Eurointelligence (e-mail briefing):

Martin Wolf writes in his FT column that the solution to the eurozone crisis will ultimately depend on Germany's self-interest. At the moment, Germany's announced policies are not consistent with a survival of the eurozone.

    "This is how I understand the views of the German government and monetary authorities: no eurozone bonds; no increase in funds available to the European Stability Mechanism (currently €500bn); no common backing for the banking system; no deviation from fiscal austerity, including in Germany itself; no monetary financing of governments; no relaxation of eurozone monetary policy;and no powerful credit boom in Germany. The creditor country, in whose hands power in a crisis lies, is saying "nein" at least seven times."

Too late for what?

Too late to save the Euro? Almost certainly. Germany has had one foreign policy objective for at least the last forty years: To get somebody who is not the BuBa to pay for defending the BuBa's currency policy. Now they have managed to write that objective into the foundational treaties of the Eurozone, and they can't or won't understand that this success is what causes the crisis.

Too late to prevent rollback of gainful European integration made over the last two decades when the Eurozone admits defeat and breaks up? Probably.

Too late to save the EU? Unlikely. Too much institutional inertia is on the side of the EU surviving Eurozone breakup.

Too late to prevent a descent into failed states and an authoritarian backlash against the austerity policies that have usurped the outward trappings of democratic constitutions? Maybe, maybe not. Hard to forecast.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

Sounds good, but given that the ECB has just rejected helping Spain recapitalise Bankia -- in other words, the European economic establishment is far from accepting Harrison's prescriptions -- what hope is there of sanity prevailing before it's too late?

The announced strategy in the Bankia case is bonkers on several levels. First, the CEO parachuted in by the government has proposed to recapitalize the parent holding BFA (a bad bank whose only public interest functions are carried out through firms it has a stake in) to the tune of 19 billion, after it was already decided three weeks ago to convert 4.5 billion of existing convertible bonds held by the government into equity. Then, BFA would underwrite up to 12 billion of a rights issue of the actual banking subsidiary, Bankia. The proper way to do this, assuming it is in the public interest for the government to steer the restructuring of Bankia from the management, would be to first take a 12 billion government equity stake in Bankia, which would massively dilute BFA's share from 45% to zilch, and then to let BFA go through bankruptcy court.

guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper

Bringing a comment over from the Salon:

From Eurointelligence (see elsewhere in this Salon):

German press outraged a Spanish plan to recapitalize Bankia via the ECB

The German press is running several editorials that express horror at the idea floated by the Spanish government over the weekend that the Bankia problem may be solved by providing the troubled bank with Spanish government bonds which Bankia could in turn hand over to the ECB as collateral for central bank liquidity. Stefan Ruhkamp of Frankfurter Allgemeine Zeitung argues that by using such "tricks" Madrid is provoking the market defiance that it tries to avoid at all cost. "If the last confidence of the investors is lost all that would be left would be help request for an international stabilization program that Greece, Ireland and Portugal are already receiving", he argues. "This is the honest and apparently unavoidable way." Markus Zydra of Süddeutsche Zeitung points at the uselessness of ECB interventions that the Spanish government appears to hope for, particularly a reactivation of the SMP. "What would be the point," he asks. "If the ECB once again buys Spanish bonds, the interest rates will decrease. But then what? As soon as the ECB ends its purchases interest rates will go up again."

While the German press is pining for an "international stabilization program", the FT story quoted above says

Senior government officials in Madrid argue that bailouts in Portugal, Greece and Ireland have been catastrophic and Spain will not compromise on its refusal to accept a similar form of intervention.

They said the country had implemented reforms requested by Brussels and must now be granted relief by the ECB, or the future of the single currency will be threatened. The government would like to see the ECB restart its government bond-buying programme and wants the nascent European Stability Mechanism to be retooled as a bank bailout fund.

"This is like a game of poker now," one government adviser said, "and I don't think Spain is bluffing."

On the reforms that Spain has implemented, there will be more, apparently, program or no program. [Eurointelligence]

Commission proposes that Spain gets another year to cut deficit

Of course, Spain needs another year to get to 3%. Spain probably needs five years. The Commission is now bowing to the inevitable, and is proposing to extend the target for Spain to meet the 3% deficit target by one year, El Pais reports from Brussels. But there is one important caveat: Spain must undertake a number of reforms, including measures on pensions, the financial system, taxation and labour reform. Specifically, Brussels wants Madrid to accelerate the increase in the pension age. It wants a higher base for VAT, meaning that the full rate of 18% is applied to products that currently enjoyed the reduced rate.

