Eurobonds: Lets all go down together!

The Cantona gambit is not so crazy.

The Irish crisis was not precipitated by the sovereign which had sufficient funding to take it into mid 2011 but by a depositor run from her banks which rendered their dependency on external funding even greater. This funding was not made available by the markets and the ECB had also drastically reduced its bond purchases at the time.

Cue the arrival of the euro undertakers with their poison pill for a generation of Irish taxpayers.

The Spanish sovereign (rather than France) is also acutely vulnerable via her insolvent banks.

Ironically so is Germany.

Perhaps there would be less self righteous German bluster about bailing out feckless others, less insistence on stripping them of their sovereignty and pushing them into debt deflation if Germany were to openly acknowledge and address the epic size of the black hole that lies at the heart of her own financial system and which is now distorting the whole euro system.

Merkel's insistence on bailing in the bond holder is a good idea - but since Germany's own banks hold the lions share of these crappy periphery commercial and sovereign bonds her ruthless practice sharply contradicts her sensible words. Ireland has been crucified simply in order that German banks can be protected.

This isn’t a show that can run and run….

Ms Maher has to be lauded for her idea that Germany should live up to its own financial troubles. A country indebted by some 1400 (last count) billion Euros state debt should immediately cease all payments to organizations like the EU and UN, and permanently terminate so-called developing aid. The latter position alone account for some 12 billion Euros PER ANNUM!

If Germany was financially more responsible and would stop to bankroll half the world, it would soon catch up with the financial potency of - say - China, and balance to some degree its rising power.

As it stands, however, the German government keeps plundering Germany for the sake of foreigners.

So for once, I wholeheartedly agree with Ms Maher.

The bond markets never had any trouble evaluating bonds according to their risks. What the Europeans plan are junk bonds, and the rating agencies will rate them appropriately.

America is broke, Europe is broke, Japan is broke, and China—as with all other 'rising stars'—will eventually go broke as the population ages, and healthcare and infrastructure costs mount. Welcome to the all broke club.

I completely agrre with Dunnhaupt. When will politicians learn that markets are not precisely stupid? (And that many traders have way more experience than them...???)

Juncker's praise of the Spanish economic measures is a complete joke that doesn't even sound well. Perhaps the IMF's defeated idea of increasing the size of the bail-out funds might have to be reconsidered again next spring. Spain is only selling the family-silver and reducing corporate tax for companies that are anyway not earning any profits. (Why don't they give bak all the VAT they owe them? Why not reduce tax on real-estate? Those are REAL tax cuts, not mere political propaganda...)

NOTHING is beiong done in Spain regarding reform of a rigid, ridiculous, labour market; Credit is not being facilitatated to small and medium sized companies which in this country are the real job-creators. Krugman hasmn't got a clue what he's talking about when he speaks of reducing salaries further. IN fact, Krugman hasn't got the faintest idea of what the Spanish economy is about.

But either the labout market is flexibnilized urgently, corruption and excessive administrative intervention and severely cut back, justice actually begins to work and credit is facilitated tu business or Spain goes down the drain... and figures will start showing in few months time.

@dunnhaupt

You're completely wrong about the bond markets being able to assess risk. They can't. The ratings agencies are even worse. Bonds, stocks, go from triple A to junk status almost overnight.
Both the bond markets and the ratings agencies assessed the risk to Greek and Irish bonds as negligible until it all blew up in the news.

Eurobonds: Europe

Yes, just keep passing the ball - eventually (when the game turns just so) someone will take the ball and run with it... and claim the glory.
Actually, the best ideas are usually the ones that, in the end, everyone involved believes they personally originated.

World is full of finance stuff. Finance operations are ten times more than industrial ops such as appear in USA fed statistic. XXI century is a sequence of finance bubbles with gains at finance level several more times than industrial capacity. USA economy drains his finantial troubles to EU (European Union) and EU has no defense. More important banks in EU are loaded with this caotic finantial current. USA left third world that is very little snack. EU, China are the dish to that giant. Already Euro shake like a jelly.

Euro-bonds would be a logical step to confirm that the European Union is not a half-union. I find the whole EU idea a bit of a bureaucratic midsummer night's dream, but still, if you are doing something wrong at least do it right :). All the bail-out funds will do no good to anyone (including Germany) unless the currency in which they are measured is a currency in the eyes of the rest of the world. Right now the European landscape looks like a state that is unwilling to help its provinces if they fail the expectations of a self-proclaimed capital or if not, helps them after a lot of murmur and telling the world - "see they are the the culprit, we are fine", but who is "we" and who are "they". This is not a behaviour one would expect from an "union", from a state, from an entity printing its own currency. I am sure I am not the only one who feels about the euro as a currency of the weakest EU state at one time and as a currency of a some better faring state at another. It is quantum mechanics, uncertainty - the moment you think it strong it becomes weak and the moment you think it weak it appears stronger and it is strong and weak at the same time. Confusing, isn't it?

