Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

A Two Monetary Union Solution to Problems in the EMU

by ARGeezer Wed Sep 25th, 2013 at 01:30:20 AM EST

There is great suffering in the peripheral countries of the Euro zone and the existing 'austerity' policies are gratuitously inflicting economic damage and destroying lives, especially in Greece and Cyprus, but also in Portugal, Spain and Ireland. At present, Germany has no motive to change anything and is the chief beneficiary of the existing crisis. This seems likely to continue so long as German workers accept their reduced circumstances and blame them on 'lazy southerners'. Germany is adamant about maintaining a hard money Euro and keeping all debts segregated by nationality while refusing to approve any surplus recycling mechanism within the Eurozone. These positions seem unlikely to change any time soon. Splitting the EMU into two monetary unions could provide a path to a resolution.

I believe that the monetary policy of any monetary union of which Germany is a part will have to be similar to the present situation - unless and until it massively fails. It has been noted many times on ET that a consequences of Germany leaving the EU would be that sales of their products would immediately plunge due to the strength of the new Deutsche Mark. I believe that the same thing would happen to the products of a new Neuro Monetary Union consisting of Germany, Netherlands, Finland and whoever else wanted to be a member.

Meanwhile, with a Seuro, even without France, led by Italy and Spain and joined by Greece, Portugal, Malta, Cyprus and, hopefully, Ireland, there would be a group of countries who need an expansionary monetary policy. It would only be worth doing were the Seuro Central Bank 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 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. I believe that such a union would soon prove overwhelmingly attractive to many other current members of the EMU, probably starting with Belgium and France. Options that would be available for the treatment of legacy debt issues held by entities outside the Seruo zone would provide further negotiating power for the Seuro zone Treasury and SCB.

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'.

The problem will be getting such a proposal adequately presented to the target populations and electing governments that would be prepared to follow the policies that would be necessary in order for such a monetary union to come into existence. Such a proposal will naturally be opposed by global financial interests as it would seriously limit the possibilities for looting in the Seruo zone.  

Display:
A Two Monetary Union Solution to Problems in the EMU | 81 comments (81 topical, 0 editorial, 0 hidden)
Re: A Two Monetary Union Solution for the EMU. (none / 0)
In the end Germany likely would be compelled to join the Seuro Monetary Union on terms acceptable to existing Seuro members.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Sep 19th, 2013 at 10:01:04 PM EST
Re: A Two Monetary Union (4.00 / 8)
I don't see a road to a Seuro, and I see no reason for it. But I am glad you wrote this up, because I think it highlights how our views diverge on the topic.

European Tribune - A Two Monetary Union Solution to Problems in the EMU

I believe that the monetary policy of any monetary union of which Germany is a part will have to be similar to the present situation - unless and until it massively fails.

I don't think Germany is the problem, just the main symptom. Yes, Germany runs an unsustainable strategy for current account surpluses and fixed exchange rate. But absent cooperation from ECB and political leaders all across Europe they would have been forced to recycle their surpluses or see their claims written of.

The main problem is instead that all of the elite politcal class and the ECB are acting in collusion (based on belief or interest) to apply Shock Doctrine to the European economies, starting from the periphery.

Now say that Syriza wins the next Greek election and manages to pull together a majority in parliament to roll back austerity and replace it with prosperity. Then either the ECB backs down or it forces Greece to leave the euro. If it backs down Greece has no reason to propose a Seuro. But perhaps more importantly if Greece is forced out it has no reason to enter into a new monetary union with other rejects.

Say that several countries are forced out after electing governments that would support living wages, renewable energy and full employment. None of those needs a monetary union. With a Seuro, two arguments in favor of the euro would be gone, a Seuro grants neither European unity nor sooths insecure emotions by being a symbol of being accepted into Europe proper. There would be a simple reason against, the failures of EMU showing the risks and no arguments in favor.

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

by A swedish kind of death on Fri Sep 20th, 2013 at 06:03:30 AM EST
Re: A Two Monetary Union (none / 1)
A swedish kind of death:
living wages, renewable energy and full employment. None of those needs a monetary union.

ding ding... nutshelled to perfection.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Sep 20th, 2013 at 06:42:00 AM EST
[ Parent ]
Re: A Two Monetary Union (4.00 / 3)
I don't think Germany is the problem, just the main symptom. Yes, Germany runs an unsustainable strategy for current account surpluses and fixed exchange rate. But absent cooperation from ECB and political leaders all across Europe they would have been forced to recycle their surpluses or see their claims written of.

The main problem is instead that all of the elite politcal class and the ECB are acting in collusion (based on belief or interest) to apply Shock Doctrine to the European economies, starting from the periphery.


I agree that 'all of the elite political class and the  ECB are acting in collusion' and this is obvious NOW. It was a different world in 1990 when the process began. But Germany is the chief national beneficiary of the status quo and the lead defender. So long as it plays this role it remains difficult to expose the role that elites in all countries are playing in this process and impossible to counter that policy.

The 'cooperation from the ECB' was baked into the cake when the EMU was established as a part of the price for Germany entering. 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.

A significant incentive to German elites for joining was that debtors in other countries could no longer devalue their debts. The consequences of these factors were much cleared to interested party elites than to most citizens. 'Most citizens' were convinced that the EMU would IMPROVE their condition, which was one of enjoying the benefits of social welfare policies, not DEGRADE their condition by stripping away those benefits to the enrichment of the elites.

 Had those citizens believed that such changes as have come about since would indeed happen I cannot believe they would have favored joining. I would argue that there was no true 'meeting of the minds' on the part of citizens of future EMU nations. The citizens were duped.

Say that several countries are forced out after electing governments that would support living wages, renewable energy and full employment. None of those needs a monetary union. With a Seuro, two arguments in favor of the euro would be gone, a Seuro grants neither European unity nor sooths insecure emotions by being a symbol of being accepted into Europe proper. There would be a simple reason against, the failures of EMU showing the risks and no arguments in favor.

Governments that could support living wages, renewable energy and full employment might concievably be elected, but if these countries are not of significant economic and political weight they are much less likely to be able to sustain these policies in the face of predictable sabotage by those remaining in the EMU. That is one major benefit of a Seuro union.

Also a Seuro union, especially were it to include Italy, would give greater weight and power to insure reasonable treatment by the EMU due to its new found ability to renegotiate or default on debt held by EMU entities. They could, for instance, declare that the gratuitous damage done by Troika policies be deducted from the debt owed. And the ability of an SCB to employ creation of endogenous money for self liquidating investments could quickly turn around the economies of peripheral countries, providing a clear example of practical alternatives to austerity while shooting TINA in the head.

But the biggest benefit that the creation of a Seuro Union would have would be to break the control that conservative interests currently have over policy. As for soothing 'insecure emotions by being a symbol of being accepted into Europe proper' I would say that this is best accomplished by said citizens learning to stand up for their own self interest rather than being addicted to meaningless lies and delusions. Being 'accepted into Europe proper' may be the post modern version of Marx's 'opiate of the people'.      

