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Roadmap To The New Berlin Wall

by afew Fri Dec 14th, 2012 at 05:07:16 AM EST

The European Council failed, early this morning, to deliver the promised roadmap to deeper integration, but discussed "a roadmap for the next steps to agree on the future steps" (according to one German official).


After the agreement by finance minister to create a banking union for between 1 and 2% of eurozone banks, the European Council yesterday formally dropped the most important element of a fiscal union – the idea of a common budget to act as an economic shock absorber. (...)

Suddeutsche Zeitung writes this morning that rarely before has a European balloon deflated as fast as van Rompuy designs for a fiscal union. Merkel said bluntly there was no point in dealing with issue in the “distant future”, saying she rejected outright any form of debt mutualisation, or a hidden permanent transfer. The article says there is unlikely to be another push in this direction until the crisis is well resolved. Also, the FT article quoted Merkel as saying that the solidarity mechanism van Rompuy is tasked upon to work on until June would be small: “It wouldn’t be in three-figure billions, but maybe €10bn or €15bn.”

Eurointelligence comments that this fiscal union having no macroeconomic function whatsoever, there will be no fiscal union. "The issue is now formally off the table".

EUobserver.com / Economic Affairs / EU leaders differ on further eurozone integration

Most of the debates revolved around the eternal disagreement between Germany, the Netherlands and Nordic states on one side and France and southern allies Italy and Spain on the other on what should come first: joint funding or a loss of sovereignty. One diplomat summed it up as one side pressing for "a big stick with a small carrot versus a big carrot with a small stick."

The latest 'stick' of German inspiration are "contractual arrangements" signed between member states and EU institutions making it binding for governments to implement reforms as recommended by the commission.

German Chancellor Angela Merkel said national parliaments would also be bound by these contracts. "This would bring about democratic legitimacy, but also if a parliament promises something, it has to stick to it."

As for the 'carrot', it is the idea of a eurozone-only budget, possibly funded by an upcoming tax on financial transactions - a tax only a dozen EU countries are intending to adopt.

But Germany was irritated over expectations that this fund would be worth "hundreds of billions", fund unemployed people in Spain or cushion "external shocks" for southern countries unable to deflate their currency, one EU source said.

"What will not come up is this idea of shock absorption fund. It is not specific enough. What we want is support in connection with improvements in competitiveness," Merkel told journalists after the meeting.

You will be under contract to carry out neoliberal policies decided in Berlin. Your national parliaments will be obliged to confer democratic legitimacy on these measures, or watch out. Do not mention imbalances or necessary transfers.

You have been warned.

The draft conclusions of the Council can be seen on Euractiv.

Drafter G. Orwell writes:

The European Council agreed on a roadmap for the completion of the Economic and Monetary
Union, based on deeper integration and reinforced solidarity.

Well, no, it didn't.

1. In the light of the fundamental challenges facing it, the Economic and Monetary Union needs to be strengthened to ensure economic and social welfare as well as stability and sustained prosperity. Economic policies must be fully geared towards promoting strong, sustainable and inclusive economic growth, enhancing competitiveness and boosting employment in order for Europe to remain a highly attractive social market economy and to preserve the European social model.

I'll spare you the rest of the lies.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Dec 14th, 2012 at 05:18:50 AM EST
As bad as things are in the USA...  Well, this is just painful to read.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Dec 14th, 2012 at 10:35:32 AM EST
[ Parent ]
Things in the US will get better, if Europe doesn't blow up the global economy:
Karl Whelan applauds Fed - so does Brad DeLong, with qualifications

Writing in Forbes, Karl Whelan applauds the Fed's 'bravery' - no rate increases until unemployment drops below 6.5% - in contrast to the ECB's conservatism. Whelan argues that the difference cannot be attributed solely to differences in the respective legal mandates, since the ECB is required to support "the broader economic policies of the EU" if they don't conflict with price stability.

Brad de Long, meanwhile, blogs about the significance of the Fed's decision for the US economy, in the context of his and other economists' calls for more expansionary fiscal and monetary policy. While arguing that the Fed's announcement falls 1/3 short of the required size of Quantitative Easing and comes three years late, de Long argues that the stated policy makes it unreasonable to expect the US economy to remain stagnant for another 3 years. In that case, he says, one should see investors gradually shifting from holding cash and Treasuries to equities, and "the lost decade will be over in seven years". The alternative is that the Fed's policy fails to reactivate the economy, which de Long then says will force "believers in the potency of monetary policy even at the zero lower bound" to consider fiscal policy.

(Eurointelligence, via today's Salon)

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Fri Dec 14th, 2012 at 10:41:42 AM EST
[ Parent ]
By comparison to the ECB the Fed looks like it is run by geniuses. But both are misdirected and constrained, the ECB much more so, by the CW of their polities. At least the Fed is pointed in the right direction and is doing what it can within its political constraints which keep it focused on monetary policy.

