Euro Area

[gaelic cowboy]

Which is why there should be efforts to make it "[both] accountable [and] representative", which has always been my argument. The ideological concept of a single currency is good. The ideological concept of replacing national governments with a European one is good. However, the EU is not implemented in this fashion mostly due to national self-interest preventing power from going to the European people away from the national political elite (with the backing of Euroscepticism) resulting in the corrupt mess politically and economically that is the current EU.

Well the EU can shove all that ideological nonsence where the sun tends not to shine because it's an absolutely horrible idea, make it as accountable as you like if the politicians running things are not Irish citizens then I dont wanna know about it.

Do you really think it's a clever move to try to politically erase the Irish state, no I doubt them EUcrats have the stomach for the consequences.


Basically ye will never get a yes vote on that so all I can say is thank you Mr Raymond Crotty

The Crotty judgement will in the end prevent the dearest wish of all Eucrats Crotty v An Taoiseach

[Furunculus]

Which is why there should be efforts to make it "[both] accountable [and] representative", which has always been my argument. The ideological concept of a single currency is good. The ideological concept of replacing national governments with a European one is good. However, the EU is not implemented in this fashion mostly due to national self-interest preventing power from going to the European people away from the national political elite (with the backing of Euroscepticism) resulting in the corrupt mess politically and economically that is the current EU.

there is a reason why i highlighted both [and] and [both]; because i believe the two to be mutually exclusive when there is no sufficiently convergent [collection of] demos['s].

there is no european polity able to assent the legitimacy of european governance, therefore it's a non starter.

[HopAlongBunny]

Prelude to a showdown? http://www.reuters.com/article/2012/...87C09H20120813

What would occur if Greece opted for full default, but did not opt to leave the Eurozone?

[gaelic cowboy]

Prelude to a showdown? http://www.reuters.com/article/2012/...87C09H20120813

What would occur if Greece opted for full default, but did not opt to leave the Eurozone?

The other governments will force Greece's central bank ie the ECB to turn it's back on it which is an unheard of situation in banking never mind politics.

They cant force Greece out and they cant stop them printing Euro if they really wanted to do it, in fact any attempt to force Greece out is illegal and would probably require the dissolution of the Euro and EU.

So they wont be doing that at all at all, tis bluff and bluster to frighten the peasants.

The solution has been the same one since the start you either share the debt or you cancel it.

[SoFarSoGood]

Well Greece borrowed 4bn euros today (on the open market) for 3 months at 4.43pc. Means they can pay wages etc until the 'troika' decide if they enough people living in poverty to warrant the next installment of the EU loans.

It is kind of ironic that they said the euro was going to make everyone better off and now defend their failures and lies by telling us how much worse everyone would be without it. The incessant "it's not working so we need more of it!" argument is wearing thin.

The Germans don't seem too keen on keeping Greece going... "You can quote me: even if the glass is half-full, that is not enough for a new aid package" says Michael Fuchs.

[Kralizec]

It is kind of ironic that they said the euro was going to make everyone better off and now defend their failures and lies by telling us how much worse everyone would be without it. The incessant "it's not working so we need more of it!" argument is wearing thin.

Who are "they" and when did they say this?

[Fragony]

Who are "they" and when did they say this?

kidding me

[Kralizec]

No, I'm not.

Sure, politicians heaped all sorts of praise on the euro - some were justified, some were teneous, some were bogus. What I'm sceptical of is the implied claim here that there ever was some sort of clearly uttered assurance that the euro was some sort of magical garantue against all woes, and that we have a financial crisis right now is proof that they lied.

Being in a shared currency does cause complications for the PIIGS countries right now because they're not able to unilateraly print their way out of their trouble. By "their trouble" I mean trouble caused by their own poor financial decisions. Blaming all of this on the euro is disingeneous.

[rory_20_uk]

No, I'm not.

Sure, politicians heaped all sorts of praise on the euro - some were justified, some were teneous, some were bogus. What I'm sceptical of is the implied claim here that there ever was some sort of clearly uttered assurance that the euro was some sort of magical garantue against all woes, and that we have a financial crisis right now is proof that they lied.

