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Eurointelligence Daily Briefing: Fitch has given up on the eurozone
Rating agency puts six countries, including Italy and Spain, on a negative watch; also warned about a French downgrade in two years;concludes that a comprehensive solution to the eurozone debt crisis is politically and technically beyond reach; Jean Quatremer says the downgrade threat for Belgium is unfair
Because Belgium isn't France isn't Italy isn't Spain isn't Portugal isn't Ireland isn't Greece, as is evident to anyone who lives in Brussels.
Vittorio Grilli says the EU has to do more to solve the crisis - prioritising to reverse the liquidity crunch, and strengthen the EFSF/ESM; Mario Draghi warns about the costs of a eurozone breakup; the troika is about to tell the Greek government to make further savings of €2bn; the Portuguese opposition rejects a constitutional change, but is willing to support a "golden rule" in secondary legislation; Germany's president Christian Wulff is engulfed in a property loan scandal that might cost him his job; Jens Weidmann says ECB would not increase bond purchases even if the crisis got worse; he also said eurosystem would not refinance EFSF/ESM even if they did have a banking licence
I'd like to know the legal grounds for that
Jürgen Stark says ECB bond purchases were an important reason for his decision to resign; Wolfgang Münchau says France really is in a worse shape than the UK; Ronald McKinnon, meanwhile, writes that the eurozone needs a James Hamilton.


tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Mon Dec 19th, 2011 at 04:05:58 AM EST
[ Parent ]
Jürgen Stark hints at real reasons for his resignation

So far Jürgen Stark always said that his resignation from the ECB board by the end of this year was due to ,,personcal reasons". In an interview with Wirtschaftswoche Stark added: ,,There is a big topic that is the reason for it (the resignation): I am dissatisfied how the currency union has evolved." Just as Weidmann he insisted that ECB's bond purchasing program was limited and that it was impossible to extend the central bank's balance sheet indefinitely. Stark also accused Greece - even under the leadership of his former ECB colleague Lucas Papademos - not to do what is necessary to get the country out of the mess. ,,Greece has currently chosen an option that is too easy by saying the country suffers under a systemic crisis in Europe. It is not acceptable to hand over the responsibility to other people if one has not done one's homework."



tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Mon Dec 19th, 2011 at 05:07:20 AM EST
[ Parent ]
The interview is here: Jürgen Stark: ,,Das kann nicht Aufgabe einer Zentralbank sein"
Typisch für diese Krise ist, dass immer wieder neue Nachrichten die Märkte aufschrecken. Mal sind es die Ratingagenturen, mal streiten sich die Regierungen untereinander oder mit der EU, dann schlagen der IWF oder die EZB Alarm. Ist dieses Informationschaos hilfreich?

Das, was Sie Informationschaos nennen, ist die Folge von politischen Entscheidungen, die nicht an dem Gesamtproblem ausgerichtet sind, sondern immer nur Teilprobleme in den Blick nehmen. Daraus würde ich aber der Politik keinen Vorwurf machen. Die Lösung dieser Krise lässt sich in keinem Lehrbuch nachschlagen, und all die klugen Äußerungen aus dem akademischen Bereich widersprechen sich sowohl in der Analyse als auch in den Rezepten. Das bringt die Regierungen immer wieder in fast ausweglose Situationen - dennoch müssen sie Entscheidungen treffen.

Fallen die Entscheidungen unter dem Druck der Märkte zu vorschnell?

Die Politik hat es nicht leicht. Es gibt kontroverse Lösungsansätze aufgrund unterschiedlicher Beratungslage. Daraus resultieren dann auch Konflikte innerhalb der Europäischen Union. Und es kommt hinzu: Die Entscheidungen der Regierungen bedürfen der demokratischen Legitimation. Die Regierungen müssen sich gegenüber ihren Parlamenten rechtfertigen, und die Parlamente müssen dies den Wählern gegenüber tun.

...

Hätte die EZB nicht früher korrigierend eingreifen müssen, um die Schieflage innerhalb der Euro-Zone zu verhindern?