"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 11:55:32 AM EST
[ Parent ]
Re: A Two Monetary Union (none / 1)
ARGeezer:
Governments that could support living wages, renewable energy and full employment might concievably be elected, but if these countries are not of significant economic and political weight they are much less likely to be able to sustain these policies in the face of predictable sabotage by those remaining in the EMU. That is one major benefit of a Seuro union.

But they don't need a Seuro union to cooperate. If a couple of peripheral countries got their act together they could easily gum up the works in the EU.

Thinking about it, if they are in practise removed from the euro zone - but through ECBs grabbed power rather then any legal procedure - then I think they would retain their seats at the ECB Governing Council. And they would in any case have their seats in the Council of the European Union, which appoints - by a qualified majority - the executive board of the ECB.

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

by A swedish kind of death on Fri Sep 20th, 2013 at 03:00:09 PM EST
[ Parent ]
Re: A Two Monetary Union (4.00 / 3)
Say that several countries are forced out after electing governments that would support living wages, renewable energy and full employment. None of those needs a monetary union.
But much of it would benefit from a properly constructed monetary union. Exchange rate unions do hold benefits for small economies, because they reduce the fluctuations in the cost of importing strategic necessaries. It's just that most historical exchange rate unions have been designed by people who need to be fitted for helmets.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Sep 20th, 2013 at 12:44:40 PM EST
[ Parent ]
Re: A Two Monetary Union (none / 1)
But much of it would benefit from a properly constructed monetary union.

My point exactly! Members of a Seuro MU would go from being the victims of Euro zone policies to being the beneficiaries of Seruo zone policies. And this would have the beneficial effect of showing all that better alternatives are a practical possibility - but that would have to be discerned through the smoke screen that existing Euro zone incumbents would be generating.

"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 01:58:59 PM EST
[ Parent ]
Re: A Two Monetary Union (none / 1)
In this case with membership of Cyprus in a Seuro zone the possibilities of gas production off the southern shore of Cyprus could get interesting, especially were Greece and Cyprus to be able to resolve disputes with Turkey. At least there would be an incentive to do so.

"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 02:07:07 PM EST
[ Parent ]
Re: A Two Monetary Union (none / 0)
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?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Fri Sep 20th, 2013 at 02:28:15 PM EST
[ Parent ]
Re: A Two Monetary Union (none / 1)
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 ]
Re: A Two Monetary Union (none / 1)
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 ]
Re: A Two Monetary Union (4.00 / 2)
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 ]
Re: A Two Monetary Union (none / 0)
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 ]
Re: A Two Monetary Union (none / 0)
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 ]
Re: A Two Monetary Union (none / 1)
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 ]
Re: A Two Monetary Union (none / 0)
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 ]
Bearing in mind that the core ... (4.00 / 2)
... reason for the currency union is to eliminate foreign exchange rate uncertainty from cross-EU production chains, a SEuro would require production chains primarily passing between SEuro countries.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Fri Sep 20th, 2013 at 01:14:41 PM EST
[ Parent ]
Re: Bearing in mind that the core ... (none / 0)
The initial reason for creating the Seuro would be to protect its citizens from the ill effects of the Euro. I think a lot of Greeks and Portuguese would understand that reasoning. Being part of a single union that entails being raped daily somehow does not seem attractive to me. The initial countries would be those for whom the current Euro policies are the least optimal. IMO they would benefit merely from being in a union that had policies far closer to their individual needs. Production chains could follow. Meanwhile existing, beneficial (to Seuro zone members) production chains could be given special treatment.  

"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 01:54:19 PM EST
[ Parent ]
Re: Bearing in mind that the core ... (none / 1)
But what is the benefit of the SEuro over having their own currency?

Their core problem is the relegation of their national governments to subsovereign status while retaining responsibility for stabilizing fiscal policy. Going back to a sovereign national currency directly fixes that problem. So why does establishing a SEuro fix it better?

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Sep 20th, 2013 at 07:52:59 PM EST
[ Parent ]
Re: Bearing in mind that the core ... (none / 1)
So why does establishing a SEuro fix it better?

By providing greater size and weight and thus more resilience to the pressures originating from the other monetary union and by being able to demonstrate the benefits of a Monetary Union run on lines designed to raise all member economies while providing some of those benefits to its members. If a group of nations are being pillaged and smothered by the strongest members of their present monetary union and are then likely to be ejected they would be better off to join together and preempt such ejection by leaving together. And, in the beginning, they are likely to very closely resemble an optimal currency area in the new union. But these benefits depend strongly on the new union being run and continuing to be run on the basis of the principles outlined above.      

"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 08:20:03 PM EST
[ Parent ]
But that has to be weighed against the ... (4.00 / 2)
... risk that the demonstration will fail ~ after all, the demonstration is needed because it hasn't yet been done successfully.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Sat Sep 21st, 2013 at 03:08:57 PM EST
[ Parent ]
Re: But that has to be weighed against the ... (none / 0)
South America might turn out to provide a test. Many countries there are trying to protect themselves from the depredations of Dollarworld. Or, if the Euro continues on its present course an opportunity to try a union based on better foundations and principles may emerge. But, of course, the biggest danger any society or group of societies face with their monetary system is having control of it hijacked by financial elites and the use of it perverted from the development of the society or societies to the enrichment of the few. That, effectively is what has happened in the USA, the UK and in the Eurozone.  

The Latin Monetary Union lasted for more than 50 years despite having a bi-metalic standard for the first 13 years and having the problem of some countries issuing bank notes based on union standard coins. World War I effectively ended the union but there were reasons it endured so long as it did. Having standards of weight and purity of coins amongst numerous countries was seen as facilitating trade, at a minimum.

The USA at its founding was a collection of sovereign states somewhat comparable in size and economic diversity to the states of the Latin Monetary Union but it became a de facto monetary union with the adoption of the US Constitution and had two national banks over different periods until 1836. I suppose we could have continued with just the National Bank system established during the Civil War, augmented by private clearinghouses, but the creation of the Federal Reserve System on the eve of WWI greatly aided the US in financing that war. Despite the actions of the Fed from 1928 until the appointment of Marriner Eccles, I shudder to think of managing such recovery as we had during the Great Depression under the old National Bank system, let alone trying to finance WWII without the Fed.

Under current policies in the EMU I don't see the peripheral countries enjoying ANY net benefits from the union and it seems that more and more members will fall into the status of Ireland, Greece and Portugal. But I don't see any of them as having sufficient weight to thrive alone, though I may be wrong. Hence my proposal. I just wish I could see even as good a potential solution to the problems the USA faces.    

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Sep 21st, 2013 at 10:17:22 PM EST
[ Parent ]
You have two different examples there ... (none / 1)
... neither of them encouraging to the SEuro organized around a group with no fiscal authority. The Latin American example is advancing a monetary union in support of governments pursuing the interests of a wealthy few and a misery for the majority, and of course the US Federal government was a federation with fiscal authority, even if only light used, after a confederation more along EU lines had previously failed.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Sat Sep 21st, 2013 at 11:07:29 PM EST
[ Parent ]
Re: You have two different examples there ... (none / 0)
I wasn't proposing a Seuro organized around a group with no fiscal authority. I was proposing a Seuro organized with a fiscal authority consisting of an SCB, a treasury and an elected board of governors to oversee policy for both, including the issue of bonds of joint liability and the uses to which the funds so generated would be used. I am not really familiar with the details of Mercousur, though the 'free movement of capital' is worrying. I was expressing a hope with regard to the possible future development of a monetary union in South America, but would be concerned about one that is set off on the wrong path already. Dilma Rousseff had an interesting background and is encountering push back from the population with regard to elite excesses surrounding the Olympics and World Cup. There are at least some hopeful possibilities there.

