Slugger O'Toole

Conversation, politics and stray insights

Euro crisis: “So we have two crises now.”

Fri 9 December 2011, 2:19pm

In the FT, Wolfgang Münchau gives his initial thoughts on the outcome of the EU summit.  From the FT’s A-list [free subs may be required]

Thursday’s European Council meeting has demonstrated that a monetary union cannot co-exist with a group of permanent non-members in unified legal framework. The EU with its current treaties and institutions has proved to be an insufficiently flexible framework to run a monetary union and a disastrous framework for a monetary union in crisis.

These latest developments have reaffirmed my conviction that the only way to save the eurozone is to destroy the EU. But European governments may, of course, end up destroying both. All they did in the early hours of Friday morning was to create a new crisis without resolving the existing one.

And BBC Europe editor Gavin Hewitt’s take

In the long hours of a bitter Brussels night Europe changed.

A major step was taken towards closer integration. It was not as a result of popular demand by Europe’s people. It came about because Europe’s leaders believed their project had “never been in such danger”.

Last night most of Europe’s governments gave up a chunk of their sovereignty. In the future, tax and spending plans will be shown to European officials before national governments.

There will be automatic sanctions against those countries that overspend. A monetary union has moved towards being also a fiscal union.

At least, that’s the plan…

[Is it time to send for the Borg? - Ed]  It may be too late…

Adds  As ever, the Guardian is live-blogging the day’s events.

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Comments (55)

  1. The Heads of State or Government of Bulgaria, Czech Republic, Denmark, Hungary, Latvia, Lithuania, Poland, Romania and Sweden indicated the possibility to take part in this process after consulting their Parliaments where appropriate.

    [official EU press release of "Statement by the Euro Area Heads of State or Government]

    So that’s everyone else aboard, except our Dave.

    Cameron put his personal survival ahead of all other considerations. Well done that man! Ironic cheers.

    We are now in a curious position: 26 of the EU nations are (or will be) signed up to this “fiscal compact”, “committed to working towards a common economic policy” and “agree on an acceleration of the entry into force of the European Stability Mechanism (ESM) treaty … to enter into force in July 2012″.

    Yet Cameron is saying he has used the UK veto (the other 26 seem to think such veto power does not exist).

    In such conditions, it hardly matters whether or not there is a UK referendum on EU membership. The UK is uniquely outside, looking in.

    There are crises:
    ¶ within the Tory Party (Have we heard from Ken Clarke yet? from Heseltine?),
    ¶ between the LibDem activists and their ConDem ministers, and
    ¶ for UK producers and exporters.
    But, hey!, the City bankers won’t be paying a Tobin tax — and they do provide 60% of the Tory party’s income. So there’s some good news.

    What do you think?
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  2. Drumlins Rock (profile) says:

    They also provide a big chunk of the tax take.

    Malcolm there is this quaint idea around for the last few thousand years which seemed pretty good when folk caught on to it, it is called democracy, it looks like most countries want to ditch it all of a sudden, not very wise in my opinion. Remember the vast majority of EU heads of state pushed for the single currency, even some of the outside 10 really wanted to be on board, guess what, they were wrong, badly badly wrong and created this mess, they keep diggin but the mess they are now creating is scarey, I don’t like the look of it at all and it scares me the authoritarian powers Europe is getting. It is sad the UK is virtually on its own, but that is certainly one club I do not want to be in.

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  3. Pete Baker (profile) says:

    Malcolm

    I know what the PR spin from the eurozone heads is.

    But there’s a long way to go from a press release to a ratified treaty – even an inter-governmental one.

    And it wouldn’t be the first time they’d been caught out being economical with the actualité…

    And that’s without considering what their intended destination would actually look like.

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  4. Drumlins Rock @ 4:52 pm:

    … a big chunk of the tax take? Have a gander at EDM 2501. The ukuncut message is going legit.

    Meanwhile, if you are so convinced of the honourable decency of the City’s tax-payers, either keep taking the tabloids or there’s the likes of Richard Murphy.

    Who wants to “ditch” democracy? If that’s a defence of the “democracy” practised by Berlusconi, words fail me. Both Greece and Italy have democratic governments — in many ways, their electoral systems, in theory, are more democratic than the UK’s. I’d diffidently suggest the Tory party’s sub of a million a month from a hard core of hedge funds and similar slush piles (the guys who got us into this mess) could, just could be a calculated distortion of “democracy”. Or did you miss out on the current round of influence peddling by the likes of Bell Pottinger?

    Now let’s go a trifle further. All sides agree that the UK economy needs “rebalancing” — which means moving away from 77.1% of GDP coming from the “service sector”. On which, let’s hear it from Steinbeck:

    Fella had a story. Went to one of them meetings an’ told the story to all them business men. Says, when I was a kid my ol’ man give me a haltered heifer an’ says take her down an’ git her serviced. An’ the fella says, I done it, an’ ever’ time since then when I hear a business man talkin’ about service, I wonder who’s gettin’ screwed. Fella in business got to lie an’ cheat, but he calls it somepin else.

    Remember when the UK made things? Even Belfast sent the odd 46,000 tons to find its way in the world (“Ten thousand Belfast men built her. One Englishman sank her”). Well, “industry” is now a massive 22% of UK GNP. Almost makes one nostalgic for the days when West Midlands business could afford to bankroll Aims of Industry as a way of by-passing laws on political funding and black-listing trades unionists.

