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Europe Digs Its Economic Grave While The Ecb Answers To No One

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http://www.telegraph.co.uk/finance/comment...-to-no-one.html

Without a radical change of strategy, the ECB risks pushing the weakest states into a debt-compound spiral that can only end in bond crises and/or the disintegration of Europe's monetary union – whichever comes first.

The International Monetary Fund says the eurozone will contract by 4.8pc this year, worse than the UK (-4.2pc) or the US (-2.6pc). The deepest damage will occur next year as Europe remains mired in slump, even as the rest of the world recovers. It is the length of recession that matters most for jobs, social stability, and public finances. I am not easily shocked any longer but I did sit up when Spain's budget chief Luis Espadas said the economic collapse could "easily" push Spanish public debt to 90pc of GDP by 2011. This is up from 36pc in 2007.

Nobody knows where the tipping point lies on public debt, though anything above 100pc of GDP in a currency union is courting fate. Some are already there. The European Commission says Italian debt will jump to 116pc in 2010. Greece is vaulting back to 109pc, Belgium to 101pc, France to 86pc.

Even German finances are falling apart. After screwing down spending to balance the books, discipline has broken down. Berlin says the deficit is heading for 6pc next year, taking debt to 82pc. This is happening all over the world, of course. But the ECB is compounding the effect, whether for reasons of politics, Bundesbank fetishism, or misjudgment. By refusing to join the US, Japan, Canada, Britain, and Switzerland in quantitative easing (QE) the ECB has allowed a contraction of private credit this summer. The M3 "broad" money supply has shrunk since February.

Ignore M3 at your peril. It flashed awarning signal in the US months before the collapse of Lehman Brothers last September; it is flashing the similar warning signals in Europe now.

Professor Tim Congdon from International Monetary Research said the eurozone money figures are "horrifying" and portend a serious crunch ahead. "My verdict is that the senior people in the ECB [and the Fed] have little organised understanding of the debt-deflationary processes initiated in late 2008," he said.

Ireland's M3 contracted at a 30pc annual rate last month, a death sentence for a hyper-indebted economy. The wreckage will be evident just in time for the Irish to vote again – under extreme duress – on the EU's Enabling Act in October. This should make for interesting political chemistry.

In Germany, the Mittlestand lobby (BVMW) says half its members are facing a liquidity squeeze, while the strutting finance minister, Peer Steinbrück, has assumed a ghostly pallor. "We must take seriously the threat of a credit crunch in the second half of this year," he said.

Mr Steinbrück has called for a suspension of the Basel II accounting rules in order to rescue banks, and even suggested that the German government undertake direct lending to boost credit. The regulator BaFin has already told us that bad debts are set to "blow like a grenade" this year. A leaked BaFin memo said "problematic" assets have reached €816bn (£700bn), led by Hypo Real with €268bn.

ECB experts think eurozone banks will have to write down a further €203bn by the end of next year. Yet ECB policy-makers seem unwilling to face the implications. Yes, they have injected €442bn in a one-year tender, but the money is not reaching the economy. Simon Ward from Henderson New Star said the ECB is repeating errors made in Japan when it first trifled with QE, relying on banks to pass on credit rather going for massive bond purchases.

Inevitably, Europe's politicians are taking matters into their own hands. They will not sit idly by as millions lose their jobs. If the ECB deflates, budgets must bear the strain, and that is exactly what Europe cannot afford with a birthrate of 1.53 per woman and the onset of demographic decline. The commission says the number of workers per pensioner over 65 will halve from four to two by 2040. Age-related costs will explode by 15pc of GDP in Greece, 9pc in Ireland, Spain and Holland. The populations of Germany and Italy will soon be shrinking.

Viewed strategically, Europe's mix of monetary deflation and rampant deficit spending by the states is nothing short of lunatic.

Needless to say, Britain faces it own colossal mess, but of a different kind. It is the Prime Minister who is taking the country over a cliff, not the Bank of the England. Voters will soon have the joy of sacking him. How do Europe's voters sack the ECB?

A eurozone collapse seems likely, the global impact of this could be devastating.

A single interest rate certainly does not fit all, the brainwashed monetary policy has failed now all that is left it appears is the implosion.

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http://www.telegraph.co.uk/finance/comment...-to-no-one.html

A eurozone collapse seems likely, the global impact of this could be devastating.

A single interest rate certainly does not fit all, the brainwashed monetary policy has failed now all that is left it appears is the implosion.

Quite right, a single interest rate was never going to suit all these nations at different stages in dvelopment, with different priorities and with different economies.

Whilst we'll have to wait and see exactly what happens I suspect we will not see and end to the suro becasue when they sit down and think about it, the more solvent countries are not going to want to chcuck away the euro and all that entails ... also bear in mind you couldn't simply just decide to leave the euro... the planning involved is huge to change currency.... but I suppose they may be able to leave it as the curreny and just deliver the state seperation through having say French euros and German euros etc.

