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Ok, but would a full blown Seuro with a common central bank serve any economic purposes that are not served by fixing the exchange rates and backing that up with a willingness from all central banks to make fondue of speculators?

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by A swedish kind of death on Fri Sep 20th, 2013 at 02:28:15 PM EST
[ Parent ]
Yes! As noted in the second and third paragraphs below the break in the diary:
It would only be worth doing were the Seuro Central Bank (to) be prepared to be a lender of last resort for banks in the union and if sufficient monetary union was accepted by the members to allow for the creation of a Seuro Treasury and development bonds with liability shared by all member states. Full fiscal union would not be required, but it must be accepted that basic monetary policy must be directed according to the needs of all of the members, not just the largest. The effects of an interest rate that is too low for the needs of some members could be (partly) compensated by increased prudential regulation, for instance.

Proceeds from such bonds or money created by the SCB should primarily be used for projects that would both clearly be self liquidating and that would provide employment within the Seuro zone and it would have to be agreed that trade surpluses within the zone would have to be recycled through investment in deficit countries so as to produce balanced trade within the bloc.


Many of these policies could be implemented by a European Investment Bank and financed through Euro bonds were they not blocked by Germany. And then there is this in the next to last paragraph:
Countries in the Seuro could agree to mutual policies that allow for the level of social solidarity that existed prior to the crisis, as they could maintain the value of their currency via the exchange rate mechanism. If all countries within the union agree to certain standards of wages and benefits and agree, if necessary, to protect their economies by both capital controls and tariffs they could, to a considerable degree, opt out of global wage arbitrage. Citizens, I believe, would gladly trade higher prices for some consumer goods for a higher degree of social cohesion and stability. Living wages, renewable energy and full employment instead of 'Always low prices'.

Plus this from my first comment to your response:
And the interests being advanced were obviously those of the elites considering that the first step was removal of controls on capital flows. This should have only followed implementation of effective prudential regulation and establishment of Euro Zone wide bank resolution policies financed by a Euro Zone wide source of funding.

The establishment of an SCB would also have had to include, in addition to a Seuro Treasury and Seuro Bonds, a Financial Stability Regulator with the power to resolve illiquid/insolvent banks with funds generated from within the Seuro zone.

None of these things exist currently in the Euro zone and the attitudes of Germany and the other elites for which Germany fronts seem to be: : Let it bleed!"    


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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 20th, 2013 at 02:54:38 PM EST
[ Parent ]
But could they not as well finance the goodies with their own CBs and treasuries?

I have seen the need for European Investment Bank investments and bank liquidification etc as a result of the current mess with a ECB without a proper sovereign.  A hack to fix the EMU without breaking it up.

If it is a larger matter of needing European regulators because EU rules has defanged national regulators, then those problems are not solved by instituting South European regulators. Unless the idea is that the South European countries should leave not only the EMU but also the EU and form their own union, the SEU.

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

by A swedish kind of death on Fri Sep 20th, 2013 at 03:11:07 PM EST
[ Parent ]
Formally speaking, it is true that a bloc of Spain, Italy and Greece will have no more leeway to regulate than Spain, Italy and Greece individually.

Practically speaking, if a bloc of Spain, Italy and Greece decide to do it anyway, that's a totally different animal from doing it individually.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Sep 20th, 2013 at 03:20:04 PM EST
[ Parent ]
I don't see that there are any insuperable obstacles to Portugal Spain Italy, Greece and Cyprus simply acting under their own sovereign powers to form such a union. I am of the impression that there is not a lot of formal legitimation of the EMU from the EU. All of the real action is between heads of state who, by now, are largely representing the leading financial interests of their countries. Were the above countries to coordinate withdrawal from the EMU and form a Seuro Monetary Union, especially one that included elected representatives from each member to an economic coordination policy board or some such which had mandated approval power over general SMU and SCB policy it would likely have more democratic legitimacy than does the EMU at present - but that is not a high bar.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 20th, 2013 at 03:34:39 PM EST
[ Parent ]
A hack to fix the EMU without breaking it up.

I don't see this happening without an existential threat to the EMU, which the creation of an SMU run on lines I have described would credibly provide.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 20th, 2013 at 03:48:43 PM EST
[ Parent ]
Ok, but would a full blown Seuro with a common central bank serve any economic purposes that are not served by fixing the exchange rates and backing that up with a willingness from all central banks to make fondue of speculators?

Given the premise that the national central banks are committed to defending their currencies against appreciation against any other member of the bloc, then no, there is no value added from having a supernational central bank with a mandate to recycle CA surpluses.

Because the point of a supernational central bank with a mandate to recycle CA surpluses is to make sure that national central banks stick to a policy of defending against appreciation. Even in the face of the temptation to revalue and ride a bubble of fake prosperity.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Sep 20th, 2013 at 03:17:35 PM EST
[ Parent ]
Because the point of a supernational central bank with a mandate to recycle CA surpluses is to make sure that national central banks stick to a policy of defending against appreciation. Even in the face of the temptation to revalue and ride a bubble of fake prosperity.

And following such a policy would powerfully benefit the economic stability and growth prospects of member states, aside from the effects of Seuro bonds. The rump EU, deprived of lucrative southern peripheral targets for its manufacturer's vendor finance schemes, would likely turn on the weakest state remaining in the Euro. This would increase the centrifugal forces inside the Euro zone and promote additional flight out, if not to the Seuro zone.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 20th, 2013 at 03:45:20 PM EST
[ Parent ]

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