    Oh, and democracy … is that anything to do with the referendum we’ve been repeatedly promised? Then we were fobbed off with that nonsense about AV. And did anyone actually vote for this ConDem arrangement? At least FG and Labour were explicit that they intended a coalition.

    Well, Cameron’s “veto” (what’s a vet when nothing gets blocked?) really showed us just how successful his aim has been to “put Britain at the heart of Europe”. Or was that just another verbal manipulation of “democracy”?

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  5. The Economist blogs have two useful commentaries (both anticipate but need to be updated by the cohesion of all 26 nations):

    [David Rennie as] Bagehot giving a UK perspective:

    In my version of the English language, when one member of a club uses his veto, he blocks something from happening. Mr Cameron did not stop France, Germany and the other 15 members of the euro zone from going ahead with what they are proposing. He asked for safeguards for financial services and—as had been well trailed in advance—France and Germany said no. That’s not wielding a veto, that’s called losing.

    I particularly relish the depiction of ultra-sceptic Tories, who “would like Britain, essentially, to be Switzerland with nuclear weapons.”

    [Anton La Guardia — I believe — as] Charlemagne with a Brussels-based interpretation. The punch-line isn’t too cheerful:

    Britain may assume it will benefit from extra business for the City, should the euro zone ever pass a financial-transaction tax. But what if the new club starts imposing financial regulations among the 17 euro-zone members, or the 23 members of the euro-plus pact? That could begin to force euro-denominated transactions into the euro zone, say Paris or Frankfurt. Britain would, surely, have had more influence had the countries of the euro zone remained under an EU-wide system.

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  6. Reader (profile) says:

    Malcolm Redfellow: But, hey!, the City bankers won’t be paying a Tobin tax — and they do provide 60% of the Tory party’s income. So there’s some good news.
    That’s the wrong sort of cynicism. The Tobin tax, in its EU manifestation, was simply a means of taxing the UK billions of pounds a year, pumping it to Brussels, and using it to prop up the Eurozone. I think even the Labour party would have baulked at trying to sell that one back at home. Would you have signed up to that deal if you were a Labour PM?
    But here’s a proposal. Supposing the continental EU goes ahead with a continental Tobin tax. (albeit vastly reduced from their initial calculations because the major contributor won’t play), would you support a separate UK Tobin tax at a lower rate where the revenue stays in the UK? Wouldn’t that be a far better idea even from your POV? In short, where’s your first priority – propping up the Eurozone; sticking it to the bankers; or increasing UK tax revenue?

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  7. Cynic2 (profile) says:

    “So that’s everyone else aboard, except our Dave.”

    In a crisis its usually better not to follow the herd as they rush off the cliff.

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  8. dwatch (profile) says:

    UPDATE 2-Irish referendum risk hangs over EU deal
    http://www.reuters.com/article/2011/12/09/ireland-referendum-idUSL5E7N923220111209

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  9. Comrade Stalin (profile) says:

    would you support a separate UK Tobin tax at a lower rate where the revenue stays in the UK? Wouldn’t that be a far better idea even from your POV

    The point of the transaction tax is not principally about raising revenue. It is to quite deliberately make it unprofitable for the kind of crazy computer-operated casino-style gambling activity that consistently puts national and global markets in severe danger.

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  10. Cynic2 (profile) says:

    “That’s not wielding a veto, that’s called losing.”

    Well actually no its not. Its called sticking up for what you believe in and refusing to kowtow to the Axis powers who just took control of Europe in a bloodless coup d’etat voted for by Governmnets over the heards of their peoples.

    This is being missold to the pople of Europe. This is not the solution to the problem. We havent agreed the treatment. We have just selected the Doctor who will administer it. She hasnt a clue yet what it will be or how sick the patient really is. The treatement may posion perfectly good organs becaus the big toe is septic but they darent remove it.

    The septic poison will spread. In its wake with come resurgent nationailsm and attempts to stamp it out by increased repression. I give the EU 5 years at most and the Euro much less. I fear the lot may be gone in a year.

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  11. Alias (profile) says:

    “The UK is uniquely outside, looking in.” – Malcolm Redfellow

    If the UK was outside looking in at the EU disaster zone then it would be in a very happy place. Unfortunately, it isn’t. It made the mistake of integrating into the EU and must now attempt to limit the damage to itself.

    It is is meaningless to claim that the UK will be demostratively less influencial within the EU than it was before for the simple reason that the UK had very little influence. It has always been a club for Germany and France, not other big states such as Italy, Spain or the UK. Merkel and Sarkozy will determine the agenda, no matter sycophantic or servile or other prime minister contrive to be.

    It is an utterly assinine policy to seek to trade sovereignty for influence. Sovereign IS influence. While the UK holds the sovereign power to etermine its own affairs when it does not have to influence third parties. It is only when countries give their sovereignty to third parties that they must then try to influence those who now exercise that sovereignty in order that they should exercise it in a manner that those countries could have exercised it in themselves if they didn’t give it away.

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  12. Cynic2 @ 7:00 pm:

    Ah! The “Axis powers”! I see you’re another of those 1938 guys, so you may not like what Bagehot makes of Edward Leigh MP.