Die EZB hat ihren Auftrag, die Preisstabilität zu gewährleisten, voll erfüllt. Auf die unterschiedliche Entwicklung der Lohnstückkosten in der Euro-Zone haben wir schon 2005 sehr deutlich hingewiesen. Die Politik hat das damals nicht als akutes Problem angesehen.

Witschaftswoche: Stark: "This can not be the task of a central bank"
It is typical of this crisis that the markets are always scared of breaking news, one time it's the rating agencies, another the governments argue among themselves or with the EU, yet another the IMF or the ECB sound the alarm alarm. Is this information chaos helpful?

What you call information chaos is the consequence of political decisions that are not aimed at the overall problem, but only take a piecemeal view of it. From this I would, however, not blame the politicians. The solution to this crisis is not to be found in any textbook, and all the wise comments from the academic sector are contradictory, both in the analysis as well as in the recipes. This keeps putting the governments in almost hopeless situations - but they have to make decisions.

Decisions are made under pressure from the markets prematurely?

It is not easy in politics. There are controversial proposals for solutions because of the diverse advice. This will also result in conflicts within the European Union. And on top of that, the decisions of governments require democratic legitimacy. The governments have to justify them to their parliaments, and parliaments must do this to the electorate.

...

Shouldn't the ECB have taken earlier corrective action to prevent imbalances in the euro zone?

The ECB has fully met its mandate to maintain price stability. On the divergent evolution of unit labor costs in the euro zone, we pointed it out very clearly in 2005. Politicians have not regarded them as as an acute problem then.

So, the only imbalance worth mentioning in the Eurozone was "unit labour costs" (i.e., "competitiveness) not the structural trade imbalances (which are not exactly solved by slashing wages).

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Mon Dec 19th, 2011 at 05:25:11 AM EST
[ Parent ]
Daniel Gros: Can Italy survive the financial storm? (VoxEU)
In an ideal world it is clearly not the task of a central bank to finance regional current-account imbalances.  But it would still be preferable for the ECB to provide the Italian banking system with continuing access to its normal monetary policy operations to the tune of €50 billion annually, rather than buying hundreds of billions worth of government debt.  (See my CEPS commentary on why the ECB has no choice but to effectively become the `central counterparty' given that the Eurozone is not a fiscal union.)
Get that, Herr Stark? We don't live in an ideal world.

Anyway, Gros' solution is this:

The distribution of tasks should be simple:
  • Italian households should finance their own government by buying its debt, and
  • The ECB should prevent a collapse of the Italian banking system.
A first, key element of survival is thus that the new high-cost debt should be sold mostly to Italians.  In this way the higher cost of debt service will not be a burden on the country, but just a redistribution of income between savers and taxpayers.
If you can't tax savings through inflation, try to lure them into buying your debt.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Mon Dec 19th, 2011 at 05:59:32 AM EST
[ Parent ]
just a redistribution of income between savers and taxpayers.

And that cannot possibly lead to a collapse in aggregate demand, now can it? Because that would mean people saving without specific plans to spend later. And that is basically like saying that people can't predict the future.
Must be a miserable world where you don't even know next weeks weather. Probably round too.

by generic on Mon Dec 19th, 2011 at 07:33:11 AM EST
[ Parent ]
Not exactly. What Daniel Gros is suggesting is that the existin Italian savings should be channelled through Italian sovereign debt.

No word of the fact that Germany has an excess of savings over investment, and a government which intends to reduce the amount of debt it issues, so that German savings must be recycled into foreign assets. Gros is suggesting Italian debt should be held by domestic investors in a proportion of about 3/4, rather than the current 1/2. But then you'd have to prevent German and Italian savers from investing freely in each other's debt markets (Italians cannot buy "safe" German bonds, Germans cannot buy "high-yield" Italian bonds). That is, curtail the free movement of capital in the single currency area.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Mon Dec 19th, 2011 at 07:47:42 AM EST
[ Parent ]

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