Euro crisis: “Anyone who claims to know what is about to happen to Europe is a fool.”

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In the Guardian, Simon Jenkins identifies a key point missing from most analysis of the aftermath of the EU crisis summit.  From the Guardian article

Anyone who claims to know what is about to happen to Europe is a fool. An unprecedented collapse in world credit has hit against years of reckless state borrowing to produce economic meltdown. Where there is economic meltdown, there is always a danger of political meltdown. While all other sciences have advanced over the ages, that of government “is little better practised now than three thousand years ago”, wrote John Adams. We can all have a view on what ought to happen next, but few can predict how democratic leaders really behave when things fall apart.

Hence we have had Clegg sulking, Cameron banging his chest, Ed Miliband fuming in frustration and the British media defaulting to pantomime mode as sceptics or cheerleaders, Cavaliers or Roundheads, Catholics or Protestants. Abroad, we have Nicolas Sarkozy’s anti-British rhetoric supposedly to win him an imminent election. For the same reason we have had Angela Merkel refusing to liberate Europe’s central bank. Nothing is done to rescue the euro, except what is always done in such crises: a move to “ever-closer union”.

 In the meantime, as I may have mentioned

It’s still “the political trilemma.” 

[Europe is still sexy! - Ed]  Of course it is.

And, as I’ve been saying, for supporters of the “European Project”, the options are stark.

And when it’s that serious, you have to lie…

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  • thethoughtfulone

    Well here we are, third day of trading after Cameron pressed what some are describing as the “nuclear button” and has sterling collapsed?. No, strongest it has been against the Euro since March and apart from a few wee spikes here and there stronger than it’s consistently been for a year or two, by contrast the Euro is struggling. Has the footsie collapsed?, again no. Have UK borrowing costs rocketed while the dodgy eurozone countries have fallen, again no! All that surely says something.

    What is certain is that the “stuck between two stools” position of the UK is no use in even the short term never mind longer term but I s’pose there’s little point discussing referendum while the EU is in such total turmoil.

    Also, while no fan of Cameron why is there no finger pointing at the German position, they are jeapordising the entire “common market” principle just to try and prop up a totally unsustainable system (the euro) and continue with the hugely distorted trading position they’re enjoyed world-wide for a good number of years.

    I just really hope Cameron sticks to his guns and initial opinion poll data will hopefully bolster his resolve.

  • Mick Fealty

    I particularly agree re the lack of focus on German strategy here. But I would also underscore the fact that we have not seen any real outworking yet.

    Black Thursday, October 24, 1929 was neither the start of the trouble for the US and world markets, nor the end of it.

  • thethoughtfulone

    “But I would also underscore the fact that we have not seen any real outworking yet”

    But from a UK point of view is that not good?, if Cameron had gone along with this we’d almost certainly have seen changes immediately but they’d have been for the worse.

    If UK government borrowing costs go up we are stuffed, the amount of borrowing is much higher than predicted but because it’s at lower rates than anticipated (a spin-off benefit of the euro crisis) it means that UK interest payments are lower than anticipated. If it rises much at all, and we’re not talking Spanish or Italian levels, the UK could go over the brink much easier than Italy certainly and possibly even Spain.

    I s’pose the counter argument is Britain jumping on board might have helped steady the EU ship and strenghtened the entire eurozone but I doubt that very much. The single european currency is a ludicrous concept that should never have been and the sooner it dies, by whatever means, the sooner the rest of the world can have a stab at sorting out the even greater mess developing.

  • DoppiaVu

    “Anyone who claims to know what is about to happen to Europe is a fool.”

    Ditto for anyone who claims to know what is about to happen to the UK.

  • sherdy

    DV – You could well be right as the UK economy is forecast to weaken over the coming 3-6 months, with of course no confirmation of how weakened the economy or Sterling will become, or when things will start to pick up again.
    And if Sterling does find itself in trouble, has Britain any friends willing or able to bail them out?