    As for the “solution” and the “problem”, we are all agreed to a greater or lesser extent on both. The “problem” is sovereign debt. The Tobin Tax (FTT) was one proposed partial “solution”. Gids Osborne’s argument against FTT is that it could reduce EU GDP by 3.5% (the Euro Commission concede 1.76%) and increase unemployment across the EU by half-a-million (the EC’s exact figure was 0.2% — which calculates at 478,000). I’m no more speculating on those numbers than I’d try and double-guess what an alternative government might be doing and saying — I leave that to those present with fully-operating tarot cards.

    All that is clear is Osborne’s alternative “price worth paying”, on advice from the likes of tax-dodger Adam Beecroft, is UK living standards down by between 7 and 11%, unemployment up by three-quarters of a million, increased child poverty, increased job insecurity, longer hospital waiting lists and earlier deaths, and six applicants for every job (but don’t bother if you’re one of the million “neets”).

    The EC proposal ruled out a FTT on securities and currency dealings and on lending and borrowing by private individuals, households, enterprises and financial establishments. It would apply to the kind of horse-trading engaged in by derivative dealers, by hedge funds and similar speculators. Only a cynic would feel that such grey areas need to be kept under check, and need mulcting. Ahem!

    There is a hideous irony here. The main gainer from the Cameron huff looks like Sarkozy: he seems to have achieved precisely the €17 settlement France would be prescribing. A significant loser was Merkel, who, eighteen months back was soliciting Cameron to combine on an alternative bloc of the “liberal” northern economies. Behind that lies the German wish to put Sarkozy and his Club Med claque back in their boxes.

    And in the €17 (which is now the group of EU26), the UK now has no veto, no standing, no credibility, and no clout. So what happens when those hedge-funds and derivative dealers reckon they’d have a better base in, say, Frankfort, Zug, Vaduz or Andorra?

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  13. Greenflag (profile) says:

    CS ,

    ‘It is to quite deliberately make it unprofitable for the kind of crazy computer-operated casino-style gambling activity that consistently puts national and global markets in severe danger.’

    Indeed and then there is that other pandora’s box of some 698 trillion dollars of hedge funding and leveraged bets that relies on currencies to devalue or revalue or governments to be bailed out or not to earn a return for ‘investors ‘.

    These wretches are not in the business of creating ‘jobs ‘ by investing into ‘real economy’ industries or development projects . They are simply focused on getting a high return on leveraged ‘paper ‘ monies .

    BTW 698 trillion dollars represents about 20 times the world’s annual GDP . Iceland’s banks at one point had lent out 10 times the ‘paper ‘value of Iceland’s GDP :(

    Will the Germans and French and other europeans rein in the worst excesses of these global gambling bastards ? Perhaps we can only hope .

    It would be nice to believe that the USA and or the UK would but theres no hope of that . The elected politicians in both those countries rely on these ‘global gambling bastards ‘ to get them elected so they can continue to feed at the trough while their electorates get sweet eff all except of course Alias’s dish of ‘Sovereignty Soup ‘ which goes down well with the Chinese entree of Treasury Bill Stake , with a dessert of London City Spotted Dick .

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  14. Cynic2 (profile) says:

    “And in the €17 (which is now the group of EU26), the UK now has no veto, no standing, no credibility, and no clout.”

    1 so what’s changed?

    2 youa ssume that it will still be there in 12 months. It wont. It will implode under its own contradictions.

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  15. Cynic2 (profile) says:

    “these global gambling bastards ”

    I assume you mean Irish House Price Speculators ie about half of the country

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  16. Cynic2 (profile) says:

    Malcolm

    “axis powers” was used adviusedly but not as you suggets.

    This is a ‘solution” (am I allowed to use that word) cooked up in Germany and France and strong armed by Germany and France. This is France reasserting its God Given Role as Key State In Europe (TM). This is of course all about European solidarity and not saving France;’s economic system or Sarkos electoral chances.

    Tonight Ireland and all the other states ceded national sovreignty over their financial systems to France and Germany.

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  17. … youa ssume that it will still be there in 12 months. It wont. It will implode under its own contradictions.

    I didn’t. I don’t. It may indeed happen so. In which case, according to today’s Times, the Treasury is taking heed of predictions that the UK economy would be £100 billion down the toilet, some 7% of GDP. “Lehmann plus 50%”. So Cynic2 does not have the only fully-operating tarot cards. However, one of those two predictions could just have a bit of other research behind it. I suspect it might be the one which leaves open a window of doubt.

    Would such a doomsday catastrophe be “a price worth paying”? Who would be paying it? Is it written in the stars? Would there be blood in the streets? Perhaps Cynic2 can enlighten us.

    Madame Sosostris, famous clairvoyante,
    Had a bad cold, nevertheless
    Is known to be the wisest woman in Europe,
    With a wicked pack of cards.

    Every time I enter Sluggerdom, I am amazed how so many of the denizens are so certain in their predictions about so much. Bookmakers must have a very, very hard life in these parts.

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  18. Comrade Stalin (profile) says:

    I assume you mean Irish House Price Speculators ie about half of the country

    No, I mean the guys who made it possible for Irish house price speculators to exist.

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  19. DC (profile) says:

    I am conflicted by Britain’s stance on this.

    First up, the tax on banking and finance transactions. Yes, good call indeed in my view the systemic crash and bailout out should have been self-funding over the long term, instant bail out power using government borrowing should have had an agreement that all of it would have been paid back by that very sector itself – via some sort of new or increased taxation.