Either way its a classic example of how europe tries to force things to fit to deliver its precious fedralist integration when they clearly don't fit and never will.

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"A single interest rate certainly does not fit all..."

I'm neither pro or con the Euro, but do wonder....

People always point out that a single interest rate doesn't fit all of Europe. But, how long did it take for the (once) mighty USA to get past its intitial (interest rate setting) teething problems?

The answer, I believe, is that some states flurish whilst others suffer - that's not to suggest that a single rate setting policy is necessarily the wrong strategy.

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"A single interest rate certainly does not fit all..."

I'm neither pro or con the Euro, but do wonder....

People always point out that a single interest rate doesn't fit all of Europe. But, how long did it take for the (once) mighty USA to get past its intitial (interest rate setting) teething problems?

The answer, I believe, is that some states flurish whilst others suffer - that's not to suggest that a single rate setting policy is necessarily the wrong strategy.

Wrong logic: you cannot compare the US with Europe.

Europe's nations are sovereign states with different languages, constitutions, governments, labour market rules, tax rates, etc.

You are right in saying that as it is, some countries in the Euro are going to suffer: the PIIGS are bleeding to death as we speak - but that's not what they expected when they joined the Euro, is it?

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Wrong logic: you cannot compare the US with Europe.

Europe's nations are sovereign states with different languages, constitutions, governments, labour market rules, tax rates, etc.

You are right in saying that as it is, some countries in the Euro are going to suffer: the PIIGS are bleeding to death as we speak - but that's not what they expected when they joined the Euro, is it?

I'm not so sure, most people with any intelligence would have realised that it would take anumber of years before things can really settle down. Maybe my assumption re: intelligence is where I've gone wrong.

As I've said, I'm neither pro, or against the euro. But barring natural disasters, I do see us having a global currency at some point (long after I'm gone ).

With regards to your points wrt languages, constitutions, governments, labour market rules, tax rates, the UK was exactly the same only a few hundred years ago. We managed it (just about).

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With regards to your points wrt languages, constitutions, governments, labour market rules, tax rates, the UK was exactly the same only a few hundred years ago. We managed it (just about).

I think you'll find the world has changed quite a bit since then :rolleyes:

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From the article, AEP talking about debt-deflation and the central bankers not getting it:

Ireland's M3 contracted at a 30pc annual rate last month, a death sentence for a hyper-indebted economy. The wreckage will be evident just in time for the Irish to vote again – under extreme duress – on the EU's Enabling Act in October. This should make for interesting political chemistry.

Celtic pussy is going to be decimated, if that isn't reversed.

Edited by aa3

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Wrong logic: you cannot compare the US with Europe.

Europe's nations are sovereign states with different languages, constitutions, governments, labour market rules, tax rates, etc.

Have to disagree with you here. Most people in Europe do not appreciate just how independent the states in the US were, and in many ways still are. Texas, for example, kept its own embassies in key countries, including the UK, until the 1930´s. The individual states still do have different governments, labour market rules and tax rates. This is all managed within the framework of a single currency.

The Telegraph has a long history of publishing articles predicting the demise of the Euro. To me this is no different. What MAY happen is that a few countries pull out of the currency as they find its membership rules too stringent. The currency itself is here to stay.

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Have to disagree with you here. Most people in Europe do not appreciate just how independent the states in the US were, and in many ways still are. Texas, for example, kept its own embassies in key countries, including the UK, until the 1930´s. The individual states still do have different governments, labour market rules and tax rates. This is all managed within the framework of a single currency.

The Telegraph has a long history of publishing articles predicting the demise of the Euro. To me this is no different. What MAY happen is that a few countries pull out of the currency as they find its membership rules too stringent. The currency itself is here to stay.

The 1930s are long gone, and Texas is just one of 50 states.

Wrt to tax rates, Federal income tax for companies is the same across the US, state tax impact is marginal.

In a nutshell, the single most important factor in the US/Euro comparison is labour mobility.

The simple reality is that only a small percentage of people in the Euro zone would ever consider moving to another Euro country to work when they don't speak the language.

Simple as that.

For the record, I don't think the Euro is going to disappear. I do think it's hugely overvalued, and this has to be reversed at some point.

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interest tool wont work for Eurozone, as it hasnt for the UK or the US, or anywhere else.

DEBT is the problem.

CREDIT, no matter how cheap is not the answer.

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In a nutshell, the single most important factor in the US/Euro comparison is labour mobility.

The simple reality is that only a small percentage of people in the Euro zone would ever consider moving to another Euro country to work when they don't speak the language.

Surely the recent experience of thousands of Poles and people from other Eastern block countries coming to Britain to do low-paid jobs blows apart the argument that only a small elite are mobile within Europe.

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The 1930s are long gone, and Texas is just one of 50 states.

Wrt to tax rates, Federal income tax for companies is the same across the US, state tax impact is marginal.

In a nutshell, the single most important factor in the US/Euro comparison is labour mobility.