Being in a shared currency does cause complications for the PIIGS countries right now because they're not able to unilateraly print their way out of their trouble. By "their trouble" I mean trouble caused by their own poor financial decisions. Blaming all of this on the euro is disingeneous.

Exactly, it is the fault of the individuals.

But giving someone with a history of obesity a lifetime supply of Burgerking food is clearly not a good idea. Giving countries with a history of poor fiscal management a cheap credit card was equally insane.

[SoFarSoGood]

Who are "they" and when did they say this?

Well let me take the UK for example... They said in 1975 that we would be entering a 'free trade' region, that this would benefit British business etc... Nobody mentioned that we'd have to pay £500m per day for the benefit of having Brussels impose rules working hours and letting other people fish our waters etc etc etc...

When they launched they again trotted out this line (if they had said you're going to be bankrupt in 12 years who would have joined?). You say that "justified, some (of these claims) were teneous, some were bogus" but whether they lied or were just deluded matters not. Simple fact is that what they said would make better off has done the opposite; they were wrong. Now they propose that the answer is more...

[Kralizec]

Well let me take the UK for example... They said in 1975 that we would be entering a 'free trade' region, that this would benefit British business etc... Nobody mentioned that we'd have to pay £500m per day for the benefit of having Brussels impose rules working hours and letting other people fish our waters etc etc etc...

When they launched they again trotted out this line (if they had said you're going to be bankrupt in 12 years who would have joined?). You say that "justified, some (of these claims) were teneous, some were bogus" but whether they lied or were just deluded matters not. Simple fact is that what they said would make better off has done the opposite; they were wrong. Now they propose that the answer is more...

That's not an answer to my question.

None of those points have anything to do with the EMU currency. You're evidently just throwing random EU decisions into the discussion without arguing why they're detrimental to the UK, or why the UK would have been better off without it. But to humour you:

The EU fishery policies are reciprocal: EU fisherboats can fish across all European waters, meaning British fishermen can also fish outside British waters. The only "real" controversies are that A) ships from country 1 can register their boats in country 2, which distorts the quota distribution B) fishermen complain about EU interference while receiving subsidies and ignoring the rules they're whining about. It's flabbergasting that fisheries have such a large influence on public opinion in some countries while they make up a tiny part of GDP and are engaged in unsustainable practices that have doomed several species of marine life to practical extinction.

As for the working hours, you'll have to be more specific. You want your employer to give you less than 4 weeks of vacation per year? You want your boss to be able to force you to work 48+ hours, on average, per week? ("force", because UK workers have the right to voluntarily do more overtime. Other countries have been more strict in its implementation)

[SoFarSoGood]

Ok so did those people who wanted an EU and a euro (for the euro is just another step toward 'ever greater union') say "look we've got this currency idea but if we go ahead half of you are going to be bankrupt within 15 years"?

No they argued that the euro would make everyone better off. They were wrong.

The UK only ever voted for a free trade agreement... but that is separate to main point.

The point is when will eurocrat ever acknowledge that it is not working? To quote Roger Bootle (who won the Wolfsson Prize):

"My challenge is this: what conditions could convince you that the euro was a failure? If you can imagine such conditions then what stops you from concluding that they exist now? The evidence is staring you in the face.

If, by contrast, there are no conditions that could conceivably persuade you of this, then for you the euro is not a practical project but rather a religion. For the sake of all those citizens who do not share your beliefs, isn't it about time that you came clean?"

[Furunculus]

proposal from the economist:

http://www.economist.com/node/21560252

[SoFarSoGood]

For a 'Grexit' the most pressing problem Greece would face short term is paying for energy needs. Good article though. Thanks.

[Sarmatian]

Ok so did those people who wanted an EU and a euro (for the euro is just another step toward 'ever greater union') say "look we've got this currency idea but if we go ahead half of you are going to be bankrupt within 15 years"?

The crisis has nothing to do with the euro.

No serious economist said the dropping the euro would solve the problems.

You have to understand that two things can happen at the roughly same time but they don't have to be connected to each other.

No they argued that the euro would make everyone better off. They were wrong.

The UK only ever voted for a free trade agreement... but that is separate to main point.

That's UK's problem. If UK wants to leave, the mechanism is clear, you just need a politician with cojones to put it on the table.

