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"We're not searching for ways to blame Germany for stuff, that's an interested reading on your part."

An obvious reading. We are commenting on a post titled Gleichschaltung, after all. And that purports to comment on spanish politics. But I learned nothing about spnaish politics -I would have liked too, isn't that the purpose of a place like ET? - but only about your german obsession.

by IM on Thu Sep 8th, 2011 at 05:19:42 AM EST
[ Parent ]
  1. Excuse me for not titling my post The forcible legal realignment of Spain.
  2. It purports to put a Spanish political event in its European context
  3. "I leaned nothing" is a statement about yourself

After all, there's this
The impression that something is afoul here is based in part on the fact that as late as August 18, the conventional wisdom in Spain was that it was difficult to carry out the Constitutional reform that Sarkozy and Merkel demanded by mid-2012, and that the government's position was officially that the existing Law on Budget Stability (introduced by Aznar's PP government in 2001) was sufficient. ...

...

Only two days after this was published, ZP announced his intention to introduce a constitutional spending ceiling during an extraordinary plenary session of the Parliament convened to discuss the recent financial turbulence. The reform will be carried out with two further extraordinary sessions this coming Tuesday and Friday, as the Parliament would normally be adjourned at this time.

And, sorry, it is not me. I'm quoting and translating news reports from ElPais in which Germany's 2009 debt brake is mentioned as a blueprint and motivation, and Merkel's (with Sarkozy tagging along haplessly) demand for forcible legal realignment of the whole Eurozone by next Summer.

I even volunteered a couple of reasons why the reform is being carried out in a rush and in alleged (by opponents) violation of parliamentary procedure. And the move cannot be universally popular when the PSOE parlamentarians vote for it like they're going to a funeral while PP parlamentarians cheer.

Zapatero is being strongarmed into doing all of this. We don't know how exactly or who's delivering the orders, but there are strong hints.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Sep 8th, 2011 at 05:33:42 AM EST
[ Parent ]
Oh, and 4. Oh, and excuse me for not saying that Merkel is insufferably arrogant and ethnocentric.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Sep 8th, 2011 at 06:05:02 AM EST
[ Parent ]
Oh she is.
by IM on Thu Sep 8th, 2011 at 06:43:27 AM EST
[ Parent ]
But if I say Untermenschen that's a no-no.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Sep 8th, 2011 at 06:46:16 AM EST
[ Parent ]
Can't you really see the difference? Merkel isn't a fascist and certainly not a nazi. Words have meanings.
by IM on Thu Sep 8th, 2011 at 06:51:27 AM EST
[ Parent ]
"Excuse me for not titling my post The forcible legal realignment of Spain."

What force? We are not talking about law on a euroepan level. What other force?

"It purports to put a Spanish political event in its European context"

Of course. But in your case it is always germany made us do it. Not a very illuminating context. The old excuse of politicians everywhere was Brussels made us do it; no it's Berlin made us do it. Still an excuse.

"I leaned nothing" is a statement about yourself

You really are a bit of an asshole sometimes. And that is a statement about you. Or at least your blog persona.

"Zapatero is being strongarmed into doing all of this. We don't know how exactly or who's delivering the orders, but there are strong hints."

That is the interesting part and I wish you would have written more about that.

by IM on Thu Sep 8th, 2011 at 06:50:21 AM EST
[ Parent ]
"Zapatero is being strongarmed into doing all of this. We don't know how exactly or who's delivering the orders, but there are strong hints."

That is the interesting part and I wish you would have written more about that.

I wrote all that was possible to write about it without pulling it out of my arse.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Sep 8th, 2011 at 06:54:04 AM EST
[ Parent ]
IM:
What force? We are not talking about law on a euroepan level. What other force?

Interesting question. Since ECB has threathened to sink the Greek banking systems if the government did not accept killing of their own economy, we know that there are other forces then law at play. Which exactly, are often hard to figure out in time.