The current behaviour of the majority of the EU politicians threatens the trust in the zone, by putting anyone's expectations on a base defined by whims and uncertainty of a bunch (quite a bunch) of politicians most of which have little or no experience in economics or even plain old management or, at least, they seem that way. Germany, if it feels like a leader, like the alpha dog, should lead the pack and not condemn its parts whenever it needs to take responsibility and engage further and deeper with the union's business. Otherwise it all seems like a forced union, by some external power - may be the extraterrestrials made you do it, eh? Well, when it comes to such events I am always more willing to blame them on good old irresponsibility, indecisiveness and daydreaming than on conspiracy and intrigues. Germany is trying to convince us they are better, that there is no crisis for them, but the truth may be quite different and many (including me) suspect so. It is their turn to try convincing us that our suspicions are void and they are not just another dog running alone without purpose, but a responsible alpha male or at least alpha female caring for its fellows. If they fail to do so, we will have a disappointed Germany in the end, they will consider them failed by the rest of the Europe and will readily forget their role in the whole experiment only to become once again a problem of a ... military? proportion.

At the time of writing, it seems that Le Roi Rouge's proposed mass withdrawal by depositors of funds from French banks has been a monumental damp squib, with banks reporting demand for ATM withdrawal no higher than normal. It also seems that one institution has been running a marketing advert featuring no less a personage than Madame Cantona, which may have led to degree of domestic froideur chez Cantona this evening.

It is a bit late, and frankly sounds like nothing much more than face-saving bluster, for the euro authorities to start threatening sanctions against countries which breach the stability & growth pact on fiscal deficit and debt-to-GDP ratio. It might have been better for those limits to have been properly applied and not fudged when they were allowed to join.

City AM ( on 01 Dec) reports that the combined exposure by German, French and UK banks to the sovereign debt of Portugal, Greece, Ireland, Spain & Italy is in the region of EUR 1.2 trillion, meaning that should these countries exit the euro and devalue by an average of 30% on re-adopting national currencies, those same German, French and UK banks stand to suffer losses of EUR 362 billion, with UK banks' share amounting to some EUR 80 billion, sparking a second crisis.

It begins to look more and more that a better answer would be for Germany (possibly with The Netherlands and Austria) to exit from the top into a new North Europe Mark, alllowing the residual euro to weaken to its market level. The Germans may have to choose between accepting the attrition to export competitiveness which a higher-valued new currency would bring, or shouldering the losses on the inevitable PIGST default.

Getting agreement of the Finance Ministers, the Head of States and the Central Bank directors in the European Union has never been easy. In the end, when the pressure becomes too great, an effective course of action is found and agreed. Failure of the Union and the Euro is totally unacceptable. It would be far too costly.

After the UK Pound was forced out of the ERM (exchange rate mechanism) speculators concentrated their attack on the French Franc. Had the speculators succeeded the Euro would have been still born. Germany supported the franc with billions of DM. Not being enough to stop the attack it was Kenneth Clarke's suggestion of widening the band of divergence to increase the risk of losing for the speculators that did the trick.

Speculators think they are on a no loose gamble by picking on debts of individual countries. They move from Greece to Ireland to continue the gamble by moving on to Portugal and Spain. If successful they will move to Italy and Belgium.

Their aim, with the help of the rating agencies, is to destroy the Euro so that they can continue to profit through speculation on individual currencies. They never liked the Euro.

I believe that Jean-Claude Juncker is correct and that his plan is the only realistic solution to the concentrated attack of the speculators. Only the percentage of 40% should be 60% of GDP.

The Economist and the Anglo/American Media have been on a mission to denigrate the Euro and the EU. Maybe it is spite or envy. It certainly is meant to divert attention to the dire straights of the US dollar and the pound sterling. Forgotten are the days when the dollar bought € 1.30 and sterling was worth more than the measly €1.18 it now fetches.

In any case a solution will be found and implemented as giving up the Euro will cost the Germans some 10% of GDP, irrespective of the cost to the other members.

Failure is not an option.

Charel,

You say:

“After the UK Pound was forced out of the ERM (exchange rate mechanism) speculators concentrated their attack on the French Franc. Had the speculators succeeded the Euro would have been still born. Germany supported the franc with billions of DM. Not being enough to stop the attack it was Kenneth Clarke's suggestion of widening the band of divergence to increase the risk of losing for the speculators that did the trick.”