The point is when will eurocrat ever acknowledge that it is not working? To quote Roger Bootle (who won the Wolfsson Prize):

[I]"My challenge is this: what conditions could convince you that the euro was a failure? If you can imagine such conditions then what stops you from concluding that they exist now? The evidence is staring you in the face.

If, by contrast, there are no conditions that could conceivably persuade you of this, then for you the euro is not a practical project but rather a religion. For the sake of all those citizens who do not share your beliefs, isn't it about time that you came clean?"

No, there definitely are conditions to convince people Euro is a bad idea, but so far you have offered none.

Your first point -> Euro is responsible for the crisis is false
Your second point -> dropping the Euro would solve the crisis - no it wouldn't.

[Furunculus]

The crisis has nothing to do with the euro.

No serious economist said the dropping the euro would solve the problems.

truly?

i ask because these chaps:

Roger Bootle is Managing Director of the independent consultancy, Capital Economics,
which he founded in 1999. Employing 90 people in London, Toronto and Singapore, it
has about 1,400 institutional clients worldwide.
Appointments include: Specialist Adviser to the House of Commons Treasury Committee,
Economic Adviser to Deloitte, member of the Chancellor’s panel of Independent Economic
Advisers, Visiting Professor at Manchester Business School, Group Chief Economist at HSBC
and Lecturer in Economics at St Anne’s College, Oxford. Roger studied at Oxford University,
gaining a B.A. in PPE and a B. Phil in Economics. He has written many articles and five
books. His latest book The Trouble with Markets contains a new chapter based on the
prize-winning entry and is available from July 5th as a new ebook.

Julian Jessop is the Chief Global Economist and Director. He was previously Senior
International Economist at Standard Chartered Bank, held senior economist positions
at HSBC and the Japanese bank Nikko, and worked as an Economic Adviser at the UK
Treasury. He has two degrees in Economics from Cambridge University.

Andrew Kenningham is Senior Global Economist. He was previously Deputy Chief
Economist in the Foreign and Commonwealth Office and before that covered Emerging
Europe, Middle East and Africa for Merrill Lynch’s fixed income business. He has
degrees in Economics and Economic History from Manchester University and the LSE.

Jonathan Loynes is the Chief European Economist and Director, and has responsibility
for the euro-zone and the rest of Western Europe. He joined Capital Economics in
2000 from HSBC, where he was Chief UK Economist. Jonathan studied Economics and
Finance at Bath and Southampton universities.

Ben May is European Economist with focus on Italy, Spain, Ireland, Greece and
Scandinavia. Ben previously worked in the Monetary Analysis area of the Bank of
England, where amongst other things he worked on the euro-zone. He has degrees in
Economics from the University of Bristol and University College London.

Jennifer McKeown is Senior European Economist with a particular focus on the ECB
and the German, French and Swiss economies. She previously worked at the Bank of
England where she was a Euro-zone Economist. Jennifer has degrees in Economics from
University College London and the University of East Anglia.

Mark Pragnell is Head of Commissioned Projects with responsibility for bespoke
economic research for clients. He was previously in local government and, before that,
managing director of economics consultancy, CEBR. He has also held senior strategy
roles at Consumers’ Association and Railtrack plc. Mark read PPE at Oxford University.

would beg to differ:

The predicament of the euro-zone is both financial and economic.

The financial element centres on debt. Several countries have public debt burdens which
are unsustainable. In some cases, private debt is also overwhelming. Meanwhile, excessive
debt in the public and/or private sectors threatens the stability of the banking system.

The economic problem is that whereas monetary union was supposed to
bring convergence, in several members costs and prices continued to rise rapidly
relative to other members of the union, and indeed the outside world, thereby
causing a loss of competitiveness. This resulted in large current account deficits
and the build-up of substantial net international indebtedness. Often it is the same
countries that suffer acutely from both the financial and economic problems.

As a result of poor competitiveness and/or the burden of excessive debt,
several members of the euro-zone suffer from a chronic shortage of aggregate
demand, which results in high levels of unemployment. This worsens the debt
position of both the private and public sectors, thereby weakening the position
of the banks. Meanwhile, other countries enjoy current account surpluses, often
accompanied by more favourable debt positions in both the public and private
sectors. Moreover, the favourable position of the surplus countries is partly the
direct result of the weaker members’ loss of competitiveness.

