Jump to content
House Price Crash Forum
Sign in to follow this  
interestrateripoff

The Euro Mutiny Begins

Recommended Posts

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100006271/the-euro-mutiny-begins/

The rebellion against the 1930s fiscal and monetary policies of the Euro-complex is gathering pace.

Il Sole has published a letter by 100 Italian economists warning that the austerity strategy imposed by Brussels/Frankfurt risks tipping Europe into a self-feeding downward spiral. Far from holding the eurozone together, it will cause weaker countries to be catapulted out of EMU. Others will leave in order to restore sovereign control over their central banks and unemployment policies.

At worst it will blow the EU apart, leading to the very acrimony that the European Project was supposed to prevent.

For readers of Italian, it’s here.

While I don’t share the big-state Left-Keynesian perspective of these professors — nor their implicit hostility to the free market — I do agree with much of their overall analysis.

My rough translation:

“The grave economic global crisis, and its links to the eurozone crisis, will not be resolved by cutting salaries, pensions, the welfare state, education, research …….. More likely, the `politics of sacrifice’ in Italy and in Europe runs the risk of accentuating the crisis in the end, causing a faster rise in unemployment, of insolvencies and company failures, and could at a certain point compel some countries to leave monetary union.

“The fundamental point to understand is that the current instability of monetary union is not just the result of accounting fraud and over-spending. In reality, it stems from a profound interweaving of the global economic crisis and imbalances within the eurozone …..

It blames the crisis on the “deflationary economic policies” of the richer states. “Especially Germany, geared for a long time to holding down salaries in relation to productivity, and to the penetration of foreign markets, gaining European market share for German companies…

They say the policy has led to growing surpluses in Germany, offset by growing debts in Southern Europe. The adjustment mechanism has not only failed. Matters have got worse, and worse.

“This is the deeper reason why market traders are betting on a collapse of the eurozone. They can see that as the crisis drags on this will cause tax revenues to fall, making it ever harder to repay debts, whether public or private. Some countries will progressively be pushed out of the eurozone, others will decide to break away to free themselves from a deflationary spiral… It is the risk of widespread defaults and the reconversion of debts into national currencies that is really motivating bets by speculators.

The economists denounced the “obstinacy” with which the EU authorities and governments are pursuing “depressionary policies”, and called on the European Central Bank to abandon its policy of “sterilizing” purchases of Greek, Portuguese, and Spanish bonds, and move to fully-fledged quantitative easing to boost the money supply.

“We must have an immediate debate on the extremely grave errors in economic policies now being committed..

Si, Signori .. Bravissimi.

Just to be clear, I do not share their Krugmanite view that huge fiscal deficits are benign. In my view, it is imperative that the whole western world reduces debt in a orderly fashion over 10 to 15 years. Pacing is crucial. Too fast can be self-defeating. Too slow is not an option.

My objection with the EU’s mix of policies is that extreme fiscal austerity is being imposed on a string of countries without offsetting monetary stimulus. (Yes, I know, some will say that I am mixing apples and oranges).

Ireland, Spain, and Portugal have already tipped into outright deflation. Ireland’s nominal GDP has contracted 18.6pc since the peak. They are falling deeper into an Irving Fisher debt-deflation trap.

This is reactionary folly. The College of European Commission should be taken out and horse-whipped outside the Breydel Building for demanding yet further cuts from Spain — which is already cutting wages 5pc this year, in an economy where total public /private debt is 280pc of GDP or more. Can nobody think of a more coherent way out of this?

As for Germany, frankly it is hard to know what to say. It is astonishing that Chancellor Merkel should unveil an €80bn package of fiscal retrenchment without consulting with the rest of Europe. This has raised the bar for everybody else, forcing them into yet further contractionary policies to keep up. Mrs Merkel does not begin to understand the nature of commitment made by Germany when it launched monetary union.

EMU has become an infernal machine. This will not be the last letter by angry economists.

The only way out of this is to deleverage, I've heard no central bank calling for borrowers to repay the banks quicker.

The economy needs to breathe in it can't expand forever, no matter how much the politicians want it to.

Share this post


Link to post
Share on other sites

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100006271/the-euro-mutiny-begins/

The only way out of this is to deleverage, I've heard no central bank calling for borrowers to repay the banks quicker.

The economy needs to breathe in it can't expand forever, no matter how much the politicians want it to.

Socialism-why not just come out and say it? We have not been prudent, you have, now we want some of yours.