As I have noted I think my proposed plan could work, IF PROPERLY IMPLEMENTED, but proper implementation is rather improbable, especially as such a large portion of the population has no idea of what is required for a system to work in their favor and most seem inclined to trust the thieves currently looting them while thinking 'they would never do something like that.'

As the song said:

Here I stand, ticket in my hand,
waiting on the train to the promised land.
Waiting for EVERYMAN.

A better system is possible, but perhaps not with the people we have.  Yet.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Sep 22nd, 2013 at 12:35:57 AM EST
[ Parent ]
Re: A different question: (none / 0)
Do you see a substantial likelihood that the existing EMU will, on its own or through EU institutions, evolve into a union that will promote the interests of all members to a reasonable degree? Is that more probable than developing a separate union along lines I have proposed?  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Sep 22nd, 2013 at 12:45:25 AM EST
[ Parent ]
Re: A different question: (4.00 / 2)
Not very much, but more so than the SEuro. In either case, it requires closing the democracy deficit. For the EU as a whole there is the European Parliament, but an egregious degree of indirect representation with all of its anti-democratic tendencies. For the SEuro, it wouldn't even have that much direct representation.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue Sep 24th, 2013 at 02:09:37 PM EST
[ Parent ]
Re: A different question: (none / 1)
For the SEuro, it wouldn't even have that much direct representation.

That is why I proposed an elected board of economic governors to set economic policy for the overall Seuro zone and the SCB. That would include interest rates, prudential regulation, Seuro bond issuance, purpose and oversight and recommendations for uniform legislation to be adopted in each member state. They would be selected by popular vote in each country. Perhaps the head of an executive could be elected by popular vote amongst all zone members. Such a structure could, if found beneficial by the member populations, move quickly towards greater political unity.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 24th, 2013 at 02:28:53 PM EST
[ Parent ]
Question (4.00 / 4)
In the current climate of Reality Challenged Political-Economics wouldn't the Seuro merely change the strain of parasite?  I personally don't see much difference between plutocratae northerni and plutocratae southerni.

But I'm always willing to be educated.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Fri Sep 20th, 2013 at 02:22:43 PM EST
Re: Question (4.00 / 2)
I don't find the above scenario highly probable, but it does have the advantage of providing a conceptual alternative which could serve as the condensation nucleus for a way out of the current impasse in which the EMU is mired.

"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 03:50:40 PM EST
[ Parent ]
Re: Question (none / 1)
And high on the list of generators of improbability is the necessary assumption that the Seuro union would NOT have a predator/prey relationship with its member states on behalf of a small group of elites. But, against the odds though it may be, should such an entity come into existence, it could have a profoundly beneficial effect for its members and even for those initially outside its membership.

"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 04:46:03 PM EST
[ Parent ]
Small currency areas no longer possible? (none / 1)
An interesting thought experiment, and perhaps even a good negotiating ploy challenging the Euro to reform its structures or face a credible threat of a Seuro unless there is significant reform of the Euro.

From an Irish point of view, the Seuro would probably not be seen as attractive. The main attractions of the Euro were:

  1. Access to core Euro markets making it very attractive for mainly US multinationals to locate here without exchange risk.

  2. Much lower inflation and interest rates a la Deutschmark

  3. Much greater exchange rate stability and reduced exchange risks generally. (Remember, it is possible for a medium sized shadow bank, hedge fund or venture capitalist to totally game a small currency like the punt - and almost impossible for an Irish central bank to counter such relatively large scale manipulation).

  4. Greater integration with "strong" economies like Germany and reduced dependency on the UK.

  5. A mistrust of the ability of the Irish Government to manage an Irish currency independently and in the interests of the Irish people as opposed to influential financial sector interests. Rightly or wrongly, people were more inclined to trust Germany not to debase their currency.

Ireland has very little trade with (say) Greece. Whatever optimal currency area advantages that might apply with Germany would apply much less with Greece. A more likely scenario in the event of a Euro collapse would be for Ireland to seek some kind of semi-formal link to Sterling or the dollar. I'm not sure small independent currencies are possible any more for small open economies many times smaller than the big financial corporations.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Sep 23rd, 2013 at 05:24:16 PM EST
Re: Small currency areas no longer possible? (4.00 / 2)
I felt the same about Ireland, which is why I did not emphasize Ireland as a member of the Seuro. They would, IMO, sooner join the UK pound sterling.
Remember, it is possible for a medium sized shadow bank, hedge fund or venture capitalist to totally game a small currency like the punt - and almost impossible for an Irish central bank to counter such relatively large scale manipulation.

This expresses clearly and concisely what I repeatedly referred to as a need for economic greater weight for any country that might need to leave the Euro. A small country would be like chum thrown into a pool full of sharks. Were the Seuro zone to include Italy or Spain the threat to the Euro would be explicit due to the amount of Euro denominated debt either country holds. In either case that debt is of an amount that the debt becomes not the country or the Seuro's problem but the EU's problem. The ideal goal would be to end up with one monetary union run on acceptable principles.

To me this seems preferable to continuing to have displayed the studied obtuseness and denial of responsibility coupled with the economic impossibility of the proposed solutions which Merkel, the German banking establishment  and the ECB offer to and display towards the suffering of the peripheral countries occasioned by the actions of core country banks acting without restraint in peripheral countries. Confronting those worthies with the fact of a Seuro would be like Alexis Tsipras walking up to her and hitting her between the eyes with a 2x4 -- most satisfying. But I guess most just prefer the status quo.    

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 23rd, 2013 at 09:21:54 PM EST
[ Parent ]
Re: Small currency areas no longer possible? (4.00 / 2)
While a central bank has limited options for countering downwards pressure it can always counter upwards pressure (as demonstrated by Switzerland). What currency speculators can mainly do - and profit by - is break links.

Frank Schnittger:

Remember, it is possible for a medium sized shadow bank, hedge fund or venture capitalist to totally game a small currency like the punt - and almost impossible for an Irish central bank to counter such relatively large scale manipulation

I guess I am a bit at loss here. Yes, they can decrease a currency's exchange rate. But is this something that happens? Are there any examples of how they profit from this?

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

by A swedish kind of death on Tue Sep 24th, 2013 at 04:05:12 AM EST
[ Parent ]
Hong Kong, 1999 (none / 1)
Of course the gaming gets a lot easier if you're trying to maintain an exchange rate peg...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Sep 24th, 2013 at 05:05:39 AM EST
[ Parent ]
Re: Hong Kong, 1999 (none / 1)
But then you're shooting yourself in the foot...