Clearly, the financial and economic aspects of the crisis are closely inter-twined.

Full adjustment for the euro-zone and the establishment of stability for both the
member countries and the rest of the world requires that both these problems
be addressed.

Our analysis concludes that the economically optimal reconfiguration of the
euro-zone would be the retention of a core northern euro-zone incorporating
Germany, Austria, the Netherlands, Finland and Belgium. These countries have
converged and they have compatible economic structures. They come close to
being an ‘optimal currency area’. France’s economic credentials for membership
of this group are less clear but, in reality, it appears likely that political
considerations would dictate that it was also a member.

[SoFarSoGood]

The crisis has nothing to do with the euro.

Ok what is the cause?

[Furunculus]

Ok what is the cause?

i'm gonna take a shot at the evils of free-wheeling anglo-saxon capitalism. ;)

[SoFarSoGood]

Lol... yea was thinking the US sub prime maybe but 'free-wheeling anglo-saxon capitalism' is a much more 'generous' description.

[Sarmatian]

i'm gonna take a shot at the evils of free-wheeling anglo-saxon capitalism. ;)

Yes, but that's not the whole story.

It's the squirrels behind the free-wheelin' anglo-saxon capitalism, bent on creating a new world order and eventual destruction of life as we know it.

[SoFarSoGood]

Are you serious? To be honest the only hidden agenda here (perhaps what you call part of a 'new world order') is the EU itself who for some time have been talking about a 'beneficial crisis'. By this they mean a crisis that allows them to push their unification agenda further without having to bother about democracy and public opinion. Well what do you think a 'fiscal union' means?

The markets (and not just the anglo saxon ones but the Chinese also) do not think the euro system is workable. The EU, ECB and IMF have added to this distrust by forcing private investors to take losses and refusing to take losses themselves. Just imagine if you had held Greek bonds and were forced to write off 75% of your investment (while the ECB etc kept all it's investment)... would you invest in Spanish bonds?

Get real.

[Kralizec]

Prior to the introduction of the Euro some of those countries (Italy and Greece in any case) were paying extremely high interest rates on their bonds as well. The low interest rates they paid during the good years were because A- investers assumed that those economies would always maintain decent growth so that they'd always be able to refinance their debt (good thing we have rating agencies!) and B-the ECB would always keep inflation low, so the risk of debt devaluation is minimal.
Under the same circumstances but with national currencies those countries would probably have resorted to devaluation, which would also have caused the rates on their bonds to spike.

Or put in other words: even without the euro those same countries would still be in deep ****. That investers buy few Spanish or Italian bonds is an indictment against those country's financial practices and not some mark of (dis)approval of the eurozone as such.

The IMF, and in this case the ECB, lend money when a country is already experiencing solvency issues and nobody on the market will lend money to refinance existing debt. A preferential position is perfectly justified in a scenario like that. Aid packages like that increase the chance of the investors getting any returns at all.

[drone]

Prior to the introduction of the Euro some of those countries (Italy and Greece in any case) were paying extremely high interest rates on their bonds as well. The low interest rates they paid during the good years were because A- investers assumed that those economies would always maintain decent growth so that they'd always be able to refinance their debt (good thing we have rating agencies!) and B-the ECB would always keep inflation low, so the risk of debt devaluation is minimal.
Under the same circumstances but with national currencies those countries would probably have resorted to devaluation, which would also have caused the rates on their bonds to spike.

Or put in other words: even without the euro those same countries would still be in deep ****. That investers buy few Spanish or Italian bonds is an indictment against those country's financial practices and not some mark of (dis)approval of the eurozone as such.

Without the euro, those countries would not have borrowed as heavily since they would be stuck with the higher interest rates. I imagine they would have just stagnated rather than go through the bubble/collapse cycle. The problem with the Euro was the same as the problem in the US - banks lent people/governments cheap money they couldn't realistically be expected to pay back (rating agencies ftw!). The Euro prevents localized corrective action by the federal bank.

