Merkel Falters On Economic Unity In Eurozone

[interestrateripoff]

http://www.telegraph.co.uk/finance/financialcrisis/10017915/Merkel-falters-on-economic-unity-in-eurozone.html

Speaking at a banking conference in Dresden on Thursday, the German Chancellor said the ECB would have to raise its interest rate if it was considering Germany in isolation, but that a lower rate would benefit the wider eurozone.

"The ECB is in a difficult position. For Germany it would actually have to raise rates slightly at the moment, but for other countries it would have to do even more for more liquidity to be made available," she said, in an unusually outspoken remark on policy at the central bank, where independence from political interference is paramount.

"If we want to arrive at tolerable interest rates again, we have to overcome the divisions of the European currency area."

Ultra-low interest rates create more liquidity in the economy, which could boost struggling economies by encouraging lending but erode the value of savings in the stronger German economy, which has so far bucked the eurozone trend and avoided recession.

Mrs Merkel's remark is one of her strongest admissions yet that the German economy operates on a higher tier than its eurozone peers.

I've constantly argued a single interest rate cannot work at the European level and now we have open admission. So everywhere in Europe gets to suffer to preserve the German economy.

"Southern european unemployment is an acceptable price to pay for ensuring German economic stability" to paraphrase Eddie George.

[Charlie The Tramp Returns]

I've constantly argued a single interest rate cannot work at the European level and now we have open admission.

Any Student who has an O level in Economics knows that.

[The Masked Tulip]

So everywhere in Europe gets to suffer to preserve the German economy.

Wouldn't be the first time that the rest of Europe suffers because of German arrogance and intransigence.

[Venger]

by encouraging lending but erode the value of savings

So low-rates, QE, and FLS-on-smack is doing the same here, for our savers.

Savers' money on deposit doesn't go as far in purchasing power, when there are participants being pushed loans to compete with our savings power.

Edited April 25, 2013 by Venger

[Damik]

http://www.telegraph...n-eurozone.html

I've constantly argued a single interest rate cannot work at the European level and now we have open admission. So everywhere in Europe gets to suffer to preserve the German economy.

"Southern european unemployment is an acceptable price to pay for ensuring German economic stability" to paraphrase Eddie George.

First of all it is not South against Germany, but South against Central and North ...

Also they have single rates across USA and it seems as no big harm ...

[campervanman]

Strange that you never read in the Telegraph that the UK has a budget deficit more than double that of the EZ. The EZ is doing what the UK dare not, it is rebalancing, yes there is pain but unlike the UK, the pain will result in long term benefits. In the UK the pain will just bring more of the same.

[Venger]

First of all it is not South against Germany, but South against Central and North ...

Also they have single rates across USA and it seems as no big harm ...

Way I see it is the USA only has one flag, a federal government, and a purpose which seeks to look after the best interests of all their territory.

The EU Euro equivalent is like a household sharing a credit-card with your neighbours, and hoping they'll remain within guidelines on spending. At the end of the day, you're all responsible for the bill, even when your neighbours have racked up the debt on good times or trying to set up a business with debt.

[Executive Sadman]

As your sig says, interestrateripoff

"Northern unemployment is an acceptable price to pay for curbing southern inflation" Eddie George former Governor of the Bank of England

Pretty much how the Eurozone is now, no?

[interestrateripoff]

Any Student who has an O level in Economics knows that.

Strange that when they get to PHD / Central bank level this basic fact is forgotten.

[snowflux]

Strange that when they get to PHD / Central bank level this basic fact is forgotten.

I suppose there's an outside chance that the architects of the euro project may have weighed the disadvantages of having a common interest rate against the advantages of having a single currency, and decided that the latter outweighed the former.

[sombreroloco]

http://www.telegraph...n-eurozone.html

I've constantly argued a single interest rate cannot work at the European level and now we have open admission.

It would work if there was a coordinated fiscal policy. The problem is that the Germans don't want it, at least not the CDU/CSU.