    I think on the issue of the tobin tax public opinion will be against Cameron on this for sure.

    But then again, taking a look at the bigger political picture, isn’t this new Euro pact or compact or whatever just nothing other than capitalist leaders conspiring together to subvert democracy in order to save capitalism, finance and big business?

    Over the years I’ve had to put up with a lot of right wing claptrap regards the EU being a socialist project or even more ridiculous a Marxist one, well this puts that silly little statement to bed once and for all.

    Certainly over the short to medium the political Right – aka the EU institutions – has abolished democracy to save capitalism.

    So it is true after all, the ‘Left had more reason to fear the Right overthrowing democracy, in order to save capitalism, than the Right had to fear the Left abolishing capitalism for the sake of democracy.’

    This is the beginning of democratic states being turned into debt-collecting agencies on behalf of a global investors and international finance.

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  20. joeCanuck (profile) says:

    It’s somewhat puzzling. The UK wanted some safeguards but les autres refused it. Result, UK doesn’t sign up and get what they wanted from the sidelines. A lose-lose for everyone.

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  21. Greenflag (profile) says:

    @Cynic 2,

    ‘I assume you mean Irish House Price Speculators ie about half of the country’

    No they are just small fry in the big picture of institutional theft which has been ongoing these past several years .

    Read up on former US New Jersey State Governor Corzine and his ‘missing ‘ 1 billion dollars from his global fund ?There is a book long list of missing millions and billions throughout the western economies these past several years which has no precedent in scale in the entire history of capitalism . our very own Sean Fitzpatrick was arrested for the second time today and his partner in ‘gambling’ David Drumm has I believe been forced to sell some of his ill gotten assets but there are many more out there who will never see the inside of a jail . Twenty years ago most of the current crop of Wall St executives would have been jailed had they done then what they recently did in the USA . They ‘bought ‘ the changes in financial law which made what was formerly illegal -legal :( And the politicians from Reagan through Clinton to Bush II went along with the heist whether in ignorance or in abbetance is still not known nor might ever be.)

    Of the 750,000 mortgage holders in the state about 11,000 are in the million plus category of indebtedness. The vast majority of these are from the ‘professional ‘ classes i.e solicitors , doctors , judges consultants etc and all of those who feasted on the boom in property . They are still being protected by the ‘politicians ‘although time is running out for them as the property market continues to lose value.

    Max Keiser has a link to the full story of the 11,000 super speculators in an interview with David McWilliams but alas Icam’t find it right now perhaps tomorrow.

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  22. DC (profile) says:

    And then again, maybe democracy should be subverted after all as when has capitalism ever given a stuff about it, perhaps a technocratic Europe is actually better than a democratic one.

    Much of the UK economy is well and truly under the thumb of its democratic Parliament – at least in theory. Despite that, the owners of big money have walked away pretty much unharmed, bankers bonuses continue while the banks pass on the price of recapitalisation through increased charges to the customers in fees and interest rates etc. The City has won out again in terms of its influence over the British government, clearly Cameron’s use of the veto on behalf of the City of London is proof of this. Once again unaccountable market forces have trumped democratic politics, Cameron being nothing other than a puppet for big finance holed up inside London’s square mile.

    Anyhow time will tell, but one thing is for sure, I certainly wouldn’t like to be the ordinary Joe living inside PIIGS, all that austerity and no accountability. Enjoy.

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  23. Greenflag (profile) says:

    CS

    ‘ I mean the guys who made it possible for Irish house price speculators to exist.’

    Thanks CS that in succinct form is what I meant to say .

    That list is a long one and quite a number of the ‘guys’ on it are from outside this country .

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  24. DC (profile) says:

    Via the BBC:

    Alexander Graf Lambsdorff, head of the Germany’s FDP group, part of the European Liberals, goes as far as to say it was “a mistake to let the British into the EU”.

    Britain must now renegotiate its relationship with the EU, he said. “Either they [the British] do it on their own initiative, or the EU refounds itself – without Great Britain. Switzerland is a model towards which Britain can turn itself.”

    Tempting!

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  25. Alias (profile) says:

    “This is the beginning of democratic states being turned into debt-collecting agencies on behalf of a global investors and international finance.”

    Very well put, young DC. However, they have been converted in debt-collectors on behalf of French and German banks. Ms Merkel must have been scoffing down the comfort buns after reading Deutsche Bank’s balance sheet. As Constantin Gurdgiev pointed out a few weeks ago, with a leverage ratio of 52 it’s a house of cards ready to topple over.

    It basically means that a write-down of assets of just 2% will wipe out all of its core capital. In reality, these write-downs have already occured in the assets of thse massively over-leveraged EU banks but have not been accounted for on the balance sheets. That happy situation will continue only for as long as eurosystem governments continue act as debt-collectors and guarantors on their behalf.

    There losses on their assets (loans) in Irish banks, for example, were closer to 95% than 2%. 5% is what they would have recovered after liquidation. The Irish banks hold assets that have devalued by circa 80%.

    The austerity measures and increased taxes were about ensuring that governments collected taxes from their citizens and paid these to domestic eurosystem banks that in turn exported them to foreign eurosystem banks rather than used those taxes to fund state services. But how sustainable is that? Very rough math will tell you public spending must be cut to a quarter of what it was, with the same amount being collected from the citizens and exported to foreign eurosystem banks.