I started to say 'it is not the job of the Fed to straighten out the mess on Wall Street' only to stop as I realized that, in fact, it is. The Fed has broad and sweeping powers of financial regulation up to and including pulling banking licenses. But that is so far out of the CW that it is unthinkable to Fed board members, all of whom have a usually well repressed awareness that, though formally they are in charge of banking regulation, the are tacitly expected to regulate in the interests of the banks and their owners. It would be astounding were they to suddenly start performing the full range of supervision with which they are entrusted. I give you Tim 'I am not a regulator' Geithner.

But, if there is another major meltdown, who knows? Were the POTUS to ask Bernanke, under those circumstances, to resign he might do so. Simon Johnson would be a good replacement. Bill Black could do a good job supervising prosecution of control fraud, preferably from a newly appointed position as Attorney General or Assistant Attorney General, and there are several in Congress - Elizabeth Warren, Sheldon Whitehouse, Sherrod Brown and Bernie Sanders leap to mind in the Senate and Alan Greyson, Brad Sherman, Marcie Kaptur for starters in the House.

The interesting thing is that, in the USA, the regulation of the financial sector could turn on a dime - with leadership. Even at this late date I would not totally rule out such a dramatic turn of events - given the right situation. No new laws need to be passed. Just vigorously prosecute and regulate under existing laws. But, for now, back to the nightmare.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Dec 14th, 2012 at 09:05:03 PM EST
[ Parent ]
At the recent Minsky conference in Berlin, the Dallas Fed President said that, as the most hawkish member of the FOMC, he worried more about unemployment than about inflation. The ECBankers rambled about moral hazard.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Sat Dec 15th, 2012 at 02:58:46 AM EST
[ Parent ]
I've wanted to diary about this but I haven't had time recently: the competitiveness meme is the ultimate neo-liberal straw man.

Recently in the UK we've had the approval of fracking - "for competitiveness." But before fracking was on the agenda (i.e. before it was thought there was gas down then to get) any suggestion that investing in energy infrastructure that would lead to cheap energy (e.g. wind power) could improve competitiveness was "not a serious proposal" according to the same economists who are now supporting fracking.

All of which is to point to the ultimate question, what are we competing for? Scarce resources? Which ones? And Why?

by Metatone (metatone [a|t] gmail (dot) com) on Fri Dec 14th, 2012 at 05:44:38 AM EST
Competing for cash and status, obviously. Renewables are low status girly-man things.

Digging into the ground and making a huge mess is high status and properly macho.

But only 'investors' are allowed to compete. Everyone else has to make do with 'jobs' - and be grateful for the privilege.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Dec 14th, 2012 at 07:03:49 AM EST
[ Parent ]
On the contrary, those who have "jobs" are ordered to compete by accepting lower wages while providing higher output.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Dec 14th, 2012 at 08:13:40 AM EST
[ Parent ]
Another step down the path towards catastrophic failure.
by Colman (colman at eurotrib.com) on Fri Dec 14th, 2012 at 05:51:30 AM EST
Things move abysmally low in Eurozone but it easier to go to hundreds of millions later if you first agree tens of millions. It seems to be impossible to give EU the decision making authority and monetary resources of a federal government at once but that seems to be the way we are heading.

Unfortunately low speed drifting to federation or chaotic break up are worse options than their faster and more controlled alternatives.

by Jute on Fri Dec 14th, 2012 at 06:05:03 AM EST
The problem with this is that it seems to me that what might be supposed to be an attempt at a "controlled" drift towards some sort of federation is making the Union more and more brittle, increasing the chances of a rapid chaotic break up.
by Colman (colman at eurotrib.com) on Fri Dec 14th, 2012 at 08:02:07 AM EST
[ Parent ]
European macroeconomic management as a carrot-and-stick morality play.

This is what Merkel has wrought.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Fri Dec 14th, 2012 at 06:50:40 AM EST
I would have wished to make a substantive comment. But i can't.

Except, for me, it's really hard to be living here in Deutschland right now.

Perhaps it's here that the force of the pendulum swing will be felt the most, und wir gehen weiter. Vielleicht..

"Life shrinks or expands in proportion to one's courage." - Anaďs Nin

by Crazy Horse on Fri Dec 14th, 2012 at 08:25:42 PM EST
We will go on. But onwards depends on the direction you are facing.
by oliver on Sat Dec 15th, 2012 at 12:31:09 PM EST
[ Parent ]
Backwards facing forwards looks high on the list of probabilities.
by afew (afew(a in a circle)eurotrib_dot_com) on Sun Dec 16th, 2012 at 02:17:45 AM EST
[ Parent ]

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