Euro Area

[Kagemusha]

nevermind.. Please start talking about euro and EMU if your country is actually part of it.

[Philippus Flavius Homovallumus]

And you as British,how does it concern you at all?So why do we few Irish and British members rambling over and over again about how Euro is a lost case when you havent even experienced it. Maybe Britain should apply as next state of US? As that is how insignificant your economical value is.

gaelic is Irish, and therefore inside the Eurozone.

Britain has worse debt dynamics than France - but because we have a central bank and central debt together we can exert pressure on the markets. Greece has to borrow on it's own, but it shares a currency with Germany - so the Greek Central Bank is hamstrung and the ECB won't stand behind Greece the way Greece needs it to.

There is also the problem of trust, this is what Furunculus means when he says "family" - the Germans don't believe that if they give the Greeks lots of money the Greeks will then cut spend, so the Germans aren't willing to give.

Sarmation has referenced Scotland several times and he has a point - the SNP has managed to erode trust through high-spend policies financed by English taxpayers to the point that now a majority of the English are unhappy with the status quo and increasingly apathetic about Union.

One point worth noting is that the British (read English) taxpayers would probably accept Britain taking on a share of Irish debt (through low-cost loans) if Ireland left the Euro and pegged to the pound. Such a transfer would be necessary because the pound is also a very strong currency, but it would probably fly here - sadly I doubt it would fly in Ireland.

gaelic has it right; fiat currency is worth whatever the market says its worth. Nominally the central bank controls fluctuations, but their power is limited when faced with a real crisis of confidence.

The Euro benefits from "collective defence" in case of a crisis, but really only some of the collective can afford that sort of intervention.

Theoretically, the Euro is backed by 17 countries - but 3 of those are already effectively bankrupt and the remaining 15 are in varying amounts of trouble. The consensus building now is that "collective defence" requires a "collective debt" to be effective, i.e. Eurobonds. The problem with this approach is that, again, there is a lack of trust. Germany is concerned that the debter nations will use lower borrowing rates to halt or reverse austerity - thereby raising the cost of the Bonds further, which Germany will have to bear.

[ICantSpellDawg]

nevermind.. Please start talking about euro and EMU if your country is actually part of it.

We should extend this line to American policy as well? Oh, that's right, the complete collapse of your economy would impact us, just like the ramifications of our economic and foreign policy affect you and give you a reasonable right to comment on them. Nope, we should keep posting. There is more than one reason why the British decided to stay out of this system, maybe you should have listened to them a bit more in the first place.

So, when do the fireworks start? I've got my popcorn in the microwave.

Didn't we solve similar problems by allowing Hamilton's plan to take on all State debts as Federal? That was a rather simple move, it just required sacrifice from the responsible economies and a loss of free will from the profligate, moronic State economies. You shouldn't have gotten involved in the common currency market unless you wanted to lose you national identity and sovereignty at some point, so what's the hold-up now? Wistfulness or just denialism?

[Kralizec]

Because it isn't just what you spend your taxes on and how much, it is where you spend them in order to even out the imbalances that prevent one part of the economy from functioning within another.
Infrastructure - welsh road building
Social security - glasgow
Public jobs - north east
Procurement - harland and wharf
Failure to do so results in a divergent economy where the poorer parts struggle to live in a richer society, and poverty is compounded. Visit Greece today.

America knows this, it operates a transfer union, it succeeds. Can the same be said for the eurozone?

The reverse side of the fiscal union coin, a transfer union, and you can't dump public money on someone else unless theirnis a social compact permitting this.
This requires a political union, or put another way; a sense of shared familial sentiment.

Except that the EMU memer states have been functioning as financially independent nations for a long, long time before they introduced the Euro. All the troubled EMU countries are larger in population than the average American state, nevermind Glasgow or Wales. I remain unconvinced that being part of EMU, in itself, has made it absolutely impossible for them to ever be able to foot their own bills- which seems to be the core of your argument.