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  26. Greenflag (profile) says:

    @ DC ,

    The Swiss have been at the ‘tax haven ‘ and holders of other countries ill gotten gains from the medieval popes to the Fuggers to the Nazis not to mention most of the African continents ‘dictators ‘ and at least 11,000 extremely wealthy American tax evaders ?

    Not a tempting model I’d suggest other than for those still employed in the City . Anyway there is all that competition from the hundred plus Crown colonies and dependencies scattered aroun the globe

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  27. Pete Baker (profile) says:

    *shakes head*

    Too many axes being grinded, party political and otherwise, in the absence of consideration of what few facts are available.

    This one has a long way to run, guys.

    You’d be better advised to hold judgement for now.

    Unless, of course, your mind was already made up. By whatever ideological ‘idols’ you hold dear…

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  28. DC (profile) says:

    Not a tempting model – true, but it has to be seen in the context of a having a financial EU dictatorship, if that’s the alternative, then give me Switzerland.

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  29. Alias (profile) says:

    As Cameron just discovered, there has never been a case of sovereign powers being repatriated from the EU – and there never will be.

    Because whatever is given away is never returned, the EU keeps coming back for more powers and will continue to do so until it has all that it needs. For that reason this latest agreement is just another step in the step-by-step process toward full integration.

    There is no need to know the timetable or the route when you already know the destination.

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  30. DC (profile) says:

    step-by-step process toward full integration.

    I guess it could well be the logical conclusion, I don’t think it is justified that Poland for instance joins the EU then attracts factories from Ireland and Britain over to it, simply because of cheap labour. It’s almost as if Britain is complicit in undermining its own wealth and then has to pay for the privilege of that in the form of EU membership fees.

    Better control over tax take at an EU level could offset this as Poland might have to pay more taxes in certain sectors in recognition of this.

    Britain and Ireland for instance could then argue for a cut in membership fees or reduced levels of tax in other sectors.

    Unregulated labour has turned out to be a crazy idea especially coming at this from living inside one of the wealthier EU states – free trade and movement of people and labour was/is meant to boost economic growth but give any business owner the option of either thinking hard to create new products or instead the chance to wring more profits out of their existing ones, what is the likelihood of them choosing the latter? Surely it is easier on the brain to relocate to regions with cheap or cheaper labour in order to drive down costs and take home bigger profits than conjure up new goods and services?

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  31. Cynic2 (profile) says:

    ‘I mean the guys who made it possible for Irish house price speculators to exist.’

    Ah …the Bart Simpson defence. Big boys made me do it

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  32. Cynic2 (profile) says:

    Malcolm

    For someone whose posts are often as nuanced as a Free Presbyterian Sermon I take your criticim in good heart. Next time I will just bow to the infinitely superiuor judgement of my betters on sSlugger. {Tugs forelock and skulks off to garret]

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  33. DC (profile) says:

    ‘I mean the guys who made it possible for Irish house price speculators to exist.’

    That would be Reagan then Clinton and totally unchecked by Bush, these are the culpable guys at a policy level anyway.

    Bill Clinton provided the finishing touches to the deregulation of financial services (Britain blindly followed), the banks I imagine said to Bill “hey if you want us to provide credit directly to the public privately rather than have governments rack up sovereign debt on the public’s behalf you will have to give us the power to do so.”

    Cue Glass Steagall and the running down of bank capital requirements, allowing massive debt-to-capital ratios, using shadow banks, mix all that together and then voila – boom! Leverage! Also known as not having sound money in the bank to actually cover lending of this scale.

    And so it was – privatised Keynesianism was born. Wasn’t it better to have credit cards placed into the hands of the public than have the governments rack up debt on the public’s behalf? What could possibly go wrong!

    Kick the debt down the road and into private hands and sure let some other political party come up with proper productive growth, till then enjoy the credit fuelled boom. Sadly that party is now well and truly over.

    Except for Cameron he wants to keep the speculation going propped up by British taxpayers.

    The EU isn’t that much better, but at least it is admitting there is a serious problem with the way profits are made and lost within the financial sector.

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  34. Alias (profile) says:

    DC, and what about the europhile myth of a ‘strong’ Germany bailing-out the eurosystem and wayward member states when the reality is that the wayward members state such as Ireland are bailing-out a fundamentally insolvent Germany?

    Nothing to say about Deutsche Bank’s leverage ratio of 52? A 2% fall in the value of its assets and it is insolvent. No major German bank is leveraged at less than 50. One default is all it takes for the whole house of cards to collapse.

    The stong shoulders that keep your fragile dream alive are really that of a weak old woman…

    “Next time I will just bow to the infinitely superiuor judgement of my betters on sSlugger”

    And it’s about time you learned your place.

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  35. Coll Ciotach (profile) says:

    “Will the Germans reign in the gambling bastards” – I would not know about that but they ensured that the Irish taxpayer paid the German banks the money they had recklessly gambled. I would hazard that the Germans and the French will look after their interests first

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  36. DC (profile) says:

    Alias

    Frankfurt harbours a lot of bad if not totally rotten apples too, for sure. You are absolutely right, but at least the EU is admitting this in the form of creating a tobin tax in order to pay for this mess.

