Time to send the barber home?

As a dane, I am getting increasingly worried about the condition of the Euro, particularly since we seem to be getting the worst of both worlds:
We have to pay higher interest rates to soothe investors worries about a small currency, we have no say in how the euro is regulated, and we have to pay for the privilege...

No wonder more and more danes are getting sceptical about both the Euro and the EU in general.
As long as euro zone members makes the third world look like a haven of good monetary and financial governance, and with out any consequences except a slap on the wrist, there is no way I am going to advocate tighter integration.

At least now we have the option to peg the Krone to the Yuan, the dollar or the pound when the faeces impacts with the blades of the ventilator...

You think it cant get worse... and it gets worse. The Euro seems to be an unstopable train to poverty and dictatorship. There are reports out now about creating a true "transfer union" including true "Eurobonds" without asking national parlaments first. Please, can anybody pull the emergency brake?!! Shame on the EU-Elites, shame on all 27 so called democratic governments.

Instead of dispatching the barbers for the bondholders, the ECB and Merkel are preparing to send in even more butchers to cope with the demand for the slaughter of the piggies.

Yeah, we get it. The Economist crowd don't like the euro (imagine that!).
Don't worry, sentiments are mutual. The euro doesn't like you either.

The last comment is totally biased. The fact you want to have a large fund does not mean the crisis is coming. It means you are well protected. It looks like Charlemagne is trying to set up a self fulfilling prophecy to help some bankers

What you can read on Quatremer's blog is quite more reassuring. The fund will be increased if need be. Who would complain about it. The opposite would be the real worry

http://bruxelles.blogs.liberation.fr/

Mathieu,

You say,

"The last comment is totally biased. The fact you want to have a large fund does not mean the crisis is coming. It means you are well protected. It looks like Charlemagne is trying to set up a self fulfilling prophecy to help some bankers"

How does it help Bankers?

The original Greek bailout was 60 billion euro. That wasn't enough. Within weeks the fund was massively increased to 900 billion. Ireland has collapsed and the fund is now not enough.

So Charlemagne has history on his side Quatremer only has blind hope on his.

@Mathieu: The fund will be increased if need be. Who would complain about it. The opposite would be the real worry

The German taxpayer could complain about that - as could the German constitutional court.

Saving the euro at any cost is not everybody's overriding priority....

sloehand:

Do not peg your currency to the dollar or the pound. Those currency zones are in a lot worse financial trouble than the Eurozone.

And, as expected, Merkel caved in again. She wants to protect the banks (this serial outbailing is not primarily about the states, this should be obvious), no matter what it costs the german taxpayers. I do really hope that the german constitution court will soon put an end to this madness.

A J Maher:

The corrupt governments in "democratic" countries all over the world has lent money from the banks and financial institutions on behalf of the people, without their approval.

To cover up the banks theft of the people, they(the governments) now bury the crisis by throwing the peoples money at the banks to save them from their unsustainable business of theft.

Thats how the banks benefit.

The Euro is in itself a very good idea. However its is based on a series of moral, rational assumptions that then do not take place in practice. Such is the case of Spain.

There is no independent judiciary power and parliament is a joke. We have seventeen refional governments and parliaments plus the central one, spending as much as they can whilst doing nothing about unemployment or bad debts.

Employment rules basically still follow the same general principles as they did under Franco, with a paternalistic approach to labour relations. Heavily subsidized Trade Unions are in charge of negotiations... Unions which represent no-one really as the degree of affiliation is amongst the lowest in the developed world.

Regarding bad debts, a minuscule change in the mortgage law (Ley Hipotecaria - LH) would have put an immediate lid to the overboiling housing market: invert the rule in article 105 and make it the general rule that only the goods included in the mortgage will stand as guarantee for the loan: I can assure you hous prices wouldn't have gone up half as much and the market would have adjusted far more quickly than it has. Bankers would have exercised prudence in lending, making sure the asset is worth the sum lent, easily over a 100% of the purchase price of the house (you need to decorate plus a couple of Audis ant the door, you see...)

Of course to the we must add the corruption of local authorities, at all levels and all over the country, no matter which party they belong to: PP, PSOE... and even worse the various nationalists, separatists and other more or less exotic options.

