is that a dramatically cheaper oil would probably kill it off quicker, peak oil style.
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MYNEERKOP,
It's hard to invent your way out of a shortage of energy. The 1970's oil shocks that you mention did not lead to any innovations that shifted our reliance away from oil. The world uses over 30 million barrels per day of oil more now than it did in 1975. That's two and a half Saudi Arabias worth of oil production.
BRIC countries will try to grow rapidly in the next decade or two, but this will be at our expense because there is not enough energy to go around. You see it happening again just as it did in 2007/8. Inability to meet demand is pushing up oil prices until they reach a threshold that cause economic contraction. This then leads to a recession and temporary reduction in demand and lowering of prices. But the cycle continues again as economic growth bumps up against supply capacity.
As supply capacity moves down as we go down the Hubbert curve, overall economic activity reduces and we have recession/ depression unless substitute energy sources are brought online at a price and rate that more than offsets the drop off in oil supplies.
I see no such appearance of substitutes at a rate that can sustain net world economic growth.
A hugely scary scenario is that without economic growth our whole debt based financial model collapses. Huge private and public debts are defaulted upon or inflation erodes them and there is a collapse in investor (lender) confidence because there is no profit to be had in lending.
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OBLIVION
Although during future recessions there may be a short term reduction in oil prices they will never be cheap again. Take 2009 for example, the last trough in oil prices. This was $36 per barrel and lasted for only a few weeks. By mid 2009 it was back at $60 a barrel. Now it is around $90 a barrel. $36 is around $10 above the long term price average prior to 2002.
The OPEC countries have been lying on the high side about their true oil reserves ever since the 1980's when they all miraculously added doubled their reserves without any new discoveries.
The issue is with rates of extraction anyway rather than reserves. As the giant oil fields of the Gulf and Caspian areas age they are reducing in pressure and output flow rates. New technology and more wells only slows down the depletion of these rates and all major world fields are now in depletion mode.
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147. At 8:50pm on 05 Dec 2010, foredeckdave wrote:
#145 RD
As for Straus-Khan, how is that really any endorsement of French attitude? I believe that you will find that there is plenty of opposition to IMF style interventions.
I posted...
Out of date ? Straus-Khan is the current head of the IMF and a possible French presidential candidate.
What has this got to do with 'opposition to IMF style interventions'. I was merely pointing out that a respected international figure who might well be the next president of France endorses the notion of a Federal Europe.
The real point is which way will it (the Eurozone) go. Will it fold or will it move forward towards tighter integration. It cannot stay as it is.
So if it is to fold give your reasons. I have already explained reasons why that scenario is unlikely.
It is not about 'links or sources'. It is about logic and argument, and also political will.
Have a go. I am sure you will.
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SAGE
A hugely scary scenario is that without economic growth our whole debt based financial model collapses. Huge private and public debts are defaulted upon or inflation erodes them and there is a collapse in investor (lender) confidence because there is no profit to be had in lending.
Crisis ? More an opportunity. A new beginning.
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148. At 8:55pm on 05 Dec 2010, Oblivion wrote:
Some people who are very well informed seem to think that the oil prices are dramatically overinflated by otc derivatives manipulation. Apparently the oil price should be in the order of 10 times lower.
===========================
Oh really; $8 per barrel? That is probably below the production cost ouside Saudi Arabia.
Methinks these people are not so well-informed, more a conspiracy theory.
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Maybe slightly off-topic, but not much - and as a humble retired engineer I must really be missing something here, and need some answers.
Ireland and Greece are heavily in debt, so borrow from the ECB.
The same Ireland and Greece have to sell government bonds - so to ensure that they are sold, the ECB buys them.
Er - isn't this just a tad spooky..?
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#152 Richard Dingle,
Finally you have posted one comment that I can agree with:
"The real point is which way will it (the Eurozone) go. Will it fold or will it move forward towards tighter integration. It cannot stay as it is."
Neither you nor I know the answer to this question. Now you are entitled to your opinion that the outcome will be fiscal union. I do not share your confidence given that none of the Eurozone states will willingly give up their fiscal control.
As for Straus-Khan then the latest opinion poll in France (ref: Ifop) would suggest that if he ran now he would have little chance of election based upon Sarkosey's rating.
If you mean that by forwarding an alternative point of view I am having a go then I stand guilty as charged.
From a purely idealogical standpoint, I believe that it is only when the electorates of Europe force their governments to confront the fraud of the global financial systems that any real change will happen. Again for idealogical reasons I do not see that happening in the USA any time soon. However, Europe, with or without Germany, is significant enough to force action where presently there is inertia.