    In fact in relation to Germany the only bank reported as not being heavily leveraged is one that stuck to the traditional model of banking and investment – Metzler private bank: http://www.metzler.de

    From Spiegel (01/09/2009):

    Former World Bank President James Wolfensohn talks to SPIEGEL about the global financial crisis and his hope that Barack Obama will be the right president to lead the US out of recession.

    Wolfensohn: Take (German private bank) Metzler Bank, which I happen to know very well. It was not in any of this stuff, but that’s because Fritz Metzler is very conservative and smart, and there are a few people here that are equally conservative as well.

    SPIEGEL: Our government-owned banks are heavily affected.

    Wolfensohn: That’s what I’m saying. They still have not determined what is the extent of the loss.

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  37. dwatch (profile) says:

    “Will the Germans reign in the gambling bastards” – I would not know about that but they ensured that the Irish taxpayer paid the German banks the money they had recklessly gambled. I would hazard that the Germans and the French will look after their interests first”

    Indeed, and this new wonder plan by Merkel and Sarkozy is not being taken well by the Irish taxpayer. See here:

    http://news.google.co.uk/news/more?hl=en&gl=uk&gs_upl=2335l19951l0l29240l0l0l0l0l0l0l0l0ll0l0&q=ireland+corporate+tax&um=1&ie=UTF-8&ncl=dNT7HTtZnes5e2M-U3b3FF4F3pkkM&ei=HEjiTsi6HsTT8gPzxrH8Aw&sa=X&oi=news_result&ct=more-results&resnum=2&ved=0CCUQqgIwAQ

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  38. Reader (profile) says:

    DC: That would be Reagan then Clinton and totally unchecked by Bush, these are the culpable guys at a policy level anyway.
    But there is a different set of people responsible for keeping interest rates low in Ireland during the property boom. And a third group responsible for keeping stamp duty low. Speculators were encouraged to operate by policies controlled by both the EU and the Irish Government. The Irish people didn’t complain in either forum until *after* the shit hit the fan.

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  39. DC (profile) says:

    Yes Reader all that too, but those things only help to fan the flames. The concept behind crazy lending was American, others followed.

    If the traditional model of banking was about having enough money in your vaults to cover loans going bad and then this is removed so that you don’t need to have that money, then encouraged to lend more of it out to the public instead – the outcome will be insolvency, as whenever the productive economy stalls and growth slows banks will not be repaid, cue defaults. That’s how banks have become insolvent.

    The conservative banking model was ditched. Reagan and Clinton are to blame. Bush and his lot fanned the flames for sure even the EU joined in, Britain blindly followed without any hard thinking about the possible if not probable consequences of doing all of this.

    Take Gordon Brown selling UK gold and him opening Lehmans, I’ve no doubt that he really believed that money from financial markets would be never ending, whenever the truth is that sound money only really comes from manufactured goods that are produced and sold on the open market. Financial services are in opposition to this – they make money by taking money, they kick that can down the road, lending money instantly to you today and in the end take more of it back off you over the long term.

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  40. Zig70 (profile) says:

    Did anyone watch Storyville on bbc2 on Wednesday – left me in no doubt that the financial sector is out of control. I think the bubble is still to burst. Hardly a blip on the greek default that we were told would bring the world to its knees. If the EU wants to teach the UK a lesson it should default more as a lot of the loans are insured in London and Wal st. 120% of GDP is still too high, they should start like they mean to go on and bring it down to 60% for all the indebted countries. Then we would see recovery as the only way would be up.

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  41. Comrade Stalin (profile) says:

    cynic2:

    Ah …the Bart Simpson defence. Big boys made me do it

    Not quite.

    Interest rates were kept artificially low and various mechanisms were created to make it very easy for individuals, and indeed governments, to borrow large amounts of money.

    Put in economic terms, the market produced an oversupply of money. This was a price signal to borrowers. The crunch came when the oversupply was reversed.

    So it’s not “big boys made me do it”. It’s “big boys said it was OK”. That is why markets need to be tempered by regulation, and is part of the reason why the transaction tax is required.

    I don’t think people are quite aware of how casino-like certain aspects of the markets are. It’s not even a casino game, it’s a children’s game of “snap”. The person who guesses the direction of the market the quickest (using fancy computers and low-latency fibre optic links wins. It’s nothing to do with productivity, efficiency or trade in goods or services.

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  42. Cynic2 (profile) says:

    Comrade

    ON every advert it states ‘interest rates may go up’ . Consumers should have realsied Caveat emptor.

    I dont dispute there was encouragement. I watched with amazement how in a country with so much land and so few people prices soared and i refused to jump in. It was clealrly a bubble driven by land speculators linked to council control of zoning in many areas. And some of the peopel who made a lot of money using ‘borrowed’ funds for land development might be very surprising.

    But ultimateley we are responisble for our own finances and decisions. Big bots didnt make us do it. We did it ourselves – but are now scared and happy to blame others

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  43. Cynic2 (profile) says:

    “Did anyone watch Storyville on bbc2 on Wednesday”

    Yes …it was stunningly good.

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  44. ForkHandles (profile) says:

    Storyville – Yes it was excellent. If i remember correctly, they mentioned how many of the people involved in the ratings agencies recieve payments from the financial services companies. Lehman had AAA rating up until going bankrupt.
    They’re all crooks and should be shot !

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  45. Comrade Stalin (profile) says:

    Cynic,

    At what point in human history have individuals ever acted in the public interest ?