[copydude]

It would work if there was a coordinated fiscal policy. The problem is that the Germans don't want it, at least not the CDU/CSU.

I don't think any German political party could sell the idea of permanent wealth transfer to the electorate.

[Executive Sadman]

It would work if there was a coordinated fiscal policy. The problem is that the Germans don't want it, at least not the CDU/CSU.

*work* is a relative term...have the same monetary and fiscal policies that are applied to NYC and LA "worked" for Detroit?

Even without common fiscal policy, southern europe isnt quite as medieval as Detroit.

[scepticus]

First of all it is not South against Germany, but South against Central and North ...

Also they have single rates across USA and it seems as no big harm ...

Its a massive harm, as it is in the UK. London should have rates at 10% and northern england should have them at -1%.

[Goat]

Strange that you never read in the Telegraph that the UK has a budget deficit more than double that of the EZ.

Our problems are a direct result of The Cretin Brown's 10 year credit bubble. Their problems are a result of a grossly disfunctional currency union.

The EZ is doing what the UK dare not, it is rebalancing, yes there is pain but unlike the UK, the pain will result in long term benefits. In the UK the pain will just bring more of the same.

The problem is that the damage that they are causing to their economies is overwhelming any benefits of spending restraints: The great Spanish nation can end its crucifixion at will by leaving EMU

The mind goes numb. Spanish unemployment jumped by yet another 237,000 people in the first quarter to 6.2 million, or 27.2pc.

This is equivalent to roughly 8.3 million in Britain....The national rate of unemployed youth is 57.2pc, rising to 70pc in the Canaries. This is in spite of mass emigration by Spanish youth. El Pais reports that 260,000 young people aged between 16 and 30 left the country last year.

Public debt jumped from 69pc to 84pc of GDP last year, and only part was due to the bank bail-out. That is a big jump in one year and it understates the actual debt. David Owen from Jefferies says the real figure is 113pc once trade credits and unpaid bills are included, a figure available from the Bank of Spain.

[Deckard]

I suppose there's an outside chance that the architects of the euro project may have weighed the disadvantages of having a common interest rate against the advantages of having a single currency, and decided that the latter outweighed the former.

Yep, but they were wrong.

Unless of course by architects of the euro project you mean Germany.

[TrevorS]

Our problems are a direct result of The Cretin Brown's 10 year credit bubble.

It would be ungenerous not to share the credit with Eddie George and Mervyn King, although of course part of Chancellor's job used to be to keep an eye on the Bank, before the brilliant decision (made to great mainstream applause) to make the Bank "independent" and create a dysfunctional governance framework.

If only Gordon had been even half as good as he thought he was, but it seems there is more to being a competent Chancellor than knowing how to spell "endogenous" and telling the Germans their economy needs to become more like ours. Which was ironic since the point of giving the BoE independence was to ape the Bundesbank model. Always politically easier to deal with superficial symptoms than underlying causes.

We can only hope that good political leaders are like buses because we have been waiting a long time now and there is no sign of any on the horizon.

[Goat]

It would be ungenerous not to share the credit with Eddie George and Mervyn King, although of course part of Chancellor's job used to be to keep an eye on the Bank, before the brilliant decision (made to great mainstream applause) to make the Bank "independent" and create a dysfunctional governance framework.

If only Gordon had been even half as good as he thought he was, but it seems there is more to being a competent Chancellor than knowing how to spell "endogenous" and telling the Germans their economy needs to become more like ours. Which was ironic since the point of giving the BoE independence was to ape the Bundesbank model. Always politically easier to deal with superficial symptoms than underlying causes.

There are plenty of good arguments in favour of independent central banks, where Brown went wrong was that he retained the power to set the targets for the bank, which meant that they were busy worrying about the prices of consumer goods whilst an enormous housing bubble blew up instead. With hindsight it might have been more sensible to give the BOE the power to set their own targets.