Share this post


Link to post
Share on other sites

The only way out of this is to deleverage, I've heard no central bank calling for borrowers to repay the banks quicker.

The economy needs to breathe in it can't expand forever, no matter how much the politicians want it to.

Let's just translate this very interesting article - Monetary union does not work in the EU area. The strong (mostly Germany) get stronger and accumulate surpluses, whilst the weak get weaker whilst building up bigger and bigger deficits. All because their exchnage rates are not floating and the interest does not fit 12 or more countries at once. Many people, including me, were laughed at when they pointed out these defects years ago. The Euro will most likely fail. Lets see your Deutchmark and have it float right up. Then we will find a VW is actually quite expensive after all and a Fiat is really quite cheap.

Edited by plummet expert

Share this post


Link to post
Share on other sites

Socialism-why not just come out and say it? We have not been prudent, you have, now we want some of yours.

This was baked into the EZ fudge-cake. The most crucial bit of the article: "Mrs Merkel does not begin to understand the nature of commitment made by Germany when it launched monetary union" [without having achieved the treaty-specified preconditions].

Share this post


Link to post
Share on other sites

.... Many people, including me, were laughed at when they pointed out these defects years ago. The Euro will most likely fail. ....

Still laughing....

Share this post


Link to post
Share on other sites
This is reactionary folly.
Indeed.
As for Germany, frankly it is hard to know what to say. It is astonishing that Chancellor Merkel should unveil an €80bn package of fiscal retrenchment without consulting with the rest of Europe. This has raised the bar for everybody else, forcing them into yet further contractionary policies to keep up. Mrs Merkel does not begin to understand the nature of commitment made by Germany when it launched monetary union.

She's a pillock appeasing dangerous zealots. They really can't help themselves. :(

Share this post


Link to post
Share on other sites

Still laughing....

plummet expert is spot on imo. I'd add to it that not only are the deficits bad for the weak countries economically, but the stronger ones won't be able , politically, to keep funding them anyway. So the economics and the politics are against it surviving I reckon. What's the bull case?

Share this post


Link to post
Share on other sites

plummet expert is spot on imo. I'd add to it that not only are the deficits bad for the weak countries economically, but the stronger ones won't be able , politically, to keep funding them anyway. So the economics and the politics are against it surviving I reckon. What's the bull case?

Fanaticism

Share this post


Link to post
Share on other sites

Ah I see. So it's Germany's fault for not being as lazy as everyone else, and thus highlighting just how lazy everyone else is. :rolleyes:

No, that's not it at all. It's everyone's (in the EZ) fault for railroading themselves into a system that was at best, not ready and at worst, completely unworkable. While branding anybody who warned that it might not be a good idea, as xenophobic, anti-European, etc.

Share this post


Link to post
Share on other sites

Either the article is tripe (most likely written by economists working for universities and drawing state benefits) or you have done a bad job in translation: Take the para's below:

“The grave economic global crisis, and its links to the eurozone crisis, will not be resolved by cutting salaries, pensions, the welfare state, education, research …….. More likely, the `politics of sacrifice’ in Italy and in Europe runs the risk of accentuating the crisis in the end, causing a faster rise in unemployment, of insolvencies and company failures, and could at a certain point compel some countries to leave monetary union.

“The fundamental point to understand is that the current instability of monetary union is not just the result of accounting fraud and over-spending. In reality, it stems from a profound interweaving of the global economic crisis and imbalances within the eurozone …..

Who can honestly take any of this nonsense seriously. This drivel is saying keep spending and everythinig will work out fine. Dont worry about the bloated public sector, dont worry about promising benefits paid by for others - it all works fine if you keep spending and keep borrowing. What utter tripe.

The weak minded are the ones blaming Germany and France for lending to weaker nations in the EU. Only an idiot would deny that Greece and Spain have been massive beneficiaries from EU membership. Onyone with a brain who has travelled to Greece and Spain on occasion over the past 20 years (as I have) wil realise they EU has lifted those economies from near third world status to first world. Greeks should be kissing the feet of Germans as they lie on their sunbeds for without the EU they would still be driving around in fiat 125s.

Nice try Tory Boy......... but time ot get to the real question: when will the UK get a beasting? I reckon before the end of the year so what do others bet.

Share this post


Link to post
Share on other sites

so a search for yield leads naturally to a fatally flawed currency? (or did you mean need search for an alternative shelter - same applies anyway imo).

