European Salon de News, Discussion et Klatsch - 1 October | 120 comments (120 topical, editorial, 0 hidden)

Wolfgang Münchau: Welcome back to the eurozone crisis (September 30, 2012)

Last week investors - and Spanish journalists - suddenly discovered to their horror that Germany will not after all allow Spain to dump the risk of its banks on to the European Stability Mechanism, the eurozone rescue fund. That seems to contradict the June 29 eurozone leaders' summit statement, which said it was "imperative to break the vicious circle between banks and sovereigns". EU leaders reached this agreement in the early hours of the morning after a diplomatic ambush by the Italian and Spanish prime ministers. Whatever may have been agreed that morning, it was understood differently in Spain than in Germany. The Spanish interpretation had been that the EU would adopt a banking union by the beginning of next year. This would then automatically trigger a shift in the burden of the recapitalisation of the Spanish banking sector from Spain to the ESM.
...
Whether or not you call this a banking union, or a breach of the June 29 agreement, is irrelevant.
The point is that you cannot force through a banking union against the explicit will of the German government, the German parliament, the German public at large and the Bundesbank. I suspect the EU will ultimately agree on a fudge. But it would be irrelevant for the resolution of this crisis.
...
Judging from the political debate, Germany is not ready for a fiscal transfer mechanism of any kind. In particular, Germany is not ready for a banking union. Ms Merkel never made a political case for a banking union in Germany. All she did was play down the implications. I would counsel readers against falling into the trap of thinking that next year's German elections will miraculously clear all the hurdles. All the various probable outcomes favour a continuation of the present policy.

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

by Carrie (migeru at eurotrib dot com) on Sun Sep 30th, 2012 at 05:43:28 PM EST
[ Parent ]

Re: Europe (4.00 / 5)

There is one possible fiscal transfer mechanism: massive default.

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

by Carrie (migeru at eurotrib dot com) on Sun Sep 30th, 2012 at 05:44:03 PM EST
[ Parent ]

Re: Europe (none / 1)

Wholesale credit writedowns! That's the ticket.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 1st, 2012 at 01:00:02 AM EST
[ Parent ]

Re: Europe (none / 1)

Noooo! Creditors are good, Virtuous people! You can't possibly act against them in any way! That would be immoral and illegal, those who default should go to court and jail and suffer, because governments are just like 19th century families!

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Mon Oct 1st, 2012 at 05:31:19 AM EST
[ Parent ]

Re: Europe (none / 1)

Simon Nixon: Berlin vs. Rome: A Tale of Two Visions

For weeks, the eyes of the world have been on Spain. Ever since the European Central Bank announced its Outright Market Transactions program, Madrid has kept the markets guessing over whether it will request aid from the euro zone's bailout funds, paving the way for the ECB to start buying its bonds. The market suspects an ill-tempered standoff between a stubborn Spanish government and its euro-zone partners. Anxiety last week spilled over into the market with Spanish bond yields rising sharply and stock markets selling off. But the reality is more complex. At the heart of the Spanish impasse lies a wider political dispute that goes to the heart of the euro crisis--and the main protagonists in this debate are Germany and Italy. How this disagreement is resolved will shape the future of the single currency.
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Indeed, the ECB, led by its Italian president, Mario Draghi, has acknowledged its responsibility to fix the transmission mechanism by agreeing to create the OMT. But Rome believes the program is badly flawed. The problem is the requirement that any country first needs to sign up to a euro-zone rescue program with conditions agreed with input from the International Monetary Fund. What this means is that Europe now has its bazooka, says one senior Italian policy maker, "but the ECB has put it in a safe and handed the key to the Bundestag." By effectively allowing the German parliament a veto over a monetary policy instrument, the euro zone has raised doubts over whether this bazooka will ever be fired. From Italy's perspective, it is essential that Spain asks for aid, if only to prove the bazooka works.
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As far as Rome is concerned, Italy--like Spain--has agreed to all the conditionality necessary to allow the ECB to fulfill its obligations as a central bank. It believes Berlin has a moral obligation not to stand in its way. Spain is now the battleground for two competing visions of how the euro zone should operate. What happens next in the euro crisis depends largely on whether Berlin or Rome blinks first.

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

by Carrie (migeru at eurotrib dot com) on Mon Oct 1st, 2012 at 05:23:07 AM EST
[ Parent ]

Re: Europe (4.00 / 2)

By effectively allowing the German parliament a veto over a monetary policy instrument

So much for central bank independence.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Mon Oct 1st, 2012 at 05:33:31 AM EST
[ Parent ]

Re: Europe (4.00 / 2)

Central bank independence is the last refuge of the scoundrel.

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

by Carrie (migeru at eurotrib dot com) on Mon Oct 1st, 2012 at 06:33:01 AM EST
[ Parent ]

Re: Europe (4.00 / 3)

It's the old two-step or Catch 22.

Germany refuses to allow the ECB to print money. (Not sure how they get away with this, but so far they have.)

Because the ECB can't print money, Europe must beg for money from Germany.

Then, because it's German money, the German constitution is a limiting factor.

Thus - nothing happens.

by Metatone (metatone [a|t] gmail (dot) com) on Mon Oct 1st, 2012 at 06:34:29 AM EST
[ Parent ]

Re: Europe (none / 0)

I don't understand spain though. What are they trying to do? Sidestep the ESM and go directly to the ecb? That won't work. Or waiting for the ESM to avoid complications? Haggling about the conditions?

If the spanish banks need 60 billion and most of it nationalized banks, a avoidance of a formal rescue doesn't really seems possible.

by IM on Mon Oct 1st, 2012 at 06:58:03 AM EST
[ Parent ]

Re: Europe (none / 1)

It seems central bank independence is code, which actually means "you can have whatever monetary policy you feel like, as long as it is Bundesbank policy". A bit like those black Ford Model T's.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Mon Oct 1st, 2012 at 08:59:59 AM EST
[ Parent ]

European Salon de News, Discussion et Klatsch - 1 October | 120 comments (120 topical, 0 editorial, 0 hidden)

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