A pretty big part of the problem is that some southern countries, Greece in particular, have seen large increases in wages over the past decades while Germany and several other northern countries have deliberately limited wage increases to safeguard their competitive edge. Obviously not being able to devaluate the currency stops souther countries from devaluating their wages, but that just means they lack a solution for a problem that needn't have existed in the first place.
It's worth noting that in Germany there have been several large wage increases the past few months; which might be the first step to solve this kind of problems in the longer term.

in part because a common currency comes with a homogenised borrowing rate.

Not necessarily; allthough it's obvious that in this case it did happen: being in the EMU has allowed "weaker" countries to borrow at excellent interest rates for a long time. In the case of Spain, whose government finances were pretty solid actually, it contributed to the housing bubble. However a lot of anti-EMU activists extend this argument to blame the Euro for the fact that the Greek government borrowed a buttload of cash and ran -5% deficits even in the "good years". Which is incredibly stupid.

[Furunculus]

Furunculus while you are big fan of US born global capitalism.It is childish to impose your personal preference as truth.

Maybe for example you should analyze why germany with its leftist social politics is fourth largest nominal gdp in the world with only bit over then 80 million people? I know already that your answer is that UK surely will be larger economy then Germany after next two decades.Thatcherians said the same two decades a go, but it didint happen.Why?

it is not chilish at all, and my view is not based on some abstract in economic dualism, it boils down to this.

are you my family.
will germany pay for greece in perpetuity
will greeks accept grinding austerity for the next decade to please the germans
if the answer to both the above is not "yes" then a currency union won't work at the bottom of the economic cycle.
because there is no mandate for contentious policy.

------------------------------------------------------------

two good quotes from non-tory (since that clarification seems necessary for people to look at it without shouting "tory stooge"):

nick clegg -

"Whilst I have a huge amount of sympathy with German taxpayers and German politicians who are reluctant, understandably because Germany is the paymaster of the European Union, to entertain these ideas, I fear that they are unavoidable."

"It is not sustainable to believe that the eurozone can thrive through fiscal discipline alone - it also has to, at some level, include an ability to either share debt or to deal with shocks in one part of the system or the other through fiscal transfers."

ed balls -

"In the end... somebody has got to persuade Germany that this is a catastrophe for Britain, Europe and the world and that Germany has got to change course,"

"The problem is, the German people went into the eurozone 10 years ago on the clear promise that they weren't going to bail out Italy and the central bank wasn't going to play this role. Both things have got to change."

http://www.telegraph.co.uk/news/worl...-eurozone.html

[gaelic cowboy]

And you as British,how does it concern you at all?So why do we few Irish and British members rambling over and over again about how Euro is a lost case when you havent even experienced it. Maybe Britain should apply as next state of US? As that is how insignificant your economical value is.

I am not British.

nevermind.. Please start talking about euro and EMU if your country is actually part of it.

I am Irish so I believe I have as much right as the next man to big up or rubbish EMU.

At the minute every solution put forward to solve Irelands banking problem has been a sticking plaster.

One point worth noting is that the British (read English) taxpayers would probably accept Britain taking on a share of Irish debt (through low-cost loans) if Ireland left the Euro and pegged to the pound. Such a transfer would be necessary because the pound is also a very strong currency, but it would probably fly here - sadly I doubt it would fly in Ireland.

I dont believe there would be as much opposition to a sterling peg as you think PVC it is not the same as how the Euro does or doesnt work.

It was also the way the currency was always run before and there was no problem until the ERM debacle (which was also a pie in the sky euro thingy)

On the plus side for the UK apparently every man woman and child in the state is worth 3000 to Britain in goods and services and were a more important trading partner than China to the UK.

The main danger is to Britains banking system as both Ireland and the UK have lots of business in each others jurisdiction from shops to banks and insurance blah blah etc etc.

[Furunculus]

clegg to the german electorate:
http://www.spiegel.de/international/...-a-834120.html

i would be delighted to see ireland adopt a sterling peg.

[gaelic cowboy]

i would be delighted to see ireland adopt a sterling peg.

Well of course you would seeing as it would safegaurd your investments and loans which would be paid in something other than monopoly money.