In the Neurozone, there can be only one.
by Carrie (migeru at eurotrib dot com) on Tue Sep 24th, 2013 at 05:10:06 AM EST
[ Parent ]
Re: Hong Kong, 1999 (4.00 / 2)
Depends on who "you" are. If "you" are the national interest, then that is perfectly true. If, however, "you" are the interests who favor making the world safe for international banking, then "you" are shooting someone else in the foot.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Sep 24th, 2013 at 05:14:03 AM EST
[ Parent ]
Re: Hong Kong, 1999 (4.00 / 2)
Currency pegs are only to the benefit of the local comprador class.

In the Neurozone, there can be only one.
by Carrie (migeru at eurotrib dot com) on Tue Sep 24th, 2013 at 04:09:21 PM EST
[ Parent ]
Re: Small currency areas no longer possible? (4.00 / 2)
Remember, it is possible for a medium sized shadow bank, hedge fund or venture capitalist to totally game a small currency like the punt - and almost impossible for an Irish central bank to counter such relatively large scale manipulation.
Remember, it is always possible for a sovereign central bank to accumulate enough foreign reserves (by "printing money") to cover its domestic economy's gross foreign currency liabilities, ensuring financial stability. Can you describe what you mean by "totally game the currency" and why it would matter?

In the Neurozone, there can be only one.
by Carrie (migeru at eurotrib dot com) on Tue Sep 24th, 2013 at 04:44:43 AM EST
[ Parent ]
Re: Small currency areas no longer possible? (4.00 / 2)
In the 1980's the punt had lost a lot of value relative to Sterling based not on trade or competitiveness issues, but because the rating's agencies etc. decided that a small currency always constitutes a greater risk of volatility and were generally dismissive of such a small economy/currency.

From a consumer point of view my newly acquired mortgage was at 14% interest and inflation was similarly high. Industrial relations was bedeviled by disputes because everyone was trying to catch up/leapfrog over everybody else. Companies didn't like a high inflation environment because it played havoc with budgets.

There was quite significant exchange costs associated with all foreign transactions - especially for consumers. People lose track of what is a reasonable price when "everything keeps going up so fast" and become hyperanxious about prices. Overall the economy was paying a price for uncertainty, volatility, and exchange margins.

I'm not saying that the Government/Central bank couldn't have managed all of this a lot better, but the fact is they didn't. The value of the punt was probably too low for much of this period, but there seemed to be little the CB c/would do about it. It became part of the folk memory- a bit like German hyperinflation, and so the Euro was welcomed with open arms.

The Euro associated low interest rates where a large part of the reason for the emergence of the celtic tiger. The problem was that when the time came when we need much higher interest rates to curb the emerging  the ECB did nothing because it was far more concerned with German recession post re-unification. It was this failure to act in the interests of the broader eurozone and the almost complete lack of bank regulation either in Ireland or in Europe which led to the subsequent crash.

So we've seen both the good and the bad sides of the currency union to date. I don't think the majority want to ditch the Euro at this stage, but we need an interest rate regime more suited to the entire zone and much better bank regulation and resolution mechanisms which, in an integrated financial market, can only be done properly at a Eurozone level. Hence the current frustration with Germany wanting to have it's cake and eat it - to have the Eurozone run in it's own interest and then do nothing when the inevitable fall-out happens in peripheral zones.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Sep 24th, 2013 at 07:24:24 AM EST
[ Parent ]
Re: Small currency areas no longer possible? (none / 1)
In the 1980's the punt had lost a lot of value relative to Sterling based not on trade or competitiveness issues, but because the rating's agencies etc. decided that a small currency always constitutes a greater risk of volatility and were generally dismissive of such a small economy/currency.
And that had no impact on trade or competitiveness between Ireland and the UK?

In the Neurozone, there can be only one.
by Carrie (migeru at eurotrib dot com) on Tue Sep 24th, 2013 at 09:21:36 AM EST
[ Parent ]
Re: Small currency areas no longer possible? (none / 0)
It is remarkable the degree to which Ireland's trade surpluses both now and then had little relevance to exchange rates then or GDP growth now


Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Sep 24th, 2013 at 12:09:28 PM EST
[ Parent ]
Re: Small currency areas no longer possible? (none / 0)
But Ireland was running a current account surplus back then?

In the Neurozone, there can be only one.
by Carrie (migeru at eurotrib dot com) on Tue Sep 24th, 2013 at 03:25:05 PM EST
[ Parent ]
Re: Small currency areas no longer possible? (4.00 / 3)
In the 1980's the punt had lost a lot of value relative to Sterling based not on trade or competitiveness issues, but because the rating's agencies etc. decided that a small currency always constitutes a greater risk of volatility and were generally dismissive of such a small economy/currency.

Yes, in a floating currency regime the currency of the weaker and less powerful country will generally trade at a discount.

Yes, this is unfortunate for the weaker and less powerful country, and represents a tribute payment to the more powerful.

No, you do not avoid paying this tribute by attempting to maintain a hard currency peg. You just force the more powerful countries to break your peg and loot your strategic hard currency reserves to collect it. That leaves you still paying the tribute, but with greater collateral damage.

From a consumer point of view my newly acquired mortgage was at 14% interest and inflation was similarly high.

This is a domestic political matter that has only tenuous connection to the exchange rate regime.

Yes, you can use a currency peg (and accompanying threat of chaos if it is abandoned) to cut through the internal political discussions of your domestic democracy. The cost of that is that you cut through the internal political discussions of your domestic democracy.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Sep 24th, 2013 at 09:21:45 AM EST
[ Parent ]
Re: Small currency areas no longer possible? (4.00 / 2)
The value of the punt was probably too low for much of this period, but there seemed to be little the CB c/would do about it.
One should not defent one's currency upwards. That way lies a currency crisis.
I don't think the majority want to ditch the Euro at this stage, but we need an interest rate regime more suited to the entire zone and much better bank regulation and resolution mechanisms which, in an integrated financial market, can only be done properly at a Eurozone level.
We need a fiscal union, otherwise the Eurozone will be a machine to generate unemployment.

In the Neurozone, there can be only one.
by Carrie (migeru at eurotrib dot com) on Tue Sep 24th, 2013 at 09:33:19 AM EST
[ Parent ]
Re: Small currency areas no longer possible? (none / 1)
We need a fiscal union, otherwise the Eurozone will be a machine to generate unemployment.

And just what is your confidence level that, given the givens in EU and EMU politics and popular received opinion today, that such a union formed this year would be anything other than a mechanism for further looting of everyone in the EMU other than the dominant fiancial elites?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 24th, 2013 at 10:50:57 AM EST
[ Parent ]
Re: Small currency areas no longer possible? (none / 1)
Lower than 5%.

In the Neurozone, there can be only one.
by Carrie (migeru at eurotrib dot com) on Tue Sep 24th, 2013 at 04:08:14 PM EST
[ Parent ]
Re: Small currency areas no longer possible? (none / 0)
I would say 'vanishing'. Which is why I think it essential to introduce something that disrupts the status quo. It would have been better to have had a major disruptor two or three years ago, before public opinion had shifted so far right.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 24th, 2013 at 07:25:20 PM EST
[ Parent ]
Re: Small currency areas no longer possible? (none / 1)
Eurozone survival is a tail event, a black swan...