  • Alias

    Nothing is done to rescue the euro, except what is always done in such crises: a move to “ever-closer union”.

    The sole function of the euro was to engineer ever-closer union; and the only logical outworking of ever-closer union is unity.

    Nothing is being done to save the euro because nothing can be done to save it. Instead, the focus of the mandarins is on saving grand project of ever-closer union.

    That is why the mandarins are on a power-grabbing exercise, using the crisis as an opportunity to promote ever-closer union via fiscal union, rather than addressing the underlyning issues that afflict the union such as public and private debt, lack of global competitiveness, wasteful EU bureaucracy, inappropriate monetary and macroeconimic policy, et al.

    It was never necessary to have economic and political integration in order to have a customs union ans states do not need to share sovereignty in order to trade with each other. They were always conditions that the EU mandarins attached in order to blackmail member states into transfering ever-more of the sovereign powers to the EU under threat of exclusion from accessing the single market sans tariffs. Essentially, the EU stole the market places of its member states and used access to them to set terms and conditions that would promote its own political ambition of turning a continent into a state.

    “And if Sterling does find itself in trouble, has Britain any friends willing or able to bail them out?” – sherdy

    The same friends it had before – the IMF.

    The bail-out fund is for eurozone members so the UK wouldn’t have access to it even if it did agree to tax investment for the express purpose of bailing-out the eurozone.

    Besides, the friends it has in the EU are either in a liquidity crisis or heading in that direction via the systemic risks of an integrated banking system pending the first sovereign default, so there is no point looking to them for a loan.

  • aquifer

    Very interesting discussion on BBC newsnight last night.

    Graphs showing that private debt is a much bigger problem than public, and that banks do not trust one another enough to lend to each other except at high interest. Interesting graphs on how many EU members have lost competitiveness within the Euro, and how households are now paying down debt.

    http://www.bbc.co.uk/newsnight/

  • Greenflag

    ‘We can all have a view on what ought to happen next, but few can predict how democratic leaders really behave when things fall apart.’

    Jenkins is of course right about ‘few’ predicting the future when things fall apart .We know this from our Irish history .Who would have predicted an NI state in 1913 ?or an Irish Republic ? Who predicted the Russian Revolution in 1917 or the Fall of Communism in 1989 .

    We know from history that some ‘democratic’ leaders do better than others though whether because of political character or nous or just lucky circumstance is often debateable and dependent on them ‘winning ‘ the war or overcoming some economic, financial or social crisis .

    German ‘democrats ‘ lost out in the 1930’s even though the Nazis polled a mere 2% in 1928 and were seen to be a ‘has been ‘ party . The 1929 Wall St crash sent millions of Americans into poverty but it delivered millions more votes for Hitler up to 30% of the vote in 1930 .Thereafter fear of communism and a discredited ‘establishment ‘ was all it took to give the Nazis the power to rewrite the ‘rules’ of the game .

    In the USA today Mr Corzine former Governor of the US State of New Jersey (DEM) and former Chairman of Goldman Sachs and former favoured candidate for Treasury Secretary finds himself facing a Congressional committee over the missing 1.2 billion dollars from his Global MF Fund. .

    For all those who thought that the USA had resolved it’s Wall St ‘problems ‘ with the bank bail outs and the recapitalisation of the banks this Corzine case is a reminder
    that not much has changed either in Wall St or Washington DC since 2008 .The ‘banksters ‘ have learnt nothing and have reasserted their desire NOT to learn anything .It’s business and bonuses as usual asap for Wall St and the City of London or in plain English ‘Screw the rest of You’

    Corzine appears to have ‘bet ‘ his company on the certainty that the EU leaders would not allow Spain, Italy ,Portugal or Greece ‘default on their sovereign debt . He was like many hoping that the German and French leaders would ‘eurobond ‘ their way out of this crisis just as the USA had done in 2008 with the massive 700 billion bail out that Bush was forced to sign up to by Hank Paulson.