However I think it would be likely to peg only in the sense that sterling is lower than the Euro so it's not neccessary to actually peg say for 1 Punt to say 1,20 Pound.


The other more cynical reason is that Ireland exiting the Euro means the country most likely to achieve it's austerity confidence bailout ends up proving austerity confidence bailouts dont work. (a secret hope of some british eurosceptics)

If we get to the stage that Ireland has to leave the Euro then the entire thing is basically crashing by that stage in my view.

Amazingly even now this whole thing can dissappear in a puff of smoke and yet the "People Who Know" or "Serious People" continue with policy that only ends in default, breakup, mass unemployment and there own eventual electoral defeat.

It amazes me how much this Euro crisis is about everything but what it is actually about.

[Furunculus]

The other more cynical reason is that Ireland exiting the Euro means the country most likely to achieve it's austerity confidence bailout ends up proving austerity confidence bailouts dont work. (a secret hope of some british eurosceptics)

along similar lines, but less cynically, if you believe as i do:

That the fundamental problem is none of the nations of eurozone feel sufficient familial sentiment with [all] of the other nations of eurozone. Thus common governance will not be considered legitimate for it cannot be [both] representative of [and] accountable too [all] the peoples of europe. This problem is compounded by the nature of the EU where national governments deliberately fail to seek the consent of their people when they divest the authority to govern, lent temporarily to them by the people, to an unrelated and unresponsive third party. It ceases to be government by the people, for the people. The further you go down this road the greater the civil unrest will result, and if your ambition is to add to the sum of wellbeing and welfare of the peoples of europe then no sane man can support ever-closer-union. If we were talking about ever-closer-union between germany, the benelux nations, austria, and perhaps finland then this would not be a problem.
The people of europe have to decide whether they are [a] single people with [a] shared destiny.

Then ending the foolish project (to entomb us all in euro-love), before we arrive at revolution is very much to be desired.

[Philippus Flavius Homovallumus]

http://www.telegraph.co.uk/comment/c...rick-wall.html

Boris has been to Athens - he didn't like it much.

[Kralizec]

http://www.telegraph.co.uk/comment/c...rick-wall.html

Boris has been to Athens - he didn't like it much.

Britain doesn't have a stake in the Greek issue. And Boris is an egotistical clown with a bad haircut, who should stick to being a glorified public transit manager in London. Let's leave it at that.

[Kralizec]

"Whilst I have a huge amount of sympathy with German taxpayers and German politicians who are reluctant, understandably because Germany is the paymaster of the European Union, to entertain these ideas, I fear that they are unavoidable."

"It is not sustainable to believe that the eurozone can thrive through fiscal discipline alone - it also has to, at some level, include an ability to either share debt or to deal with shocks in one part of the system or the other through fiscal transfers."

I like Clegg. He is clearly a man of great intellect and sophistication - he speaks and understands Dutch. But even a great man can be wrong occasionally.

"In the end... somebody has got to persuade Germany that this is a catastrophe for Britain, Europe and the world and that Germany has got to change course,"

"The problem is, the German people went into the eurozone 10 years ago on the clear promise that they weren't going to bail out Italy and the central bank wasn't going to play this role. Both things have got to change."

The Spiegel had a good article in their latest issue about Italy's entry in the Euro (amongst other things). I'm not sure if it's on their international section as I read the original German article. Kohl initially had great reservations about taking in Italy, but France made it clear that they wouldn't proceed unless Italy was accepted as well. His bargaining position wasn't particulary great as Germany technically wasn't adhering to the deficit/debt criteria at the time. Then, in an uncharacteristic (for Italy) show of determination Prodi brought back Italy's deficit within tolerable levels and thus qualified for entry. After all the relevant decisions had been made however, Prodi was forced to repeal several of his measures to appease his commie allies in the Italian parliament. Kohl however was confident that they'd pull their act together at some indeterminate point in the future.

OTOH, Italy so far has managed to avoid a bailout. Greece, which was admitted under Schroder's tenure as chancelor, well...