In the Neurozone, there can be only one.
by Carrie (migeru at eurotrib dot com) on Tue Sep 24th, 2013 at 07:50:56 PM EST
[ Parent ]
Re: Small currency areas no longer possible? (none / 0)
On the current course -- agreed! Likely the next major financial disruption, if it is not due to the collapse of the Eurozone, will trigger the collapse of the Eurozone. We have had five years to fix the problems that cause the 2008 collapse but have only temporized. The problem is that the only real solution is to write down the bad debt. But that debt represents a lot of the wealth of the 161 individual to whom Bill Mitchell referred here.

My worst nightmare is that such a collapse will come and go and that 161 will only continue to consolidate their wealth and power.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 24th, 2013 at 11:47:36 PM EST
[ Parent ]
Re: Small currency areas no longer possible? (none / 0)
The Euro is of great interest to the power elites, thus I would raise its chance of survival by quite a lot...

Globalization (always) entails concentration of power. They dismissal of the Euro would be a big set back in that direction. Count thus on massive opposition from the people that count.

And, by the way, if the Euro falls that might be an extra disaster: If the interest of the power elites on each country becomes misaligned on a global scale then the usual strategies will be pursued (see e.g. Europe in the 30s/40s of the previous century).

While I see the Euro as mostly a power grab from the powerful, I do not know if I want to live through the era of its dismissal.

In the long run, the end of the Eurozone is of course a good thing. Of course, in the long run we are all dead.

by cagatacos on Wed Sep 25th, 2013 at 04:39:23 PM EST
[ Parent ]
Re: Small currency areas no longer possible? (none / 0)
A fiscal union requires a political union, because otherwise nationalist demagogues will always have an easy target such as "lazy Greeks" to exploit for local political advantage. Do you want your hard earned cash to be used to support inferior/lazy/inefficient/spoiled [insert country of choice du jour here] people

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Sep 24th, 2013 at 12:14:49 PM EST
[ Parent ]
Re: Small currency areas no longer possible? (none / 1)
A monetary union requires a political union, because money is a token of power.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Sep 24th, 2013 at 12:55:37 PM EST
[ Parent ]
Re: Small currency areas no longer possible? (none / 1)
A fiscal union requires a political union, because otherwise nationalist demagogues will always have an easy target such as "lazy Greeks" to exploit for local political advantage.


In the Neurozone, there can be only one.
by Carrie (migeru at eurotrib dot com) on Tue Sep 24th, 2013 at 04:06:45 PM EST
[ Parent ]
Re: Small currency areas no longer possible? (none / 0)
I think you are missing the point. "Lazy Greeks" and any other potential targets for nationalist demagogues don't have a vote in the Bundestag, but they do have a vote within the EP. If the centre of power were to incrementally move from the Bundestag to the EP as part of the development of a political union, it gives such potential outsiders a voice and a vote where it matters increasingly more.

It won't stop nationalist demagoguery, but it can help to contain it, and make it less productive especially if potential outsider groups align more within the EP and develop common positions. It is very difficult to sell fiscal transfers from Germans to Greeks in the Bundestag: Less so in a more empowered EP especially if it is part of a deal where German interests also get part of what they want.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Sep 25th, 2013 at 05:08:17 AM EST
[ Parent ]
Re: Small currency areas no longer possible? (none / 0)
We're not on a path where any of that can happen.

In the Neurozone, there can be only one.
by Carrie (migeru at eurotrib dot com) on Wed Sep 25th, 2013 at 05:09:23 AM EST
[ Parent ]
Re: Small currency areas no longer possible? (none / 1)
Access to core Euro markets making it very attractive for mainly US multinationals to locate here without exchange risk.

Exchange rate risk is generally overrated.

Much lower inflation and interest rates a la Deutschmark

The latter is a decision the CB can make on its own, the former is not a good thing.

Much greater exchange rate stability and reduced exchange risks generally. (Remember, it is possible for a medium sized shadow bank, hedge fund or venture capitalist to totally game a small currency like the punt - and almost impossible for an Irish central bank to counter such relatively large scale manipulation).

This is a governance problem. You can always protect yourself against unwanted appreciation, and you can always protect yourself against unmerited depreciation. Because depreciation just for the sake of it requires somebody to naked short your currency, and the CB has final authority over who gets to naked short your currency. All it takes is the political will to screw over the hedge fundies.

And if the depreciation is merited by the state of the foreign account, then you don't want to defend against it in the first place.

Greater integration with "strong" economies like Germany and reduced dependency on the UK.

Would have been a real benefit, if Germany hadn't bought a one-way ticket to the crazy-train.

A mistrust of the ability of the Irish Government to manage an Irish currency independently and in the interests of the Irish people as opposed to influential financial sector interests. Rightly or wrongly, people were more inclined to trust Germany not to debase their currency.

Because obviously inflation is Ireland's big problem...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Sep 24th, 2013 at 04:55:06 AM EST
[ Parent ]
Re: Small currency areas no longer possible? (none / 0)
See my response to Mig above

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Sep 24th, 2013 at 07:28:04 AM EST
[ Parent ]
Re: Small currency areas no longer possible? (none / 0)
Exchange rate risk is generally overrated.

Yes, and nowadays there are such things as futures contracts to hedge these kind of things.

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

by Starvid on Fri Sep 27th, 2013 at 06:32:04 PM EST
[ Parent ]
Depends quite a bit on your time scale (n/t) (none / 0)


Friends come and go. Enemies accumulate.
by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Sep 28th, 2013 at 01:09:04 AM EST
[ Parent ]
The Dominos of EMUs collapse (4.00 / 3)
I have realised that one objection of mine is that I don't think it will fit the collapse of the EMU, but at the same time I am quite uncertain of how that crash will unfold.

So trying for a scenario that might include a Seuro.

Step 1: Syriza wins in Greece, refuses austerity, ECB refuses Greek debt as collateral crashing the Greek banks. Greece has to print to re-capitalise and either prints new dracham or prints euro and is kicked out of the third step of the EMU (common coins).

Greece stays in the EU and becomes a thorn in the side in the Council proceedings and ECB Governing Council meetings. In the Council the following areas still demand unamity according to wikipedia:

Voting in the Council of the European Union - Wikipedia, the free encyclopedia

Certain policy fields remain subject to unanimity in whole or in part, such as:

  • membership of the Union (opening of accession negotiations, association, serious violations of the Union's values, etc.);
  • taxation;
  • the finances of the Union (own resources, the multiannual financial framework);
  • harmonisation in the field of social security and social protection;
  • certain provisions in the field of justice and home affairs (the European prosecutor, family law, operational police cooperation, etc.);
  • the flexibility clause (352 TFEU) allowing the Union to act to achieve one of its objectives in the absence of a specific legal basis in the treaties;
  • the common foreign and security policy, with the exception of certain clearly defined cases;
  • the common security and defence policy, with the exception of the establishment of permanent structured cooperation;
  • citizenship (the granting of new rights to European citizens, anti-discrimination measures);
  • certain institutional issues (the electoral system and composition of the Parliament, certain appointments, the composition of the Committee of the Regions and the European Economic and Social Committee, the seats of the institutions, the language regime, the revision of the treaties, including the bridging clauses, etc.).

Step 2: Spain and Italy follows the same way.