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AnotherEngineer
Well, that would be worth investigating. In an oil state, the cost of oil is technically zero. That is, it is oil that is used to fund its imports, and oil reserves do not have a price.
Sage
Do not forget that world derivatives nominal value totals around 600 trillion dollars, and 90% of those trades are otc and little understood. What effect are those derivatives having?
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#154 david
'Heavily in debt' depends on the interest rate. An interest rate of zero means no debt.
The ecb buys the bonds at a certain rate to prevent institutional market manipulation of eurozone state integrity.
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156. At 06:52am on 06 Dec 2010, Oblivion wrote:
"...What effect are those derivatives having?..."
+++++++++++++++++++++++++++++++++++++++++++++++++
On their owners, and under certain circumstances, a similar one to laxatives I would expect.
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For Ireland, and others, this financial crisis is starting to challenge ‘one person one vote’.
If an elected Government is prohibited from enforcing debt re-structuring for insolvent banks, then your ‘one person one vote’ may as well not exist.
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#157 Oblivion.
"An interest rate of zero means no debt."
Can you explain please. If an interest rate is set at zero, it merely means that the capital sum will not grow whilst that rate is maintained. The debt itself continues to exist
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Has anyone else heard that Germany has been quietly printing new Marks
over the last few months?
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Liked the article, but ...
It seems very unlikely that Germans will walk out of this very advantageous position to ramain and promote the Euro.
For a 15-25% depreciated Yuan, see what kind of international pressure China is facing for alledgedly being a "Currency manipulator"
Germany has the priviledge of having a auto-depreciated currency which is going to be ever depreciated w.r.t. it's own productivity curve in future as well, as long as the other subscribers happen to remain below average productive.
... and that too sitting at a morally high point !! .. and helping others with theit math and physik problems ( and now economic ..)
For the foreseeable future at least, Germans have a great and sustainable competitive advantage vis-a-vis the world sticking to Euro.
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#160 ForedeckDave
Yes, of course you are right, and what I should have said emphasised is confidence that the interest rate would remain forever zero.
What I was trying to emphasise was for example the fact that Japanese public debt is extremely high in nominal-to-GDP ratio but the interest rate on Japanese debt is consistently low. The debt burden is related to the interest rate, and if the ECB can prove to investors that no matter what, the interest rate won't go higher than X, then the debt burden on that country is reduced.
What riles me is that the BBC is complicit in persistent unfounded media attacks on this European move: by calling into question the EC itself, and encouraging a negative and hostile debate, it is part of a scheme to undermine the very constructive acts that the EU is making in reducing those interest rates Ireland and Greece are suffering.
In other words, the EU can say 'we'll lend you a trillion at x percent' to Ireland, but that doesn't mean they have to take it. What it SHOULD mean is that hostile speculators and banks should *give up* on trying to extract 10% interest rates from a small country that they helped screw up in the first place. The EU is effectively *underwriting* the state debt, and it can do so without risk of inflation by reselling whatever it purchases.
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156. At 06:52am on 06 Dec 2010, Oblivion wrote:
In an oil state, the cost of oil is technically zero. That is, it is oil that is used to fund its imports, and oil reserves do not have a price.
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It is true that the marginal cost of a barrel of oil is close to zero in many cases (not sure what imports have got to do with it). This is similar to software, but in both cases the first item sold can cost billions of dollars in research and setting up the production facilities. In many cases oil costs a lot to extract each barrel e.g. in deep water - North Sea or off the coast of Brazil.
And oil reserves have definitely got a price - just ask the Chinese government.
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#164 AE
yeah... but those dollars came from oil sales.
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#163 Oblivion,
Thanks for the reply. I do agree with your further comments. However, I would go further than the EU/ECB.
As a fisrt step to developing a new global financial system I believe that all debtor nations should be able to calculate their debt on the basis of a minimal interest rate. There would however have to be constraints upon those nations adding to their existing debt levels.
I would prefer that, if we could, all of the debts were written-off and we could all start again with a clean slate. However, the probability of unforseen consequences would be too high and there is always the question of the ethicacy of such a move in relation to the debt holders.
Whilst RD might not believe it, I am pro European. I believe that the UK is stronger in concert with the EU. At the present time currency union for the UK is not probably possible and to some degree does not matter. We have to change our focus away from the USA.
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Oblivion @163 - what a wonderful final paragraph.
Indeed, going a small step further, the ECB buying what I'll call 'special bonds', effectively non-redeemable and zero interest, from the countries running into debt problems would resolve the whole Euro crisis. Isn't it what the Bank of England would call QE?