We do not know what the real Spanish public deficit is. It is not only that bills pending are put into the drawer. All sorts of fancy accounting and legal tricks are systematically invented so as to tuck away excessive public spending: going to the Cajas for funding (given their peculiar undefined nature as legal persons)... or setting up "companies with public capital" (entidades públicas empresariales): public spending at the end of the day but that does not appear as debt. Amongst other reasons for this practice is the old roman habit of securing political power locally via the institution of the "cliens". Nihil novum sub sole...

The following audio should not be missed (its in Spainsh though):

http://fonoteca.esradio.fm/2010-11-16/editorial-de-cesar-vidal-empleados...

Big deal, so they have kicked the can down the road one more time. No doubt they will do the same with Portugal. But Greece, Ireland, and Portugal are just postage-stamp countries with populations less than Chinese cities. Coming January, however, looms the huge shadow of Spain with hundreds of billions of debts coming due, or as Leporello put it: "Ma in Ispagna, in Ispagna mille e tre." Spain is no small potato -- in fact it represents fully one sixth of all Europe. What will they do THEN?

Judging the mood in Germany, I have the feeling that a majority of the taxpayers would go along with this ‘solution’, which involves a debtor’s willingness and capability . . . and asks for future responsibility.

And I do not share Serious Sam’s opinion that Merkel “caved in again”. All along it was made clear that June 2013 is the deadline for the existing EFSF, not before.

Important is that “the Markets” know that over-lending is as bad as over-borrowing. As long as borrowing (and lending) stays within the realm of capability to pay back (one day), I believe it is justified to support these countries (and assure the lenders).

It was clearly stated by Lagarde and Schaeuble that, from July 2013 on, lenders will bear some of the risk if they engage after that date in risky or clandestine lending to almost (or already) ‘bankrupt’ countries. This is only fair.

Therefore the markets will be soothed in a couple of days, after it’s thought through completely.

This situation update raises some questions, apart from the most common ones (need for european structural reforms, ...):

1) If pseudo-automatic mechanisms are put in place to bail-out risky situations: should or should not bond-holders contribute to this supra-national funds? Why is it that a risk-premium is paid to investors when buying Greek or Irish bonds, ..., if whole Euro-zone backs individual country risks?

2)In the Greek phase of the crisis it was clear that Portugal and Spain would be next, even Italy, few comments then pointed at Ireland. Are we now forgetting about UK? In this strange and spontaneous rankings, what is the criteria?
2.a Dependencies with previous bail-outs. UK exposure to Ireland is higher than Spain's or Portugal
2.b Public Deficit % on GDP. UK is similar if not higher
2.c Public Deb % on GDP. UK higher
2.d Private Debt % on GDP. UK higher

@la.výritý:

What you said would indeed make sense if there wasn't already a choking amount of debt on the shoulders of profligant Club Med countries.

How is this debt supposed to be serviced? By the ECB? I have asked this many, many times now: Exactly *how* are Club Med countries supposed to *ever* repay their irresonsible and massive borrowing?

And why should they even engage in sensible policies now? As other commentators have already posted criminal governments like the Greek one didn't even get a light slap on their wrists...for all their insane profligance.

Just read this section here:
"The ministers said they would consider extending Greece's repayment period to match this, an implicit admission that the conditions imposed on the Greek government were unrealistically severe."

So those that recklessly borrowed way over their heads, lied about said borrowing, cooked their books, told the world this year in May everything would be absolutely dandy again if only the EU (Germany!) loaned out some further spandooly.....consequently got these loans....are now saying they can't pay it back on schedule? And *NOBODY* has a problem with that?

How deluded are those bumpkins in Brussels? Greece will never repay its loans. They will just stonewall every time a loan reaches maturity, spouting gibberish about 'European solidarity'.

No, this Euro project is fundamentally broken and will remain that way so long as responsibility can be shirked. As long as parasites like Greece can engage in criminal abuse of the European (& Euro) idea while not facing any *real* penalties whatsoever.

All our moronic politicians are doing is buying time (and hoping that they'll be out of office with 'golden parachutes' when the faeces splatter right in all our faces.

My last hope lies with the Bundesverfassungsgericht.

Things may, in fact, working out rather well.

The most spendthrift Eurozone governments have all done a lot to sink their respective countries' credit standing by either overspending (Greece), bailing out impossibly wrecked private entities (Ireland) or presiding comfortably over a private-sector foreign debt-fuelled spending craze (Spain). The Eurozone's fabled ants just sat by and watched them go ahead while they marched straight into the sink drain.