Now the rejects has 68 votes on the Council, needing just 25 more to stop any proposal. And given that expansion of the EU was sometimes hold up because some countries wanted to revisit fishing quotas discussions, using a blocking minority in one area to get leverage on another is established pracise.

Given this I wonder what ability the remaining EMU members has to punish the rejected ones? And also if the EU would still have enough policy cohesion to keep implementing austerity in new account deficit countries. Or really any ideas of how these dominos would fall once the first country leaves/is thrown out.

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

by A swedish kind of death on Tue Sep 24th, 2013 at 03:07:21 PM EST
Re: The Dominos of EMUs collapse (4.00 / 2)
Now the rejects has 68 votes on the Council, needing just 25 more to stop any proposal.
You cannot have Greece, Spain and Italy out of the Euro and Portugal in. And you need to count Cyprus too.

That means the Mediterranean block has:

  • 5 member states
  • 23.95% votes
  • 25.5% population

Blocking minorities are:

  • 15 or 10 states
  • 26% votes
  • 38% population

It is really close on votes.

In the Neurozone, there can be only one.
by Carrie (migeru at eurotrib dot com) on Tue Sep 24th, 2013 at 03:34:29 PM EST
[ Parent ]
Re: The Dominos of EMUs collapse (4.00 / 2)
Migeru:
You cannot have Greece, Spain and Italy out of the Euro and Portugal in. And you need to count Cyprus too.

I went by countries with political movements anti austerity, but yes that sounds reasonable.

And it would give Bulgaria and all other countries that are larger then that a free veto when the Mediterranean block is opposed.

Courtesy of the German government there is a Majority Calculator. Playing around, the only real effect of the population limit is if Germany and France and one more of UK, Italy and Spain are opposed to something. Otherwise I can't find any combination where it matters. So that one can be ignored unless Germany and France consists the nucleus of the blocking minority.

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

by A swedish kind of death on Tue Sep 24th, 2013 at 03:54:32 PM EST
[ Parent ]
France and the blocking minority (4.00 / 2)
Eurointelligence - Professional: Germany, the day after (September 24, 2013)
Angela Merkel is expected to dominate European politics. "Chief of Europe" reads the title on the front page of Le Monde.  The French government lost any appetite to take initiative in Europe or even to oppose Merkel, writes Cecile Cornudet in Les Echos. Francois Hollande did not pick up on the German elections concentrating on the European elections next May instead. His earlier push for a Eurozone government has fallen off the agenda with Merkel's victory. Instead under the new theme "reorienting Europe" Hollande sets his accent on employment, just like he promised in his election campaign.
On the last point: Fear of Germany used to be the reason why France wanted a strong Europe. Now fear of Germany is what slows down European integration. The reason is that the European integration on offer is German-dominated.


In the Neurozone, there can be only one.
by Carrie (migeru at eurotrib dot com) on Tue Sep 24th, 2013 at 04:01:49 PM EST
[ Parent ]
Re: The Dominos of EMUs collapse (none / 0)
Migeru:
You cannot have Greece, Spain and Italy out of the Euro and Portugal in. And you need to count Cyprus too.
I went by countries with political movements anti austerity, but yes that sounds reasonable.
Portugal has que se lixe a Troika!

In the Neurozone, there can be only one.
by Carrie (migeru at eurotrib dot com) on Tue Sep 24th, 2013 at 04:05:29 PM EST
[ Parent ]
Re: The Dominos of EMUs collapse (none / 0)
And you need to count Cyprus too.

And Malta is likely to go along as well. What would Ireland and Belgium be likely to do in such a situation?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 24th, 2013 at 11:59:25 PM EST
[ Parent ]
Re: The Dominos of EMUs collapse (none / 0)
Malta is not in so much trouble as Slovenia right now, though there have been rumblings.

In the Neurozone, there can be only one.
by Carrie (migeru at eurotrib dot com) on Wed Sep 25th, 2013 at 02:30:53 AM EST
[ Parent ]
Re: The Dominos of EMUs collapse (none / 0)
What I meant was that, were all the other Mediterranean to belong to the Seuro, it might make sense for Malta to join. Neuros would go a long way in Malta then for tourists while Italians, if members of the Seruo, would not suddenly find it too expensive to visit or trade with.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Sep 25th, 2013 at 11:10:21 AM EST
[ Parent ]
Re: The Dominos of EMUs collapse (4.00 / 2)
Given this I wonder what ability the remaining EMU members has to punish the rejected ones?
Suppose Greece does rebel against the Troika. Can its voting rights at the Council or at the EcoFin be rescinded?

In the Neurozone, there can be only one.
by Carrie (migeru at eurotrib dot com) on Tue Sep 24th, 2013 at 03:47:16 PM EST
[ Parent ]
Re: The Dominos of EMUs collapse (4.00 / 3)
I realised this has come up here before but ina different discussion, so I went googling.

And somebody had already provided the answer on the mechanisms.

Migeru:

I wonder whether the rest of the council could vote to have their voting rights suspended. There are provisions in the treaties for this, the question is whether the "breach" qualifies as a trigger for those provisions.

European Commission: Consolidated  version of the Tresty on European Union

Article 6
  1.   The Union is founded on the principles of liberty, democracy, respect for human rights and fundamental freedoms, and the rule of law, principles which are common to the Member States.
  2.   The Union shall respect fundamental rights, as guaranteed by the European Convention for the Protection of Human Rights and Fundamental Freedoms signed in Rome on 4 November 1950 and as they result from the constitutional traditions common to the Member States, as general principles of Community law.
  3.   The Union shall respect the national identities of its Member States.
  4.   The Union shall provide itself with the means necessary to attain its objectives and carry through its policies.

Article 7
1.   On a reasoned proposal by one third of the Member States, by the European Parliament or by the Commission, the Council, acting by a majority of four fifths of its members after obtaining the assent of the European Parliament, may determine that there is a clear risk of a serious breach by a Member State of principles mentioned in Article 6(1), and address appropriate recommendations to that State. Before making such a determination, the Council shall hear the Member State in question and, acting in accordance with the same procedure, may call on independent persons to submit within a reasonable time limit a report on the situation in the Member State in question.
The Council shall regularly verify that the grounds on which such a determination was made continue to apply.
  1.   The Council, meeting in the composition of the Heads of State or Government and acting by unanimity on a proposal by one third of the Member States or by the Commission and after obtaining the assent of the European Parliament, may determine the existence of a serious and persistent breach by a Member State of principles mentioned in Article 6(1), after inviting the government of the Member State in question to submit its observations.
  2.   Where a determination under paragraph 2 has been made, the Council, acting by a qualified majority, may decide to suspend certain of the rights deriving from the application of this Treaty to the Member State in question, including the voting rights of the representative of the government of that Member State in the Council. In doing so, the Council shall take into account the possible consequences of such a suspension on the rights and obligations of natural and legal persons.
The obligations of the Member State in question under this Treaty shall in any case continue to be binding on that State.
  1.   The Council, acting by a qualified majority, may decide subsequently to vary or revoke measures taken under paragraph 3 in response to changes in the situation which led to their being imposed.
  2.   For the purposes of this Article, the Council shall act without taking into account the vote of the representative of the government of the Member State in question. Abstentions by members present in person or represented shall not prevent the adoption of decisions referred to in paragraph 2. A qualified majority shall be defined as the same proportion of the weighted votes of the members of the Council concerned as laid down in Article 205(2) of the Treaty establishing the European Community.
This paragraph shall also apply in the event of voting rights being suspended pursuant to paragraph 3.
6.   For the purposes of paragraphs 1 and 2, the European Parliament shall act by a two-thirds majority of the votes cast, representing a majority of its Members.