[InsaneApache]

I like Clegg. He is clearly a man of great intellect and sophistication - he speaks and understands Dutch. But even a great man can be wrong occasionally.

Clegg! A great man!

He's the end of a bell.

[Kralizec]

Well, that part was more than a little tongue-in-cheeck.

I do like him though, allthough I confess I don't follow everything he does. You probably know more about him and his policies than me, but then again, you dislike the vast majority of politicians.

[InsaneApache]

What on Earth is there to like about politicos? They cause problems then come up with the wrong solution. The Euro being a prime example.

As for Cleggy, I'll bet you a pound to a penny he loses his seat in the next election. Look up his pledge of tuition fees. The end of a bell indeedy.

[Furunculus]

i like clegg, he is trying to make his party a party of government, which is not quite the same thing as a party of protest as the point-five party in a two-pint-five party system.

you only count as one of the big two in britain, clegg knows this, but he also has to evolve his party past the disparate collection of wingnuts willing to adopt any policy no matter how incoherent as long as it triangulates sufficiently in their particular constituency.

[Kralizec]

What on Earth is there to like about politicos? They cause problems then come up with the wrong solution. The Euro being a prime example.

As for Cleggy, I'll bet you a pound to a penny he loses his seat in the next election. Look up his pledge of tuition fees. The end of a bell indeedy.

Furunculus and I agree; your argument is irrelevant.

[Fragony]

Oh yay 40.000.000.000 down the drain

[gaelic cowboy]

Britain doesn't have a stake in the Greek issue.

Britain has always had a stake in this issue it's just not the same as yours.

[Sir Moody]

And Boris is an egotistical clown with a bad haircut, who should stick to being a glorified public transit manager in London. Let's leave it at that.

I quite like Boris as a politician - he says what he is thinking and doesn't care about the party line at all (whenever DC has to have a photo moment with Boris he always seems to wear this "please god what is he going to say now" look )

of course I suspect Boris is just a new type of Spin - he knows people don't trust the parties any more and so does his best to set himself apart while not going far enough to get kicked out...

[Brenus]

The funniest thing is there is no possibility to kick a country out of the Euro… The only possibility (very hard) is to a country to leave…
Then, you have the technicalities: Print money (3 years?), change, debt, and who will pay for the Greek Euros, etc…
Funny that none of the “experts” who are telling as that either Greece will be expelled or will quit speak about the how. Then, if the debt still exists, in Euro, to go to drachma will change absolutely nothing. The debt will be 1 drachma, 1 week after 2 drachmas, 3 weeks after 100 drachmas for 1 Euro. Then you have to print new banknotes…
So, thanks to the stupid liberal/conservative policy, after 9 austerity plans that failed one after one and the increasing of the Greek debt, the only solution is to carry on. Like the medieval doctors, our good experts bleed the weak body to purge the bad humours. Doesn’t work? Well, at least the banksters and the Agencies are making money…

[InsaneApache]

I'd put it down to the imbeciles who started the Euro in the first place.

Remember politicians are not your friends. They are our enemies.

[Furunculus]

The funniest thing is there is no possibility to kick a country out of the Euro… The only possibility (very hard) is to a country to leave…

if greece does not meet the terms of the bailout plan it will not recieve the next tranche of german wonga.

if it does not have the wonga then it is instantly insolvent (it really is insolvent already), and needs to default.

if it defaults then it almost certainly needs to do this outside the eurozone.

if it does leave then all debt written in greek law will be devalued, and in all likelyhood europe will assist with debt held under foriegn law as it will mostly be 'owned' by european banks.

it is quite simples really. there are no good choices, but there is a choice between temporary agony and grinding depression.

[gaelic cowboy]

if greece does not meet the terms of the bailout plan it will not recieve the next tranche of german wonga.

if it does not have the wonga then it is instantly insolvent (it really is insolvent already), and needs to default.

if it defaults then it almost certainly needs to do this outside the eurozone.

if it does leave then all debt written in greek law will be devalued, and in all likelyhood europe will assist with debt held under foriegn law as it will mostly be 'owned' by european banks.

it is quite simples really. there are no good choices, but there is a choice between temporary agony and grinding depression.