More significantly the biggest cause of the banking sectors problems was Brown's rejigging of the regulatory regime and the transfer of responsibility from the BOE to the toothless FSA.

Finally let's not forget that the biggest crisis we face is Brown's insane spending splurge so that he was already planning to run a huge deficit at the height of the credit bubble.

We can only hope that good political leaders are like buses because we have been waiting a long time now and there is no sign of any on the horizon.

At the risk of being unfashionable Cameron looks reasonably decent, certainly a vast improvement on the previous two although that isn't saying much. It's not really his fault that he has to work with the hopeless Clegg & Co and against the hopelessly biased BBC.

[snowflux]

Yep, but they were wrong.

Unless of course by architects of the euro project you mean Germany.

That remains to be seen. I reckon that once the dust has settles, the Southern European countries will benefit more from having a stable currency than they would have done from devaluing their own currencies. In terms of GDP, the EZ as a whole has actually weathered the economic crisis of the last few years better than the UK, not that you'd know it from the MSM.

[Deckard]

That remains to be seen. I reckon that once the dust has settles, the Southern European countries will benefit more from having a stable currency than they would have done from devaluing their own currencies.

Let's agree to disagree and just wait for the dénouement then.

In terms of GDP, the EZ as a whole has actually weathered the economic crisis of the last few years better than the UK, not that you'd know it from the MSM.

Yeah, I'm sure PIIGS citizens find great solace in EZ-wide figures

[Goat]

That remains to be seen. I reckon that once the dust has settles, the Southern European countries will benefit more from having a stable currency than they would have done from devaluing their own currencies.

I seriously doubt it.

If they survive in the currency (and I don't think that's going to happen) they'll still have the same fundamental problem: they're locked into a currency union with vastly different economies where monetary policy is conducted for the benefit of the Germans. Essentially it'll just be a cycle of credit booms followed by grinding recessions.

And remember the cost of the above is nigh on 60% youth unemployment. If that continues for much longer you're going to be looking at revolutions.

In terms of GDP, the EZ as a whole has actually weathered the economic crisis of the last few years better than the UK, not that you'd know it from the MSM.

Yes, that's the whole point of the crisis. The Germans are doing very well out of the currency misalignment whilst the PIIGS are being crucified.

Also, the fact that the UK was bankrupted by The Cretin Brown is not an excuse for the catasrophe that is taking place in Europe today.

[snowflux]

Let's agree to disagree and just wait for the dénouement then.

Yeah, I'm sure PIIGS citizens find great solace in EZ-wide figures

I thing you'll find that GDP changes have not been uniform across the UK either. London, for example, has far outpaced many parts of the north of England over the past few years:

Note: Nominal - does not account for inflation.

Edit: Or to be more accurate, London had not done anywhere near as badly as some places in the North.

Edited April 26, 2013 by snowflux

[Deckard]

I thing you'll find that GDP changes have not been uniform across the UK either. London, for example, has far outpaced many parts of the north of England over the past few years:

Note: Nominal - does not account for inflation.

So what? What's been going on in the UK doesn't make the Euro folly one iota less dysfunctional and doomed to failure.

[snowflux]

So what? What's been going on in the UK doesn't make the Euro folly one iota less dysfunctional and doomed to failure.

I'm simply pointing out, by analogy with the situation in the UK, that regional variations in growth/contraction are not in themselves a valid argument against the euro any more than they are against the pound.

Thus far the euro has functioned as well as any other currency, notwithstanding the continual predictions of its demise. It's notable that while 6 countries have joined since its inception by the original 11, none have left.

[Deckard]

I'm simply pointing out, by analogy with the situation in the UK, that regional variations in growth/contraction are not in themselves a valid argument against the euro any more than they are against the pound.

Yawn, we have done this to death.

One country ≠ 17 independent sovereign states.

Thus far the euro has functioned as well as any other currency, notwithstanding the continual predictions of its demise.

It has survived, yes. But it has only worked in favour of Germany.