If Spain holds fast in its position that they will not accept an "intervention" then we have a default in our hands in the near future, either a bank default or a sovereign default. Spain has over 200% GDP of foreign private debt, intermediated through the banking system. Could we have a 2 trillion Euro intra-EU default in our hands?

guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper

This just in, from Reuters: ECB says did not give opinion on Spanish bank plans (Chicago Tribune, May 30, 2012)

"Contrary to media reports published today, the European Central Bank has not been consulted and has not expressed a position on plans by the Spanish authorities to recapitalize a major Spanish bank," the central bank said in a statement.

...

The Financial Times said on Wednesday the ECB opposed plans to recapitalize troubled Spanish lender Bankia by indirectly tapping the ECB for cash.

Spanish economy ministry spokeswoman said earlier on Wednesday the government did not consult the ECB on its plans to recapitalize nationalized lender Bankia and will likely tap the markets to inject new funds in the bank.

guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper

Doom would have been Eurobonds and fiscal federalism. Real doom.

I know, I know people here would like it. But let me suggest this thought experiment:

Imagine an even more centralized system (what Eurobonds and fiscal mix would entail) in the hands of the current ruling elite? Think disaster times two. An even more centralized system would attract even more lobbying attempts from financial elites (or whatever shadow power du jour).

Even worse elites with even more power. No thanks.

The Economist has a wide-ranging article about the Euro crisis: An ever-deeper democratic deficit (May 26th 2012)

The level of further integration necessary to deal with the euro crisis will be hard to square with the increasing cantankerousness of Europe's voters

guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper

FT Alphaville » Markets Live transcript 30 May 2012

coming up next - the `Spexit'.

What's that? It's shorthand for Spain quitting the euro - and we're going to hear a lot of it over what promises to be a turbulent summer.

The Spanish are a lot more likely to pull out of the euro than the Greeks, or indeed any of the peripheral countries. They are too big to rescue, they have no political hang-ups about rupturing their relations with the European Union, they are already fed up with austerity, and there is a bigger Spanish-speaking world for them to grow into. There are few good reasons for the country to stay in the euro - and little sign it is has the will to endure the sacrifices the currency will demand of them. This week's note from Strategy Economics explains why Spain may be the first country out of the single currency.

_{It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II}

Eurozone crisis live: EC calls for more effort from Spain and France | Business | guardian.co.uk

Two new opinion polls have been published in Greece today, ahead of the crucial June 17 elections.

I've only got the information off the newswires, alas, but here goes...

One poll, by Pulse, put New Democracy and Syriza neck-and-neck on 24.5%.

The other, by VPRC, put Syriza ahead on 30% followed by New Democracy with 26.5%.

_{It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II}

with Professor Costas Lapavitsas, Professor Costas Douzinas and the journalist Aris Chatzistefanou

Greek crisis: live Q&A from 3pm | Comment is free | guardian.co.uk

Europe is witnessing an unprecedented attack on Greek democracy which comes close to what could be called a 'postmodern coup d'etat'. It is not about tanks in the streets (although even this is mentioned from time to time). It is about secrets and rumours, public statements and private murmurings, empty supermarket selves, scenaria of a coming armaggedon and further destruction of a proud people if they vote for the left and lead to Greece being ejected from the euro.
It is about scaring the people and stopping them from voting against austerity, in other words, it is an attack both on democracy and the idea of Europe. The European and Greek political and economic establishment, with support from mainstream media, led by Baroso, Laguard, Merkel, Shauble et al have launched a campaign of threats, blackmail and the most absurd politics of fear.

_{It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II}

I have no hope.

During interventions, the question raised by Dani Rodrik (the trilemma) has been touched. Maybe I can finish a Diary about it.

Today, my hopes of reaching a proper EU are almost nonexistent.

Ni siquiera es posible plantear el trilema, creo yo.

‏@VivianeRedingEU

Europe is at a crossroads, many question the fate of the ‪#euro‬.Monetary union is as good as set in stone. It is forever http://bit.ly/KMxPMA

guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper