Much to my regret, Life just hasn't been leaving much time for blogging or to give the proper attention to the issues discussed here. I'd like to apologise to all the EuroTrib folk for not being a more regular contributor.

Vencit omnia veritas.

... at the moment is that the power to deficit spend as a sovereign economy resides at the level of the currency unit. A state within that unit must treat deficits as borrowing.

Now, the mainstream conventional foolishness obscures this, because it pretends that a sovereign economy must treat deficits as borrowing, which is ... well, foolish, hence the name. So under the mainstream conventional foolishness, there is no change of category for the individual states of a currency zone.

In reality (cf. billy blog, Clowns to the left, jokers to the right), a sovereign economy can deficit spend if it has sufficient domestic unemployed resources that the residual inflationary pressure from outbidding already employed resources is on the order of ongoing productivity growth. There is no finance constraint ... but a state within that sovereign economy does face a finance constraint.

So the flaw in the policies to agree to restrain government deficits of EU members to a certain level is not the agreement per se, but rather the lack of a facility at the Eurozone level to create deficits corresponding to the size of the unemployment gap to be transferred to the member states in the event of an economic downturn.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

European Tribune - Comments - Missing an European Treasury

• When receiving funds issued by the European Treasury, member states shall incur in a fixed interest premium (say 1%) over the marketed interest. This extra interest could either revert to bond holders, the European budget or both

Doesn't that undermine the purpose of the exercise? The market could still extort ridiculous returns for holding bonds.

The easiest way to muddle through the crisis would be to order the ECB to enforce a maximal level of interest on Eurozone debt. But then the treaties explicitly forbid that.

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter

I'm impressed that the Euro 1Billion insurance policy on Greek bonds that is now most likely an obligation of the German government, never gets mentioned.

Pardon me if I've missed it, but I have not seen much reference to the wrong end of the billion euro credit default swap on Greek debt which almost certainly now belongs to the German government. It's really amazing how self-righteous Merkel's team has been about good finance practices when, as a result of their spree of bank bailouts, they own an exposure to an astoundingly stupid bet that Goldman was able to sell to the brain trust of an Irish/German bank.