The simple reality is that only a small percentage of people in the Euro zone would ever consider moving to another Euro country to work when they don't speak the language.

Simple as that.

For the record, I don't think the Euro is going to disappear. I do think it's hugely overvalued, and this has to be reversed at some point.

Mobility? The US has had a mobile workforce sine the 50's and air travel/car travel meant a person on the east coast could easily go west to find work. If required.

Europe has only recently started this process. The EU sponsored Erasmus program has opened up a whole new world to young graduates since the mid-90s. Budget air travel has also played a big part. High speed trains also.

Europeans are a lot more mobile than some imagine. Although nowhere near the US levels.

Travel through any airport on any morning of the week, especially a Monday, and you'll see just how mobile we are.

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Surely the recent experience of thousands of Poles and people from other Eastern block countries coming to Britain to do low-paid jobs blows apart the argument that only a small elite are mobile within Europe.

See below

Europeans are a lot more mobile than some imagine. Although nowhere near the US levels.

Exactly my point.

Hard to put a figure on it, but my guess is that less than 10% of Europe's population have ever worked abroad.

How many Americans have relocated to another state for work at some point in their life?

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Ambrose does not write about how things are, but about what TPTB want.

That is his point of difference.

Now, what is he pushing here?

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interest tool wont work for Eurozone, as it hasnt for the UK or the US, or anywhere else.

DEBT is the problem.

CREDIT, no matter how cheap is not the answer.

That depends if we bet it on the horses or roulette wheel. If we win big it might solve all our problems.

What we need is luck. :rolleyes:

I mean what can possible go wrong.

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Mobility? The US has had a mobile workforce sine the 50's and air travel/car travel meant a person on the east coast could easily go west to find work. If required.

Europe has only recently started this process. The EU sponsored Erasmus program has opened up a whole new world to young graduates since the mid-90s. Budget air travel has also played a big part. High speed trains also.

Europeans are a lot more mobile than some imagine. Although nowhere near the US levels.

Travel through any airport on any morning of the week, especially a Monday, and you'll see just how mobile we are.

The only real option I have is Ireland.

I do not speak any foreign language, that Beverly impacts mobility.

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See below

Exactly my point.

Hard to put a figure on it, but my guess is that less than 10% of Europe's population have ever worked abroad.

How many Americans have relocated to another state for work at some point in their life?

No idea. But I used to work for a company with it's HQ in Ohio. Very few of the people I met had ever worked outside that state. Only a handful had ever traveled outside the US.

As for defining a person "working abroad"? Is that living there, or going to work for a period in another country. eg. a week , month etc ? Most people I know, and who work in a broad range of jobs including IT, teaching, electricians, bus drivers, child care, glaziers, pub trade, hotel trade ....to name but a few, have spent time ranging from a month to many years working abroad in another european country.

And that's not counting all the cross border travel that happens every day (eg. france has borders with italy, spain, belgium, germany,switzerland. Many thousands go to work in a different country every day/week and quite a few setup home on the other side of the border...........)

Europeans are increasingly mobile. And many love the euro for helping make this mobility easier. I don't see it crashing anytime soon. In spite of the Telegraph predictions. (I make that 3 years now the Telegraph has been saying the euro is about to explode.....Zzzzzzzzzzzzzzzzzzzzzzzzz :rolleyes: )

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Doubtful, given that 9% of Europe's current population is foreign-born. (cf. http://siteresources.worldbank.org/SOCIALP...et-DP/0703.pdf)

Link doesn't work.

Besides, even if 20% of Europe's population had ever worked abroad (which I very much doubt), it would still be nowhere near US internal mobility rates.

I rest my case.

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The only real option I have is Ireland.

I do not speak any foreign language, that Beverly impacts mobility.

Don't worry pet, most people in mainland europe will speak English with you. Some better than the natives in most big UK cities ;)

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Link doesn't work.

Besides, even if 20% of Europe's population had ever worked abroad (which I very much doubt), it would still be nowhere near US internal mobility rates.

I rest my case.

I'm trying to understand what exactly "the case" is you are trying to make?

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(I make that 3 years now the Telegraph has been saying the euro is about to explode.....Zzzzzzzzzzzzzzzzzzzzzzzzz :rolleyes: )

More like 15. Even before the currency was circulating they were predicting the demise of the ERM.

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I'm trying to understand what exactly "the case" is you are trying to make?

Read my previous posts :rolleyes:

You cannot use the US as an example of a successful monetary union vs the Eurozone.

I find it annoying when someone argues against me without bothering to read the whole thread.

Edited by VoteWithYourFeet

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Read my previous posts, dude :rolleyes:

You cannot use the US as an example of a successful monetary union vs the Eurozone.

Why not ? Disparate states join together to create federal system. Timeline and path may be different, but in essence they are attempting to achieve to same result. Monetary union. Looking at the US, I'd say that's it's a good example to follow.

US monetary policy exists to keep it's economic centres powering along. The other states are left to muddle through the good/bad times. Ditto for Europe and the Eurozone.

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