    Don’t you accept that the situation we see here is evidence that self regulation does not work ?

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  46. Greenflag (profile) says:

    Comrade ,

    So it’s not “big boys made me do it”. It’s “big boys said it was OK”. That is why markets need to be tempered by regulation, and is part of the reason why the transaction tax is required.

    Well said .The ‘biggest boy’ of them all i.e Federal Reserve Chairman Alan Greenspan kept the drum beating and only after the property market in the USA collapsed did he admit that he had been ‘mistaken ‘ in his earlier view that the financial and banking sectors would be responsible in their self regulation and would’nt ever indulge in financial transactions which would drive them into the ‘rescuing ‘arms of taxpayers .

    ‘It’s not even a casino game, it’s a children’s game of “snap”. ‘

    Good analogy -I’d have said more like musical chairs on the Titanic .And they’re still at it while the Titanic (real economy ) has been sinking while bailing water these past several years .

    ‘I don’t think people are quite aware of how casino-like certain aspects of the markets are. ‘

    Not just people CS but even the ‘people’s elected representatives be they in Washington DC , Westminster, Leinster House or Berlin or Paris . And the financial regulatory authorities in all the above were to greater or lesser degrees complicit in or ignorant of or in denial of what was actually happening as the ‘banksters ‘ took the entire world economy over the edge :(

    I’d like to say that Governments have moved effectively to reform the current ‘chaotic ‘world monetary system . They haven’t and both the Americans and British seem to have little appetite for effective reform .

    As DC says above

    The EU isn’t that much better, but at least it is admitting there is a serious problem with the way profits are made and lost within the financial sector.

    For anyone interested here’s bank leverage comparison rates as between countries as of April 2011.

    Surprisingly or perhaps not UK banks are ‘leveraged ‘ at much higher rates than Spain, Ireland , Portugal , Greece or Italy and rank 4th behind Germany, Belgium, and France and just a little ahead of Japan . So effectively the UK is also close to what Alias refers to as the ‘insolvency ‘ point and if Osborne’s budget has the negative impact on the economy that is expected the UK may tip first :(

    http://earlywarn.blogspot.com/2011/06/european-bank-leverage.html

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  47. Greenflag (profile) says:

    Alias ,

    ‘Nothing to say about Deutsche Bank’s leverage ratio of 52? A 2% fall in the value of its assets and it is insolvent. No major German bank is leveraged at less than 50.’

    Did you get those figures from the breeze or some reliable source ? According to the IMF Global Financial Stability Report of April 2011 which I link here below, the German banks leverage rate while the highest in the Eurozone and of countries around the world stands at 32 and not 52 with Belgium at 30, France at 26, the UK at 23, Ireland at 17, and the USA at 13. Any idea where your 52 came from or is it perhaps ‘dated ‘ back to 2008 or earlier?

    http://earlywarn.blogspot.com/2011/06/european-bank-leverage.html

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  48. 26 states in Europe have decided that it was a greater priority not to give concessions to the UK on the regulation of the City of London than it was to reach agreement on a treaty which was part of the European Union. In other words, they have decided to go along with creating a legal mess. How does that affect the Euro crisis?

    When the emotion has died down and the cold analysis starts to kick in, they might realise that the legal issues also matter to the money markets. How, for example, are they going to punish a state which should be punished for breaching its budget without those European institutions?

    One can argue about the law until the cows come home. The trouble is, the uncertainty is now even greater. The 26 may have unwittingly passed the death sentence on the Euro.

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  49. Cynic2 (profile) says:

    Don’t you accept that the situation we see here is evidence that self regulation does not work ?

    Ys…but that isnt the issue. Reghulation by Brussels was being manipulated by Franch for national economic reasons. We can now tell them to, frankly, stuff it.

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  50. Seymour Major @ 4:17 pm:

    26 states in Europe have decided that it was a greater priority not to give concessions to the UK on the regulation of the City of London than it was to reach agreement on a treaty which was part of the European Union.

    Not quite your actual verité as it seems to be more widely comprehended. It might be worth, just for a moment, considering the more generally accepted view.

    27 EU heads of state and government convened a special gathering to try to arrange a pact to underpin the €, and found it convenient to include a formal signing ceremony for a new accession.

    One head of government, for purely partisan reasons (i.e. to prove his political manhood after recent near-geldings) grandstanded by trying to force onto the agenda a totally unrelated topic — yet more exemptions to benefit his paymasters in the City of London.

    The other 26 listened with as much politeness as this irrelevance deserved, and then carried on with the agenda previously agreed at diplomatic level. A huff ensued.

    It might, just might have been different:

    ¶ had Cameron allowed his party in Europe to relate to other decent right-wing parties, rather than linking with a tiny group of east European arch-nationalists, racists and homophobes;

    ¶ had the Foreign Office been allowed, in the run-up, to fulfil its usual function of interacting with other governments (note that the only foreign minister to attend on Thursday was William Hague, where he was seen by officials to be the eurosceptics’ commissar and enforcer),

    but, above all,

    ¶ had Cameron not taken such a comprehensive de-bagging at Wednesday’s PMQs. Not for the first time, Cameron was reduced to rhodomontades: I shall do such things….what they are yet I know not..but they shall be the terror of the world.

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  51. DC (profile) says:

    Reghulation by Brussels was being manipulated by Franch

    I think Cynic’s gone on the sauce.