Well the speculators did succeed and, in doing so, they earned a handsome dividend from France’s reserve bank. “Widening the band” was a declaration of surrender and a transfer of great wealth to all those who had shorted the franc. The franc fort policy was in ruins and the currency fell even harder than did the pound which was by then outside the system altogether.

The speculators weren’t speculating – they knew that the D-Mark was putting intolerable strains on France’s (and other) economy. The ERM was an instrument of mass economic destruction and the markets safe bet was that it could not be sustained. The debt markets are doing much the same to the equally destructive euro right now.

The idea that a mere political construct cannot be overturned by economic reality is one of the most persistent and expensive European delusions in our time…

Problem is y, and I've said it before is that the "debt crisis" isn't circunscript to the so called Piggies.

And I think journalists know it was well as we do. Debt is a major problem in the West right now. To give you an example, the "great country of the West", the US, has a public deficit of 90% (at least 10 percentage notches above the Portuguese one, and 60 above the Spanish one).

And why the media has decided to single out the so-called piggies (such an infamous acronym, which will probably go down in History as discriminating - and, quite literally - name-calling) is something that I can only explain in terms of letting those "lazy southerners" sink down before we do.... although you must realise that you're simple buying time and the West's reckoning with its debt problem will have to be tackled one way or another, even the the piggies (part of the west by the way, sink first)

Let me remind you that two of the big European 3, have huge deficits ( I am obviously talking of France and the UK), and public debts that went skyhigh in the past 10 years (the Portuguese debt, in comparison, represents something like 2-3% of the debt value of these two countries). SO isn't it more worrying to you, and the world, that two out of the big three in Europe are indebted to the bone? Isn't it a LOT MORE worrying than poor little Portugal being indebted to the bone? Just a question

I would still like a journalist, well-reputed of course, to launch an investigation on the role of the rating's agencies, I know it has become somewhat of an obsession of mine to criticise them, but there is no rational behaviour to what they're doing. The UK (sorry friends!) and France (not so sorry, but still sorry!) are completely undeserving of their triple A - and you , as well as everyone else, know it for fact. Why the rating's agencies don't, is something a serious newsreporter should definitely investigate. I would if I were one. Unfortunately I'm not so I'll stick with the comments page.

Regards from Portugal

"Eurobonds: Lets all go down together"

Yet another evidence that what drives markets is really fear (and greed of course). There's no evidence that such measure would bring the collapse of the eurozone. Germans are definitely too scared to implement them, but they're just scared.

Pedroix,

You say:

“Let me remind you that two of the big European 3, have huge deficits ( I am obviously talking of France and the UK), and public debts that went skyhigh in the past 10 years (the Portuguese debt, in comparison, represents something like 2-3% of the debt value of these two countries [France and Britain] ).”

Well Portugal’s GDP is also only 10% of theirs. Furthermore they have a better growth record and prospects than does Portugal. Finally they are only rolling over a fraction of their debt load next year whilst Portugal is rolling over a large portion of hers.

With a falling GDP and showing all the signs of being caught in a debt deflation trap Portugal looks very risky...

The trouble is that Eurozone policymakers have a poor history of doing too little too late. It could be argued that the Ireland crisis was a result of the premature withdrawal of quantitative easing measures. This has not helped their credibility with markets. Their reassurance that the austerity measures will be sufficient to deal with the crisis seems hollow to many.
http://www.mindfulmoney.co.uk/2668/economic-impact/policymakers-risk-eur...

God knows how much I find disgusting most of my fellow countrymen, but I find pathetic and disturbing the way that the Economist has to deny the role of an Italian in a very good idea such as the E-Bonds. Talking about "his" idea when the idea was also developed by Tremonti -it was not only Juncker's- is just deceitful.
As for Chancellor Merkel, with her irresponsible attitude she will be the ONLY cause of a possible euro collapse.
As far as I am concerned, Germany is THE real Greece.

European Euro crisis will reach its climax when Spain needs a bail out. Greece, Portugal and Ireland are much smaller problems with smaller costs. Spain is much bigger, so the cost will be much greater as well, and the rest of the world will ask: have they got the financial power left to rescue Italy ? better yet: Is it worth to rescue Italy ?

I believe the answer to both questions will be yes, but that will not avoid the Euro from braking up eventually in the future, under a less depressed scenario. What will happen is that markets will start demanding adjustments instead of bail-outs, and the ones not doing their homework (Currently I only see Greece doing homework effectively) will harm all others, so they will be forced out.

Bottom line: 1-) The Euro was not good to Europe. 2-) Why ? cause you better form political union before monetary union, cause the later won't work you you don't have central fiscal planning. No EU member country respected the max 3,0% annual deficit buffer, did they ?