Eurointelligence:

Lorenzo Bini-Smaghi, the most prolific campaigner against default, told il Sole24 ore that the ECB had carried out an analysis on the potential impact of a Greek debt restructuring, and found it would imply the failure of a large part of the Greek banking system, as the Greek banks hold a large portion of the Greek sovereign debt. (Another reason is that Greeks would transfer all their deposit to foreign banks, a process that is already partially under way). At the point the Greek banks would no longer have access to ECB liquidity, and would have to end their support for the corporate sector. He said that since Greece does not have a primary balance, a default at this time would lead to the cessation of pension and other social payments. The Greek economy would collapse, with devastating economic and social consequences. He said the other countries should stop pushing Greece into a catastrophe. In what we would understand to be an indirect reference to Wolfgang Schäuble, he said that talk about restructuring had seriously negative effects on market sentiment.

Original Eurointelligence source appears to have been broken, and the Googlecache of it too. But it was quoted on ET on April 15th so probably written shortly before that.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Thu Sep 8th, 2011 at 07:18:36 AM EST
[ Parent ]
Since ECB has threathened to sink the Greek banking systems if the government did not accept killing of their own economy, we know that there are other forces th[a]n law at play.

And apparently they strongarmed Ireland into accepting a "rescue" within days of the Irish finance minister claimin that the Irish government was funded on a cash-basis for over half a year.

The ECB has also famously sent a letter to Italy's government with a shopping list of legislative reforms that must be enacted or the Italian banking system will be killed. There are contradictory stories about similar demands on Spain.

Trichet, when accepting the Charlemagne Prize for "contributions to European Unity", suggested an EU finance minister without a budget but the power to interfere with member state budgets. This has now been picked up by the Dutch Prime Minister.

This is really looking like rule by Central Banker.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Sep 8th, 2011 at 07:29:14 AM EST
[ Parent ]
And Italy's government has just approved the balanced buget amendment
"Un ok rapido in Parlamento è nell'interesse del Paese", ha detto ancora Tremonti. Aggiungendo che il principio varrà anche per gli enti locali. Per garantire il pareggio di bilancio, saranno modificati tre articoli della Carta: non solo l'articolo 81, che fino ad oggi prevedeva l'obbligo di copertura delle leggi, ma anche l'articolo 53 (sulla contribuzione dei cittadini) e il 119 (sul federalismo fiscale). Il testo del disegno di legge prevede: "Non è consentito ricorrere all'indebitamento, se non nelle fasi avverse del ciclo economico nei limiti degli effetti da esso determinati, o per uno stato di necessità che non può essere sostenuto con le ordinarie decisioni di bilancio".
There's an exception for adverse economic conditions, but no details that I can find.
by gk (gk (gk quattro due due sette @gmail.com)) on Thu Sep 8th, 2011 at 07:33:51 AM EST
[ Parent ]
That's pretty stringent: recourse to debt is not allowed, except in adverse phases of the economic cycle within the bounds of the effects determined by the cycle, or due to a state of necessity that cannot be sustained with ordinary balance decisions.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Sep 8th, 2011 at 07:39:00 AM EST
[ Parent ]
An unemployment rate above zero per cent is a state of necessity that cannot be legitimately sustained with ordinary balance decisions.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 8th, 2011 at 09:01:37 AM EST
[ Parent ]
And it should be noted that the implicit refusal to rediscount new Greek bonds after a default event is pure blackmail that is totally unjustified by any sane economic standard, left, right or centre.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 8th, 2011 at 08:59:32 AM EST
[ Parent ]
What force?

The threat of a currency crash.

Do you have any comprehension - any comprehension at all, even the faintest shadow of a hint - of what a currency crash does to a country that is a net importer of food and fuel?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 8th, 2011 at 08:48:18 AM EST
[ Parent ]
Now you are just making things up. Currency crash?
by IM on Thu Sep 8th, 2011 at 01:01:14 PM EST
[ Parent ]
When googling for a definition of currency crash, Google helpfully suggest that I look to the definition of  suggest Currency Crises instead.

Currency Crises, Krugman

There is no universally accepted definition of a currency crisis, but most would agree that they all involve one key element: investors fleeing a currency en masse out of fear that it might be devalued, in turn fueling the very devaluation they anticipated. Although such crises--the Latin American debt crisis of the 1980s, the speculations on European currencies in the early 1990s, and the ensuing Mexican, South American, and Asian crises--have played a central role in world affairs and continue to occur at an alarming rate, many questions about their causes and effects remain to be answered.