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  52. Alias (profile) says:

    “Did you get those figures from the breeze or some reliable source ?” – Greenflag

    Yes, very reliable – and linked above.

    “Deutsche Bank

    Leveraged 52:1 (16 August 2011) based on a Tangible Common Equity (TCE) to Total Asset measurement.

    Tangible Common Equity is a better gauge of solvency than Tier 1 capital, particularly in the midst of a liquidity crisis. Tier 1 gives no sense of a bank’s ability to withstand a liquidity crunch as it includes market-sensitive instruments that are subject to liquidity and price declines risks. Tangible Common Equity is also a much better indicator of a bank’s ability to raise further funds in the market as it inversely relates to the rate of assets dilution implied in any rights issuance. (1), (2)

    As TCE of €36.2bn is written against €1.85 trillion of assets, DB has just 1.96% cover in form of TCE against assets it holds – a writedown of just 2% on the asset values (cross the book) will wipe out the DB TCE cushion, rendering its current equity-holders de facto bust. Even excluding derivatives, MorningStar estimated DB leverage (TCE ratio 2.1%) at 47.6:1.

    DE’s current leverage levels compare unfavorably against 44:1 TCE leveraging on Lehman Bros books at the time of collapse (ordinary leverage ratio in Lehman’s prior to collapse was 31:1) and makes DB the second most-leveraged bank in the euro area after Credit Agricole.

    To bring DB closer to sustainable levels of TCE delveraging – 8-10% reading (note this is different from Tier 1 capital) will require it raising €110-150 billion in equity (depending on specifics of risk weighting ratios) or 3-4 times the current valuation of TCE or 3-4 times the current market value of the DB. Implied dilution for current equity holders under such scenario bears the risk of 75%- 80% loss on equity.

    Note that 8-10% ratios are rather conservative, considering that in 2006-2009 TCEs for countries with banking sector crisis averaged (across top100 banks) TCEs of 11.5% to 15.3%. (3) Raising TCEs to the crisis-average levels of ca 13.4% will require equity raising of ca 5.7 times current market valuations or implied dilution of current equity by 85%.

    To match TCE/Total Asset leverage ratio of the most leveraged US bank, JP Morgan chase (5.58%), DB would require €67 billion of additional equity or equity raising to the tune of 1.8 times current market cap.

    DE’s current market capitalisation of €37 billion as of 2 September matches relatively closely tangible common equity of €36.2 billion. In previous weeks, DE market cap fell as low as €26 billion or 70% of TCE. A market capitalisation at or below TCE is a warning sign that the bank is in trouble and questions surround its solvency and stability.

    Worse than that, per research from Espirito Santo, DB liquid assets as % of the short term (<1 year) funding in 2010 stood at 47%, well below global leaders Credit Suisse (82%), UBS (77%) and Barclays (59%). At the same time 2010 wholesale funding maturity requirement was 49% – in excess of the iquid assets cover. Again, Credit Suisse had 33% funding call against 82% cover.

    DB is structurally important to Germany as its assets stand at around €1.85 trillion, close to 75% of Germany's 2010 GDP (€ 2.498 trillion).

    DB exposure to Greek assets is €1.6 billion for the core Group components (sovereign debt only), of which €1.34 billion in Deutsche Postbank AG exposures. Under 70% haircut scenario across the entire DB Group, the total implied loss will be around 5% of TCE."

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  53. Cynic2 (profile) says:

    DC

    No – my wireless keybaord has gone mad.

    Though I may have had a mine pie too many yesterday

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  54. Greenflag (profile) says:

    Alias,

    I’m sure Dr Constantin Gurgidiev is a fairly reliable source and the word ‘tangible ‘adds a certain vigor to his numbers .The inference from his article that you quote above is that the IMF figures for ‘leverage ‘ rates are ‘unreliable ‘particularly in the midst of a liquidity crisis . He may be right or his ‘academic ‘tiff with the official IMF view will when all this is over be just another footnote in the currency wars ? .

    Whether the leverage rate for DB is 52 or 32 matters little except to the ‘purists’ of monetary and banking rectitude .One wonders where all that rectitude was prior to Lehman’s or Northern Rock’s collapse ?

    But back to the tangible . The EU has 10,000 tons in gold reserves . The UK has 300 tons .The USA has 8,000 tons. The Chinese have been building up their gold reserves these past several years . In the midst of current currency future uncertainty would you put your money in sterling ?
    According to Max Keiser -Mr Cameron has committed economic suicide (perhaps an exaggeration? ) and in any event Cameron was forced to protect the City and it’s ‘fraudsters’

    http://rt.com/news/keiser-cameron-eu-summit-471/.

    And a nice quote from the Gurdgiev ‘true economics ‘site

    .Nassim Nicholas Taleb was asked by BBC’s Jeremy Paxman whether the people taking to the streets in Athens is a Black Swan Event. He replied: “No. The real Black Swan Event is that people are not rioting against the banks in London and New York.”

    Give them time . Occupy Wall St will be reborn in the spring . The 1% v 99% is now part of the political debate .

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  55. Greenflag (profile) says:

    @Cynic2

    I’m sure the mince pie was innocent -twas the brandy butter and rum sauce that did it .The general idea is that you spread the sauce over the mince pie and not dunk the pie into a bucket of sauce ;)

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