It's a more certain and more attractive solution than any kind of fiscal union. I fear that many don't realise the enormous difficulties in producing a fiscal union. The attitudes to taxation in different countries are huge, never mind the actual laws and rules and the present feeling of the European public towards anything with the 'Europe' label.
I have to disagree with Richard on opinion on the streets. Governments have fallen - in mainland Europe - through trying to make the public pay their taxes or change the rules to force them to. In many parts of Europe, economy with the truth on the tax form is quite the norm for everyone from members of the government down to taxi drivers.
Oil, though possibly off topic, is one of my favourite topics. Oil always costs, even though relatively little in parts of the Middle East, to produce. But, it's much cheaper, safer and more convenient than almost any other source of energy. As it becomes scarcer, a progressive not an overnight process, other sources will take its place. It would be nice (for UKgov) to have the foresight (for the UK) to be prepared for those times. Certainly, Europe shouldn't allow itself to be held hostage to anyone with a monopoly on convenient or cheap energy.
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167. At 12:47pm on 06 Dec 2010, WolfiePeters wrote:
Indeed, going a small step further, the ECB buying what I'll call 'special bonds', effectively non-redeemable and zero interest, from the countries running into debt problems would resolve the whole Euro crisis. Isn't it what the Bank of England would call QE?
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I think it's called a gift.
I agree with your last paragraph. Nuclear is the answer.
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#167
Depends I think on what people mean exactly about fiscal union. What I think is a definite next step is establishment of a European bond market...what that means on a nation by nation basis is worth thinking about. I am not sure.
I mean, if the EU gains the capacity to start funding state debt through cheap EU bond sales, what does that mean exactly for each Eurozone nation? Is that capability merely held up by the EU in one hand with a "fiscal integration anyone?" sign held in the other? Do the PIIG nations rush to join on less pleasant terms while countries with low deficits join on separate contracts and on terms of their choosing?
I don't know - but the EU bond market is definitely the next step. Does it even have to have an effect on taxes?
Regarding oil - my comments about reserves not having a price are that the externality of oil reserve depletion is not included in the price.
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169. At 1:12pm on 06 Dec 2010, Oblivion wrote:
Regarding oil - my comments about reserves not having a price are that the externality of oil reserve depletion is not included in the price
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I don't understand that, but can nonethless agree. The price is decided by supply and demand with some intervention by OPEC.
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#170 AnotherEngineer
Supply and demand of:
1) Oil reserve storage infrastructure
2) Distribution infrastructure
3) Oil futures contracts
4) Oil
5) USD
?
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168 Another Engineer
Yes, exactly, it's a gift, suitably dressed up. For me, the countries in trouble have to either given currency or allowed to print it. The rest is window dressing, delaying the problem and sending them into more debt.
It's what we've done in the UK over the last year or so, given ourselves £ 20 notes.
169 Oblivion
I agree that bonds are a way forward. I'd like to see them administered by ECB as you said and issued (or limited) on the basis (probably) of balance of payments deficit rather than gov debt. The bonds shouldn't be a way out for bad government (which I fear is what Tremonti would like). And, as I said above, they need to be close to a gift.
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171. At 1:31pm on 06 Dec 2010, Oblivion wrote:
yes all of those are factors, as well as quality of oil, weather, level of industrial activity, market sentiment etc. But not the cost of production!
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missed out the words 'proceeds of' in the last para of 172
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So Steph,
How much longer are you planning on wasting your time on scenario's that just do not make any sense?
The Germans will not leave the euro, since for all their complaints, they benefit greatly from it.
1) Even if the yields on Bunds have edged up a little, this doesn't really mean anything. The yields are still over 1% lower than they were before this "crisis". Currently, German taxpayers are winning massively from this crisis: 1) as mentioned before: their country borrows at 1% less than before the crisis in terms of its own debt and 2) on every euro borrowed to Greece and Ireland, they gain roughly 3% per year through the yield differential between their own borrowing costs and the price charged to Greece and Ireland.
2) The value increase of the "new mark" would more than likely be much more than 20%. Compared to some of the PIIGS it could be as much as 40%, compared to countries as the UK, it may be even more, since Germany opting out of the euro would see debt of Eurozone countries plummet, leaving the UK with its already disastrous finances (and dependency on some of these countries for exports) in a very bad position.
The reality of the situation is that there just isn't any need for these extreme reactions. Some countries are taking some tough medicine which they should have taken long ago. This will hurt for a few years, but they will come out of this having learned valuable lessons. Never again will they screw up like this, since the "easy way out" of devaluing just isn't there anymore. This is what avoiding moral hazard looks like and the fact that some countries took the easy way out by devaluing their currencies bodes ill for them, since they will not have learned the same lessons.
