Buiter reckons that bank recapitalisation still has a way to go, and that Europe needs to stop kidding itself that senior bondholders can go much longer without a 'short back and sides'.

But the process of bank restructuring can't continue piecemeal as this will lead to the `mother of all contagions' as bondholders dodge countries where they think haircuts are imminent.

H/t Eurointelligence, which has a round-up that's worth looking at.

Germany tops world for shrinking wages - The Local

Worker's pay packets over the past decade have shrunk more in Germany than any other industrialised country, a report released Wednesday has found.

The Global Wage Report by the International Labor Organization - a United Nations agency in which workers, employers and governments are represented - found that gross wages fell 4.5 percent when adjusted for inflation, according to news magazine Der Spiegel.

Low wage growth has been widely credited for the competitiveness that has allowed Europe's biggest economy to recover swiftly from the global downturn.

But the ILO challenged this idea, pointing out that the slump results from the increasing number of part-time jobs in Germany.

No other industrialised country experienced such a backslide, the report said. Of all the industrialised nations, Norway, Cyprus and Finland enjoyed the strongest wage growth, with Norway posting an increase of 25.1 percent.

- Jake

Friends come and go. Enemies accumulate.

The Left Party's spokeswoman said Merkel's position did not reflect the national interest but those of the banks (a position with which we would agree. Merkel is extraordinarily lazy in the definition of what constitutes the national interest.)

i've been at two meetings yesterday where this topic was brought up for discussion. My sense is this position is the discussion frame which underscores the "we don't know what's really going on" (direct quote) confusion among world bankers. Since i am not a world banker, i can't comment, other than to say "wrong, you know exactly what's going on and don't wish to admit it."

In any case it's positive to see the opposition with a strong counter-proposal, though i can't predict where it will lead. Apparent is that amurkan bankers are watching closely.

For sure this issue is where we can first evaluate the newfound Green economic chops. I'm skeptical, but encouraged.

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin

Waning Influence in Brussels: Euro Crisis Leaves Germany Increasingly Isolated - SPIEGEL ONLINE - News - International

German Chancellor Angela Merkel is coming under growing criticism ahead of this week's EU summit. Her preferred approach to fighting the euro crisis has failed to receive support in Europe. She is also at odds with Finance Minister Wolfgang Schäuble, whose loyalty to France has become a subject of ridicule in Berlin. By SPIEGEL Staff

a hit-piece against Schaüble for being too conciliatory towards EU partners and France in particular

After the extraordinary Steinmeier/Steinbrück article in the FT

First, the title itself: Germany must lead fightback. Fightback against whom? The markets?

The time for stumbling through the euro crisis is over. Piecemeal approaches and wait-and-see attitudes are endangering European integration. We now need a more radical, targeted effort to end the current uncertainty, and provide stronger support for the future of Europe's common institutions. This must also protect the European Central Bank from becoming Europe's "bad bank", and ensuring its credibility and independence in guarding a strong euro.

The required solution is a combination of a haircut for debt holders, debt guarantees for stable countries and the limited introduction of European-wide bonds in the medium term, accompanied by more aligned fiscal policies. These measures would only work together; none alone would restore stability.

...

Germany should support this idea, but only on the basis of more aligned policies in other fields. In the 1990s Europe moved forward with economic integration, but left political integration to follow later. Looking back, we can now see this approach has only increased the difficulties we must deal with today. This means that eurobonds will succeed only if complemented by new, far-reaching political reforms. This means empowering European institutions to establish tighter controls over fiscal and economic stability, alongside common minimum standards on wage and welfare policies, as well as capital and corporate taxation. In short: we need European government bonds, but we must put an end to beggar-thy-neighbour policies and harmful tax competition within the eurozone too.

Eurointelligence: The nightmare of a balanced budget (Walter Münchau)

A decision was taken recently in Berlin to introduce a balanced-budget law in the German constitution. It was a hugely important decision. It may not have received due attention outside Germany given the flood of other economic and financial news. From 2016, it will be illegal for the federal government to run a deficit of more than 0.35 per cent of gross domestic product. From 2020, the federal states will not be allowed to run any deficit at all. Unlike Europe's stability and growth pact, which was first circumvented, later softened and then ignored, this unilateral constitutional law will stick. I would expect that for the next 20 or 30 years, deficit reduction will be the first, second and third priority of German economic policy.

I can foresee two outcomes. First, Germany might end up in a procyclical downward spiral of debt reduction and low growth. In that case, the constitutionally prescribed pursuit of a balanced budget would require ever greater budgetary cuts to compensate for a loss of tax revenues.

...

One could also construct a virtuous cycle - the second outcome. If Germany were to return to a pre-crisis level of growth in 2011, and all is well after that, the consolidation phase would then start in a cyclical upturn.

Either of those scenarios, even the positive one, is going to be hugely damaging to the eurozone. In the first case, the German economy would become a structural basket case, and would drag down the rest of Europe for a generation. In the second case, economic and political tensions inside the eurozone are going to become unbearable. Over the past 25 years, France has more or less followed Germany's lead at every turn, but I suspect this may be a turn too far. Deficit reduction has not been, nor will it be, a priority for Nicolas Sarkozy, the French president. On the contrary: he has listened to bad advice from French economists who told him that budget deficits are irrelevant, and that he should focus only on structural reforms. Budget deficits and debt levels matter in a monetary union. But a zero level of debt is neither necessary nor desirable.

European Union premiers and presidents have agreed to a surgical change to the bloc's treaty to enable the creation of a permanent bail-out fund from 2013 but have left the size of the existing fund unchanged.

What is this 2013 thing about? The crisis is now! What good is it to create a facility that can only be tapped 2 years from now? In the meantime,

The European recipe against this crisis is structural reform, deficit reduction and low inflation, with a minimalist crisis resolution framework. They will pursue this strategy for as long as it takes.

The language used was that the new mechanism would be activated "if indispensable to safeguard the stability of the euro area as a whole". That means it is a last-resort measure. The construction of the ESM will now proceed as outlined by Merkel.  There is a veto right by each member. And bondholders will bleed. Just how the European periphery is going to finance itself under such a framework is not clear.

The declaration said the European Council would do whatever necessary to safeguard the stability of the eurozone. But there is no agreement on what that constitutes.

No, this is not The Onion, it's economic newspaper Cinco Días.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

FT.com: Europe cannot default its way back to health by Lorenzo Bini Smaghi

Europeans have not forgotten the devastating effects that the expropriation of wealth, such as that carried out during the two world wars by way of inflation or defaults, may have on the economic and social fabric. There is awareness that, in the end, it may be less costly to tackle excessive public debt with the traditional remedies - that is, achieving an adequate level of primary surplus - rather than looking for quick fixes. There is also awareness that, without restoring economic growth, the debt burden cannot be reduced over time. This requires major structural reforms aimed at improving the functioning of the labour, capital and goods markets.

...

To understand what is happening in Europe, economics textbooks are useful but the history ones even more so.

The writer is a member of the Executive Board of the European Central Bank

Wages too high makes your workers uncompetitive! Lower wages, more sales, more work, more jobs.

At the same time, restrict cream-skimming by the profiteers. That's the haircut.

The wider the income disparity, the less competitive.

Simple, if you ignore greedsters.

Align culture with our nature. Ot else!