Then came the crunch, and all the grasshoppers started to freeze in their flimsy summer huts. That was the moment of reckoning. The Greek government was forced to acknowledge cuts in public spending should be accepted, despite a large number of ill-thought election campaign promises. The Irish government was forced to acknowledge the issuance of blanket cover, on the back of Irish taxpayers, for private investors unable or unwilling to identify egregiously broke banks, was irresponsible. And the Spanish government was forced to acknowledge that merrily presiding over a notoriously unsustainable fiesta has consequences too. This all resulted in huge costs to the taxpayers of each of the grasshopper countries, and no smaller political costs to the relevant governments.

Wait for a minute to consider this.

Once the consequences of all those forms of reckless behaviour have been acknowledged by all, then solutions are forthcoming to deal with the short term mess, underwritten by Germany.

Hence, on the flip side to Germany’s lifesaving effort, the possibility arises to convince the miscreants (as well as would-be future sinners, able to learn from others' mistakes) to accept a rather reasonable long-term solution: to separate bank supervision from national governments and to establish independent bailout systems for each of those two groups.

This will establish a credible separation of state and bank finances, thereby credibly insulating the stability of a given country's banks from the eventual restructurings of the relevant state debt. That should in effect make for a strong firewall, thus keeping the Eurozone banking system safe, and dispelling any fresh danger for the Euro, in case of future state debt distress.

None of all such reckoning and loss of sovereignity would have been possible in the absence of a fully-fledged payments crisis.

In turn, the practical consequence of putting in place a system that will be ready to deal with state debt restructurings, will be to force every Eurozone nation to bear the responsibility for their own financial behaviour alone. The discipline this will impose has the potential to save a whole lot of (especially German) taxpayer money in the long run, while allowing Eurozone residents to keep the full commercial benefits of sharing a single currency area.

And this is no mean feat, for the seemingly affordable amount of a one-off BEUR 140 contribution from Germany to the EFSF which, in addition, happens to be refundable (at least in theory). In other words, this basically guarantees the free roaming of German produce across Europe, with no danger of competition by devaluation from neighbours, all in the context of an economic system pretty much run out of Frankfurt.

Would Kaiser William have deemed it good business for his country to achieve this at the cost of a loan worth less than 5% of its GDP, with way smaller effect in terms of international goodwill loss than alternative schemes?

A danger still exists that a Eurozone country will attempt the economic equivalent of jumping off the roof of a sixteen-country skyscraper but, failing that, it would seem a fair bet to assume the Eurozone will pull through this one.

EU is in trouble and nobody can convince me now that things will get any better.
So EU extended the doomsday, aka hair cut,aka screwing the investors.
We will not start screwing you until after July 1913.
Investors of the world start investing in EU.
Woopydoo, let's start the celebrations,EU is making us a favor.We will not face the ovens until July 1913.

It is obvious that bonds (and other instruments) investors have made poor decisions; hence, why strive to save a defective financing mechanism - that is, one that makes naive, unprofitable resource allocations?

A few things that the Ireland bailout teaches us:
• ‘Banks and government shouldn’t be so beholden to the bond markets’
• The Eurozone is not the US, where austerity packages are easier to manage
• Achtung Ireland! The balance of power lies with Germany. Nein?
And raises some interesting questions:
• How sustainable is the Eurozone? And can it afford to keep bailing out it’s members?

http://www.mindfulmoney.co.uk/2533/economic-impact/the-ireland-bailout-t...

It's really very simple, alot of countries using the currency have unsustainable debts, with an old population, poor competitiveness due to the currency, and general social spending that each country cherishes.

Without the euro, countries would just devalue away the debt, increase competitiveness, and etc. etc. It's not an anti-euro thing, it's not the great powers trying to cast down upon Europe, it's just very straight forward.

Now, these countries can stay in as well, continually get bailed out (I have a feeling Spain is hiding quite a bit of debt, not to the Greek level but expect some interesting figure revisions with the cajas), be indebted to Germany pretty much, and have a much tougher road to becoming economically viable. Even with all this tumult, the euro is $1.30 to the USD guys, and China (like I said ages ago) will not let it get far away from there in either direction.

So at the end of the day, either leave and have poor path one, or stay and have the worse path two. China is never going to let the euro get too low, so don't expect it to drop to the USD. And unlike the USA or China, the EU doesn't have a significant military, so don't expect even an integrated EU to really wield much currency power. Might still matters.

Looks like 1.19 is back on the radar.