It is hard to see that there is a breach of paragraph 6, but it might very well be used anyway. If they are really underhanded, of course the humanitarian situation that is a result of the austerity policy can be used to argue that the member state is breaching "the principles of liberty, democracy, respect for human rights and fundamental freedoms, and the rule of law". But to make it stick, they need 2/3s in the EP, and that might be tricky.

I see nothing in there about cancelling voting rights for breaking treaties as such. The Commission could take them to the Court, but max penalty there is (afaik) fines. Also, Sweden is in ongoing violation of the third step of the EMU treaty so it would lock a tad like selective enforcement.

They could be shut out of Eurogroup (not Ecofin) meetings.

Eurogroup - Wikipedia, the free encyclopedia

A formal legal basis was granted for the first time under the Lisbon Treaty when it came into force on 1 December 2009. Protocol 14 of the treaty lays out just two articles to govern the group;

Article 1: The Ministers of the Member States whose currency is the euro shall meet informally. Such meetings shall take place, when necessary, to discuss questions related to the specific responsibilities they share with regard to the single currency. The Commission shall take part in the meetings. The European Central Bank shall be invited to take part in such meetings, which shall be prepared by the representatives of the Ministers with responsibility for finance of the Member States whose currency is the euro and of the Commission.
Article 2: The Ministers of the Member States whose currency is the euro shall elect a president for two and a half years, by a majority of those Member States. --Protocol 14 of the Consolidated Treaties of the European Union (as amended by the Treaty of Lisbon)[13]

Furthermore, the treaty amended the Council of the EU's rules so that when the full Ecofin council votes on matters only affecting the eurozone, only those states using the euro (the Eurogroup countries) are permitted to vote on it.[14]

It would however do wonders agaisnt TINA to haev a country on the Ecofin loudly procalim that there are better options after each meeting.

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

by A swedish kind of death on Wed Sep 25th, 2013 at 04:46:43 PM EST
[ Parent ]
Re: The Dominos of EMUs collapse (4.00 / 2)
If they do lose voting rights and get a running tab of fines that is larger then net money they get from the EU, then forming a SEU (with or without a Seuro) could be meaningful as they have effectively been kicked out of the EU. Depends on political logic of course, I suspect there would be a lot against any union.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Wed Sep 25th, 2013 at 04:54:09 PM EST
[ Parent ]
Re: The Dominos of EMUs collapse (4.00 / 2)
eKathimerini: Greece will negotiate after achieving primary surplus, says Stournaras (September 4, 2013)
Greece will embark on a major negotiation with its partners and creditors, known as the troika, after a primary surplus is achieved later this year, said Finance Minister Yannis Stournaras speaking on Skai on Wednesday.


In the Neurozone, there can be only one.
by Carrie (migeru at eurotrib dot com) on Tue Sep 24th, 2013 at 03:49:42 PM EST
[ Parent ]
Re: The Dominos of EMUs collapse (none / 1)
Greek reporter: Stournaras Readies For Troika Talks (September 20, 2013)
While Greece is hopeful, a primary surplus - not including interest, social security, the cost of state enterprises and some military expenditures - hasn't yet been reached although Stournas said he believes it will, allowing Greece to talk about imposing losses on the Troika as well.


In the Neurozone, there can be only one.
by Carrie (migeru at eurotrib dot com) on Tue Sep 24th, 2013 at 03:51:32 PM EST
[ Parent ]
Re: The Dominos of EMUs collapse (none / 0)
eKathimerini: Troika skeptical on primary surplus (September 23, 2013)
The troika has doubts about Greek projections for a primary surplus this year and next and has begun the process of discussing with Athens the contents of the 2014 budget, which Greece's lenders believe contains several areas that need closer inspection.

High-ranking Finance Ministry sources said that while the representatives of the European Commission, European Central Bank and International Monetary Fund agree that Greece will produce a primary surplus at the end of the year, they think it will be minimal. The troika is also skeptical about Greek projections for a primary surplus of 1.5 percent of GDP at the end of next year.

It is thought that one of the reasons Greece's lenders are downplaying the possibility of Athens producing a sizable surplus is that they are alarmed by the debate in Greece about how this amount will be allocated and whether social spending could be increased.



In the Neurozone, there can be only one.
by Carrie (migeru at eurotrib dot com) on Tue Sep 24th, 2013 at 05:45:22 PM EST
[ Parent ]
Re: The Dominos of EMUs collapse (none / 0)
Of course another world financial shock would throw all of these expectations into the tank.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Sep 25th, 2013 at 12:15:05 AM EST
[ Parent ]
Re: The Dominos of EMUs collapse (none / 1)
Craig Willy: Turning Points & Bargaining Power: What primary deficits tell us about the eurozone crisis (November 18th, 2012)
Primary deficits are incredibly important in the crisis' constant negotiation because:

  • A country with a primary surplus, strictly speaking, does not need foreign help. It can theoretically default and not have to institute further spending cuts.
  • A country which can show it has a reliable primary surplus is more likely to benefit from the financial solidarity of other countries (such a guarantee can then in turn reassure financial markets and allow the country to cheaply refinance itself through private lenders).

Primary deficits are then critical to assessing the balance of power between countries and the moment (if ever) at which we will reach a salutary "turning point" in the crisis. ...

...

Category I: Financial bubbles, high primary deficits and submission to the Core

[Spain and Ireland]

Category II: Primary surpluses and some leeway

[Italy, Portugal, Greece]

Category III: Not in the euro & "fiscally irresponsible"

[Great Britain]

Category IV: Top of the World

[Germany, Austria, Netherlands, Luxembourg]

Conclusion

Germany will continue to set the tune on eurozone policy and the elaboration of the new permanent "federal" structures. France is in a precarious position. Spain has no choice but to submit completely and wholeheartedly to Berlin and Frankfurt's demands, whatever they might be, and it's not even sure then that they will risk helping the country. The rest of the crisis countries - Italy, Portugal and Greece - have achieved much with their efforts and theoretically, with their primary surpluses and the passage of the "Six Pack" and the Fiskalpakt, the way should be open for wholehearted aid by the ECB, with Germany's consent. This would bring down refinancing costs and massively reduce the need for austerity, thus easing them and the eurozone as a whole out of the crisis.

According to this, Spain is a weak point in your argument.

In the Neurozone, there can be only one.
by Carrie (migeru at eurotrib dot com) on Tue Sep 24th, 2013 at 03:58:44 PM EST
[ Parent ]
Re: The Dominos of EMUs collapse (4.00 / 2)
It would be, if the argument did not confuse sovereign and foreign balances, and if it took account of the calorie and BTU balances of the foreign trade.