They will see it crash in flames before they pluck the courage to help Greece leave.

The EU will have to take charge of any programme for Greece to leave in order to prevent an even worse default.
The next day Irish Spanish and Portugese bonds prices will be heading for orbit as the principle of a country leaving will have been proved.

Basically there stuck with the Greeks and they cant even stop them printing Euro if they want.

[Furunculus]

eurocrats have spent 18 months bailing out the boat until it reaches sight of land, and that time has been well used by banks to deleverage from greece and for the markets to price in the cost of a greek exit.

if it happens, it will be no lehmans.

there are no good choices, but there is a choice between temporary agony and grinding depression. and the choice will be made by the greek electorate.

good article from the economist:

http://www.economist.com/node/21555916

They say that they want to keep the euro intact—except, perhaps, for Greece. But northern European creditors, led by Germany, will not pay out enough to assure the euro’s survival, and southern European debtors increasingly resent foreigners telling them how to run their lives.

This has become a test of over 60 years of European integration. Only if Europeans share a sense of common purpose will a grand deal to save the single currency be seen as legitimate. Only if it is legitimate can it last.

[gaelic cowboy]

eurocrats have spent 18 months bailing out the boat until it reaches sight of land, and that time has been well used by banks to deleverage from greece and for the markets to price in the cost of a greek exit.

if it happens, it will be no lehmans.

there are no good choices, but there is a choice between temporary agony and grinding depression. and the choice will be made by the greek electorate.

good article from the economist:

http://www.economist.com/node/21555916

But if the precendent is there why would I buy EFSF or ESM bonds on the open market.

If Greece leaves then the whole system from the bailout bonds and even the currency is called into question.

[Furunculus]

the bundesbank appears to believe it achievable, i have no reason to disbelieve them.

i don't claim that it will be nice or easy, quite the opposite, but the world will not end, and the result has a good chance of creating a better outcome for all.

likewise, i don't claim that greece must leave, the hideous-strength of ever-closer-union has long defied common sense.

are you my family?

if greece is out that is a question to which germany may be able to answer "yes", in which case the euro has a future. a small price to pay, that might not otherwise be paid.

[gaelic cowboy]

the bundesbank appears to believe it achievable, i have no reason to disbelieve them.

i don't claim that it will be nice or easy, quite the opposite, but the world will not end, and the result has a good chance of creating a better outcome for all.

likewise, i don't claim that greece must leave, the hideous-strength of ever-closer-union has long defied common sense.

are you my family?

if greece is out that is a question to which germany may be able to answer "yes", in which case the euro has a future. a small price to pay, that might not otherwise be paid.

The Bundesbank talks an awful lot of if you ask me, they have no way of knowing where this ends.

Far simpler to just unleash the ECB to back up all banks and let things ride.

[Vladimir]

So is Germany trying to keep these countries in the Euro to artificially keep the price of their exports down? It seems like their products would get a lot more expensive if the Euro shed the dead weight.

[Furunculus]

The Bundesbank talks an awful lot of if you ask me, they have no way of knowing where this ends.

Far simpler to just unleash the ECB to back up all banks and let things ride.

for sure it is far simpler, beign able to ignore the will of your people and do as you please is so much easier.

that said, it gets a little awkward when you have to explain to lots of people (germans) who think they exist within a representative democracy (and don't want a debt-union)......

remember that we approach this coming crisis in large part because no one is certain that greek people can tolerate an additional ten years of grinding recession without seeing the country fall to extreme-populist politics and/or revolution!

greece was supposed to be able to return to the markets in short order, but the yield remains punishingly high because markets don't have confidence that greece won't default.

this is not some dry economic argument, no indeed, it is raw visceral emotion which is the heart of all politics.

[edit]

this pic amusingly demonstrates the core of the problem:

http://blogs.telegraph.co.uk/news/da...rozone-crisis/