I can't really see the point of the Euro in economic conditions like these, but even more, I can't see how it can survive politically in economic conditions like these. Can see versions of it in future along obvious lines, but not as it is now, surely?

Share this post


Link to post
Share on other sites

what I mean is that when TSHTF bund yields to maturity go negative, and insitutional investors will still lap it up.

when faced with a choice between a guaranteed haircut on a short duration bund or t-bill or a low but still positive yield on say an italian bond which do you go for?

Share this post


Link to post
Share on other sites

what I mean is that when TSHTF bund yields to maturity go negative, and insitutional investors will still lap it up.

when faced with a choice between a guaranteed haircut on a short duration bund or t-bill or a low but still positive yield on say an italian bond which do you go for?

Withdraw your cash and put it in a safe? Better still, buy commodities instead? If this isn't suitable for institutional investors, it seems obvious to me that their business model is doomed too.

If government bonds go negative, I can't see said currencies lasting long. It will be funny watching the governments scramble for currency controls, attempt to go cashless and other daft ideas, only to see the trust in their currencies evaporate as people say "Enough! Sod this for a game of soldiers!"

Having thought further about your idea the other day, where the governments buy eroding assets, to enable effective negative rates, I find your views rather disturbing. How you can consider using taxpayer money, to deliberately buy poor investments, just to keep the current financial system working, is beyond me.

The answer is not to keep this broken financial system from failing, but to reform and to create a new one which is actually works.

Share this post


Link to post
Share on other sites

No, that's not it at all. It's everyone's (in the EZ) fault for railroading themselves into a system that was at best, not ready and at worst, completely unworkable. While branding anybody who warned that it might not be a good idea, as xenophobic, anti-European, etc.

+1

PIIGS politicians thought that by joining the Euro they were jumping on the gravy train.

How wrong they were...

And where were all these economists when the Euro was launched?

Probably trying to flog expensive seminars on the new economic paradigm in the EZ :rolleyes:

EDIT: spelling

Edited by VoteWithYourFeet

Share this post


Link to post
Share on other sites

+1

PIIGS politicians thought that by joining the Euro they were jumping on the gravy train.

How wrong they were...

And where were all these economists when the Euro was launched?

Probably trying to flog expensive seminars on the new economic paradigm in the EZ :rolleyes:

EDIT: spelling

The herd said it would work, no one dared break ranks as this might make them stand out.

To be fair they did jump on the gravy train, I suspect many of the powerful will have done very well out of the boom, now their people get to pick up the tab.

Share this post


Link to post
Share on other sites

The herd said it would work, no one dared break ranks as this might make them stand out.

To be fair they did jump on the gravy train, I suspect many of the powerful will have done very well out of the boom, now their people get to pick up the tab.

Sounds familiar. ph34r.gif

Share this post


Link to post
Share on other sites

She [Merkel]'s a pillock appeasing dangerous zealots. They really can't help themselves. :(

Her problem is that she's caught in a pincer movement between two lots of zealots. On one side is the EU, trying to bully her into writing ever larger cheques, and on the other is her own Parliament, who only last week refused to sign off a bailout for Opel/GM and certainly wouldn't sign off one for Spain.

Share this post


Link to post
Share on other sites

Her problem is that she's caught in a pincer movement between two lots of zealots. On one side is the EU, trying to bully her into writing ever larger cheques, and on the other is her own Parliament, who only last week refused to sign off a bailout for Opel/GM and certainly wouldn't sign off one for Spain.

But I thought the Germans were the masters of pincer movements :unsure:

Share this post


Link to post
Share on other sites

If government bonds go negative

US 3-month t-bills went negative a few days ago, for the first time I believe. That was a market driven event, not imposed. In which case I can't see why that would damage the currency - in fact its a sign that people are very keen to hold it.

Share this post


Link to post
Share on other sites

US 3-month t-bills went negative a few days ago, for the first time I believe. That was a market driven event, not imposed. In which case I can't see why that would damage the currency - in fact its a sign that people are very keen to hold it.

Paying to lend the government money is not normal... in fact, it's nuts. I doubt this situation will persist for long. It could even be considered as a buying signal for commodities.

If people don't trust non-US bonds so much that they are willing to take a voluntary hair cut on their investment, I would say that is a very bad sign; there is little trust in sovereign debt repayment. By implication, this is a bad sign for fiat currencies on a whole.

Edited by Traktion

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 140 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.