As it is, meh.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Sep 25th, 2013 at 01:27:22 PM EST
[ Parent ]
Re: The Dominos of EMUs collapse (4.00 / 2)
I am glad I read this comment before I read the piece, since at the outset one would think it was discussing current account deficits, but then it turns out it is discussing budget deficits.

It would seem that the main premise applies to whether a nation has a current account surplus aside from external interest rate reparation payments to German and other external Banks, since given the current depressed state of labor markets, nations with current account surpluses post default on external obligations can largely monetize their domestic government deficit.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Thu Sep 26th, 2013 at 03:21:59 AM EST
[ Parent ]
Re: The Dominos of EMUs collapse (4.00 / 2)
Turning Points & Bargaining Power: What primary deficits tell us about the eurozone crisis | Craig Willy | EU affairs writer

These countries, including Greece, have far more bargaining power relative to the European authorities and the Core. This is because they could, theoretically, default tomorrow on their existing debts and not require any external aid. They would be in no worse a position than they are now and could cease paying interest.

In practice, this is politically difficult because it is frowned upon by the ECB and other euro countries, because it would undermine banks in the rest of the continent. This would no longer be problematic if one left the euro which, while legally problematic, would mean the country regains total sovereignty in monetary and fiscal affairs. The only problem then is "political" (the loss of face for the country as "non-European savages" unworthy of the eurozone and, more speculatively, the fear that this would provoke some kind of return to warring dictatorship).

But if a periphery country would default tomorrow, then ECB would not frown, they (unless they blink, which is a possibility) would no longer accept state debt as collateral, which would mean that banks crash. Or to put it in the articles terms, ECB has the means to destroy that precious primary surplus.

In general the author seems to think that the problem for the countries in the periphery is that they can't fund their public sector, ie the running a state as a business falacy. While the real problem is that while they are running a current account deficit, they can't leave without large immediate pain, and the EPP-PES politicians prefer to kick the bucket down the road while accepting some (ever increasing) pain for the forseeable future.

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

by A swedish kind of death on Wed Sep 25th, 2013 at 04:19:07 PM EST
[ Parent ]
Re: The Dominos of EMUs collapse (none / 0)
In the case of Greece there is a geo-political card that could be played -- Russian support. Russia could easily supply Greece with oil and gas as well as refined petroleum products if needed, or arrange for them to be supplied. A similar possibility exist with Iran, especially if there is some measure of normalization with Rouhani now in office.

As to banking, during the Civil War in the USA Salmon P Chase arranged a massive loan in gold backed dollars from the big New York banks. Once the loan was granted he demanded the gold, which he withdrew. This put the civilian economy of the US onto a fiat currency basis but gave the US Government the means to finance needed imports of military goods. Foreign exchange became much more difficult for the private sector, which discouraged imports. A year later he created 2% Federal bonds, the purchase of which by banks gave the bank the right to issue bank notes up to the amount of the bond. The Congress also passed a tax on private bank notes. This created the National Banking system which, ignoring the return to the gold standard and the problems of a bi-metalic standard, essentially endured until the Fed became operational in the fall of 1914. It is true that the issue of Greenbacks directly by the Treasury during the Civil War did result in an approximately 50% loss of value compared to gold, but there were many who benefited from this inflation. There are ways a savy Central Banker can deal with FX problems, but I still maintain it would be easier were Greece to be able to help found an alternative currency union operated according to the needs of countries more like itself. Most southern peripheral countries in the Euro would qualify under that definition.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Sep 25th, 2013 at 05:49:47 PM EST
[ Parent ]
Federalize it (none / 0)
Wouldn't this multi-EU concept break the basic goal of the original ECM, to bind Germany and France together financially. And, by extension, to bind Germany and the rest of Europe together?

Seems to me that if you're willing to go through the disruption of breaking up the Euro Zone, why not take the smaller disruption of moving towards a federal system? People will complain about Brussels taking away their local power, but that system has worked here for a hundred years or so...

  • Allow free migration of labor.
  • Shift a lot of the tax burden to the federal level, to reduce tax havens.
  • Unify regulations, tax laws, etc.
  • Actually enforce the regulations.
by asdf on Thu Sep 26th, 2013 at 07:35:58 PM EST
Re: Federalize it (none / 1)
Wouldn't this multi-EU concept

Multi-EMU, not multi-EU.

There's a long and storied precedent for having European institutions that don't actually cover all of Europe (and sometimes more than just Europe).

break the basic goal of the original ECM, to bind Germany and France together financially. And, by extension, to bind Germany and the rest of Europe together?

Considering that the alternative is an economic trajectory that will reliably kill around a percent of your population per decade (and that's assuming it fails to provoke a serious shooting war), I'd say "more no than yes."

Seems to me that if you're willing to go through the disruption of breaking up the Euro Zone, why not take the smaller disruption of moving towards a federal system?

You know that and I know that. But federalizing, of necessity, cannot be done unilaterally. And as long as the German political system is in the grip of clinical insanity, unilateral action is the only way forward.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Sep 27th, 2013 at 01:50:05 PM EST
[ Parent ]
A Two Monetary Union Solution to Problems in the EMU | 81 comments (81 topical, 0 editorial, 0 hidden)


Display:
Go to: [ European Tribune Homepage : Top of page : Top of comments ]

Top Diaries

Ireland 2023 Rugby World Cup Squad selected

by Frank Schnittger - May 31

Integrating Ukraine Into NATO Family

by Oui - May 30
10 comments

Leinster's demise and Munster's hope

by Frank Schnittger - May 23
3 comments

Southern Irish disinterest in Northern Ireland affairs

by Frank Schnittger - May 27
3 comments

The end is Nigh?

by Frank Schnittger - May 5
22 comments

Joe Biden. America's Interventionist Hero

by Oui - May 13
65 comments

The law of conservation of transness

by Carrie - Apr 30
7 comments

Recent Diaries

June 2023

by Oui - May 31
13 comments

Ireland 2023 Rugby World Cup Squad selected

by Frank Schnittger - May 31

Integrating Ukraine Into NATO Family

by Oui - May 30
10 comments

Southern Irish disinterest in Northern Ireland affairs

by Frank Schnittger - May 27
3 comments

Incident Ukrainian War Display Gets Int'l Attention

by Oui - May 27
18 comments

German Climate Activists Group Outlawed

by Oui - May 24

Leinster's demise and Munster's hope

by Frank Schnittger - May 23
3 comments

Joe Biden. America's Interventionist Hero

by Oui - May 13
65 comments

Targeted Assassinations: a Bankrupt Strategy

by Oui - May 9
10 comments

The end is Nigh?

by Frank Schnittger - May 5
22 comments

Hijacking Peace by Zelensky for War Escalation

by Oui - May 4
49 comments

UA Drone Attack On Moscow

by Oui - May 3
12 comments

Rightwing Operation New EU 'Enlightenment’

by Oui - May 2
9 comments

May 2023

by Oui - Apr 30
273 comments

The law of conservation of transness

by Carrie - Apr 30
7 comments

US Provoked Conflict In Europe

by Oui - Apr 26
44 comments

U.S. Will Be Ousted From Middle-East

by Oui - Apr 8
89 comments

Settler Extremism Blessed by Jerusalem Leaders

by Oui - Mar 19
143 comments

More Diaries...