[SoFarSoGood]

Under the same circumstances but with national currencies those countries would probably have resorted to devaluation, which would also have caused the rates on their bonds to spike.

That is what they need to do but the euro prevents.

[gaelic cowboy]

Yes, but that's not the whole story.

It's the squirrels behind the free-wheelin' anglo-saxon capitalism, bent on creating a new world order and eventual destruction of life as we know it.

Just because the initial cause of the Euro crisis may or may have not been caused by the Euro is neither here nor there Sarmatian.

The reality is were in a lifeboat that's sinking and one of the passengers refuses to allow anyone to swim for it while they sit on the lifejackets.

basically if they dont make there mind up soon the boat will sink regardless.

[Beskar]

That is what they need to do but the euro prevents.

Printing more money is the solution to everything.

[Kralizec]

Without the euro, those countries would not have borrowed as heavily since they would be stuck with the higher interest rates. I imagine they would have just stagnated rather than go through the bubble/collapse cycle. The problem with the Euro was the same as the problem in the US - banks lent people/governments cheap money they couldn't realistically be expected to pay back (rating agencies ftw!). The Euro prevents localized corrective action by the federal bank.

Yes, I agree with this.

Which is why I've always said that the stability pact (i.e. limits on deficit spending) should have been actively enforced on day 1. I don't think anybody disagrees with that now.

We have to get through this crisis one way or the other, and after that ensure sustainable financial practices by the member states. Putting a cap on deficits is not enough; countries should work to decrease their debt levels when times are good.

If you'd ask Dutch citizens, most would answer that they'd approve of strict measures and penalties against PIIGS countries for their deficits and debt levels. At the same time, our government's policy of austerity to reach the 3% deficit target is pretty unpopular - while our austerity measures are a walk in the park compared to what the PIIGS countries are going through. Some people here complain all the time that the government is acting against the will of the people. Personally I would not like the economy and politics in general to be run as if it were American Idol or Britain's got talent.

[SoFarSoGood]

Devaluation, as you must be aware, does not necessarily lead to hyperinflation. Stop creating monsters where there all that is required is good management.

[Kralizec]

Printing more money is the solution to everything.

To be fair; a case could be made that the ECB should pursue a moderate amount of inflation for a while. The northern economies which are doing well right now would match this development with wage increases, while the southern wages stay the same. This would take care of the trade balance issues.

[Beskar]

Devaluation, as you must be aware, does not necessarily lead to hyperinflation. Stop creating monsters where there all that is required is good management.

When/If Greece leaves, the situation there will get worse, probably look at revolution levels (it is bad enough as it is). It will end up an international pariah in the political and economical circles. If we are going to look at the facts, Greece leaving the Eurozone will benefit the Eurozone members more than Greece remaining a member, a fact Greece is willing to exploit politically.

So it is a choice being propping up Greece or letting it fall. Structured Devaluation of the Euro would help aid the situation for Greece though and most of the other southern states at the expense of Germany, Netherlands and other states. It is these states which do not want that.

This is why the whole thing is a political quagmire. national self-interest is being put before the collective good of the whole. This is why the expression "In order to fix it, more EU is required" which you scoff at. But in order to fix the situation as in, to make it economically and politically stable for all current members, there needs to be more collective will than divided self-interest. No one is disagreeing with the notion that more EU will place more burden upon the stronger economies, this is exactly what it does as that is a solution to the problem.

But "Anti-EU" banter aside, I would like you to do me a favour which in turn will help the both of us communicate so we progress. Could you define where the "Problem" is in your mind and your proposed solutions to it.

So for example with devaluation, the Euro devaluing would aid Greece, but on the flipslide, it would be a "con" to Germany. Do you believe Germany should take the hit for the devaluation to aid Greece? Should Greece be forced out of the Euro and be allowed to descend anarchy as it prints money which will have no effect upon Euro-rate Loans so would be forced simply not pay anything at all, causing European economies, including Britain to take a "hit" and decimating the Greek political and economical reputation for the next 20 years minimum. Should all the sovereign debt be bought up by the ECB then repayment split between all the Eurozone members?

The Feel free to contribute your own speculations or solutions, I am interested to hear them!