I think the scenario goes like this:

  1. ECB denies euros to banks of CA deficit country, as they have threathened to, effectively trying to kill the banking sector of that country.
  2. CA deficit country must change currency in order to have the banking system working.
  3. That currency falls sharply against the euro, worsening the CA deficit. This is the crash part.
  4. CA deficit country must balance their CA quickly. This will probably include rationing and other drastic actions.


Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Thu Sep 8th, 2011 at 03:24:11 PM EST
[ Parent ]
Mechanically speaking, a currency crash is a run on a country's hard currency reserves. Since the €-Mark is hard currency for €-zone members (thanks to the ECBuBa's idiocy), a systemic bank run would be a currency crisis in every way that matters.

Of course, once you have to ration hard currency anyway, you might as well take the opportunity to repudiate your hard currency debts completely and exit from the €-zone. But that's a consequence rather than a cause of the run on the country's hard currency reserves.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Sep 9th, 2011 at 10:21:26 AM EST
[ Parent ]
So the currency crisis occurs in 1.

Am I wrong to assume that the exit would (likely) trigger a continued run for some time - say at least a couple of months? Markets appear a lot like herd animals to me, hard to stop once they get stampeeding in one direction or another.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Fri Sep 9th, 2011 at 12:44:07 PM EST
[ Parent ]
An exit from the €-Mark would involve some pretty epic defaults. If the Russian and Argentinian experiences are anything to go by, it takes 12-18 months for the hysterical children to calm down after something like that.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Sep 10th, 2011 at 03:09:45 AM EST
[ Parent ]
Mechanically speaking, a currency crash is a run on a country's hard currency reserves. Since the €-Mark is hard currency for €-zone members (thanks to the ECBuBa's idiocy), a systemic bank run would be a currency crisis in every way that matters.

May I point out that the run is already underway and has been for many months?

Back in May 2011:

German banks target worried Greeks in Germany

Greeks worried about a debt restructuring or a euro exit increasingly transfer their money to banks abroad, Bild-Zeitung reports. According to the mass circulation tabloid German banks such a savings bank in Munich have posted signs in their windows advertising in Greek and German that Greek costumers will be advised in Greek. According to the paper €30bn have already been transferred from Greece abroad since the crisis started.

Of course this puts a strain on the Greek banks which only increases their dependence on the ECB. For Greeks, another of the refuges, apart from Germany, was Cyprus which has always acted as an offshore banking center for Greece. Now Cyprus is in its own crisis.

But it's not just Greece and it's not just since last year. Remember these charts by Martin Wolf?

The top left chart indicates that the ECB has accumulated large claims on other central banks - this is the result of money flowing from the periphery to the core. Nothing surprising there, as the trade imbalances are structural and have persisted over the entire life of the Euro. However, the top-right chart indicates that the claims among central banks have developed only since the financial crisis started in 2007/8. So it's not  result of trade imbalances as one might have guessed, but of flight to safety.

And now, as we know, not even Euro assets in Germany are "safe" enough and people are piling on the Swiss Franc or (after the Swiss National Bank had enough of the Eurozone exporting deflation to it) to the Norwegian Krone.

So, yes, the run on the Eurozone banking system is well underway. It was bad enough in April already for

Bundesbank open to capital controls as a last line of defence

Bundesbank board member Andreas Dombret told Börsenzeitung that capital controls can be introduced by countries as "a last line of defence". "If they are used, it should be done temporarily and in a transparent and targeted manner", Dombret said. In combating high inflows of capital countries need to define a hierarchy of things to do. "If after that the inflows persists, capital controls can be considered", Dombret said. Capital controls were up until very recently a taboo and have only been proposed last week by the IMF in a position that was controversial among certain member states.

But he's talking about inflows of capital. Is he talking about Switzerland, rather than, say, Greece?

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sat Sep 10th, 2011 at 04:49:39 AM EST
[ Parent ]
The top left chart indicates that the ECBBundesbank has accumulated large claims on other central banks

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sat Sep 10th, 2011 at 05:18:24 AM EST
[ Parent ]

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