The reality is also that no-one has ever devalued himself to prosperity. Devaluing is a quick fix, but no solution.
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Opting out of Euro would not be a rational decision for Germany in view of its long term interest. With demise of Euro and subsequently EU,which is certain if Germany quits, on balance Germany is likely to lose more than gain. In any case, it would not be a cake walk for Germany.
The post-War, devastated Germany steadily rose as the European Community evolved into European Union with a common currency. It is European Union that provided an enabling field for German political and economic action facilitating its emergence as a dominant economic player in Europe without creating misgivings about its long term goals. However, on joining a club,one accepts the whole package of privileges and responsibilities,i.e., benefits and liabilities. Therefore, the key issue is not German exit but how to steer the Union through financial crisis with equitable distribution of its burden among members. Germany being economically the most powerful member can be expected to facilitate strengthening institutional mechanisms to minimise possibilities of such crisis in future. Nevertheless, the vulnerable members can learn from German experience in managing their economies.The present crisis is a god -sent opportunity for Germany to consolidate its position to play a dominant role in united Europe later. The cost of handling present crisis should be considered as investment for future returns-economic as well as political.Therefore, Germany should work out a restoration plan that would minimise its costs spread over a period of time. At present, experts are talking in terms of monetary flows largely overlooking the complexities of transfer problem,which is still not fully understood. In this context, many firms with damaged balance sheets and emaciated entrepreneurs in afflicted countries need both capital and entrepreneurial skills to bounce back. Germany can provide both through direct investment. It should be mutually beneficial. Further,it would generate goodwill for Germany and strengthen EU by increasing interdependence. Germany would be able to achieve peacefully what it tried to attain unsuccessfully through conflicts with horrendous consequences for one and all. Britain still sitting on the fence,Germany,deeply embedded in united Europe, has the potential to emerge as a world player. It is a wake up call for Angela Merkel to move forward,Stephanie. Only firm stand and prompt action can check contagion effectively.
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176. At 10:33am on 07 Dec 2010, Autar Dhesi wrote:
"Germany would be able to achieve peacefully what it tried to attain unsuccessfully through conflicts with horrendous consequences for one and all. Britain still sitting on the fence,Germany,deeply embedded in united Europe, has the potential to emerge as a world player"
So this could well be correct then :-
http://www.infowars.com/top-nazis-planned-eu-style-fourth-reich/
http://www.cuttingthroughthematrix.com/articles/Intelligence_Report_EW-Pa_128.html
mmm...
It would nice to have a vote on these important matters and the future direction of the country, instead of being heaed like sheep
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If Germany quit the Euro the BBC would make a programme proving that it was all the fault of Margaret Thetcher.
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"Is a German exit from the Euro desirable?", asks the link.
Yet again a question on this site is meaningless in that it does not say to whom, or in the furtherance of what end for that person or group.
I think it would be very desirable to one who relishes any prospect of an end to the European project per se, and who cares little for the enlightened values it promotes and spreads, but quite the opposite to a conversely-minded person.
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Since January 2007, the pound has lost 27% against the Euro, not to speak about the 36% it lost against the Swiss Franc and even 20% against the US$.
In other words, to save their “independence”, the Brits have stolen those amounts from all those foreign investors who were stupid enough to trust them.
If this is their idea of good housekeeping, than lets be glad the Euro exists!
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37. At 5:25pm on 03 Dec 2010, John_from_Hendon wrote
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You appear to be a one trick pony - Euro or bust.
Firstly by joining the Euro you will not eliminate bankers, in fact if you are looking at the German model which you keep referring to then the bankers are still at the heart of the economy. Little difference to the UK other than they were unable to challenge the UK as the finance centre.
Secondly if we are in such a bad state why would we want to join now. Our currency is one of our main tolls to assist us in the fight against recession.
Finally you are promoting us to join a currency that is probably going to allow Iceland to join. A nation who is still getting bailed out by the IMF.
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Richard Dingle @121
Suggested I should do some homework on the origins of the European ideal.
I suggest you do the same Richard and start, at what most authorities consider to be the beginning, the proposal of 9th May 1950, which led to the formation of the ECSC! The six original signatories, France Italy, West Germany and the 3 Benelux countries started the ball rolling. It was the Treaties of Rome, signed in 1957 that grew this noble start into an Economic Customs Union (the EEC) and an atomic energy community (EURATOM).
Just to clarify that for you Richard here is a description of a Customs Union......"A customs union is a type of trade bloc which is composed of a free trade area with a common external tariff. The participant countries set up common external trade policy, but in some cases they use different import quotas. Common competition policy is also helpful to avoid competition deficiency."
Sounds like a trade community to me Richard!
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