    Alas the EU leaders did’nt play ball and Mr Corzine’s ‘bet ‘ had to be shored up due to the time delay and the only way the funds for that could be obtained was through -yes you guessed it -‘borrowing ‘ money from clients ‘untouchable ‘ funds to the tune of 1.2 billion dollars .And now that 1.2 billion is gone and Corzine’s Global MF fund has filed fr bankruptcy .

    The above -full story linked below is just another reminder that despite all that has happened since Lehman’s or since Bernie Madoff with 60 billion the US financial system is far from stabilised and with American banks still exposed to ‘sovereign ‘ default in some Eurozone countries along with German , French and British banks this crisis IS not going away anytime soon..

    What has this to do with the EU and Eurozone ?

    Corzine will have to explain to all those good people in Kansas and Colorado that it was’nt Global MF who ‘stole ‘their ‘ retirement fund or investments but twas the ‘wicked ‘witch of the East -Angela Merkel cos she did’nt kowtow to the ‘market’quickly enough and thus deprived poor Mr Corzine of making a few easy billions .

    There are many more Mr Corzines in Wall St and the City of London and elsewhere around the world salivating at the prospects of a Eurozone sovereign ‘default’.

    Would’nt it be a shame now if they end up like Mr Corzine ?Tears anybody ? As for the poor Americans or Brits or others who have put the family farm into the hands of these ‘hedge fund gamblers ‘ 2012 should be interesting for all the wrong reasons.

    http://www.democracynow.org/2011/12/14/corzine_grilled_over_mf_global_collapse

  • Greenflag

    Alias ,

    ‘Besides, the friends it has in the EU are either in a liquidity crisis or heading in that direction via the systemic risks of an integrated banking system pending the first sovereign default, so there is no point looking to them for a loan.’

    That’s right . The Eurozone only has 10,000 tons of gold and the USA has 8,000 whereas the UK has 300 tons of gold reserves which shows the world that despite being 6 trillion dollars in overall debt the UK will defend ‘sterling ‘ to the end just like yer man Lamont did back in that contretemps with George Soros .

    Whatever happened to the Golden Rule? And whatever happened to the ‘banks being too big to fail ‘ And Brown’s ‘bottom’ half of Britain’s gold reserves sold at the market bottom ?

    http://maxkeiser.com/2011/12/13/browns-bottom-now-that-the-uk-is-going-to-war-with-europe-this-strategic-blunder-looks-even-more-tragic/

    In times of currency and banking system uncertainty gold remains the last safeguard . Britain sold half their gold reserves at a rock bottom price . Brilliant :(

  • Alias

    The member states hold that amount of gold, not the eurozone. They have no intention of sharing it to bail-out the other member states. Greece, for example, holds 112 tons of gold (worth circa 360 billion) but will demand a cheap loan from ECB/IMF rather than sell its gold to raise funds.

    The ECB has circa 550 tons of gold but it is massively over-leveraged. That is why Tier 1 reserves are a poor measure as Constantin Gurdgiev pointed out – in the event of having to sell that amount of gold to pay its creditors the value of the gold would go down thereby increasing the leverage ratio still further.

    I agree about Gordon Brown. But then who claimed that a socialist would make a great investor other than other socialists?

  • Greenflag

    Alias ,

    The gold reserves are there in the event of the worst case scenario i.e a return to 17 different national currencies .Not going to happen btw .

    Meanwhile back at laissez faire central the ‘recovery’ now bites higher up the food chain . Mr Corzine’s former bailiwick no less hits the news

    ‘New Jersey’s Hunterdon County, the hilly region of horse farms and weekend retreats where last year’s median household income was almost $100,000, is a surprising new face of federal food aid.

    The percentage of U.S. households using food stamps has more than doubled in six of the 10 wealthiest counties in the nation as more residents find themselves out of work and unable to sell their homes. The increase among counties with more than 65,000 people was greatest in Hunterdon County, according to Census Bureau data compiled by Bloomberg.

    Hunterdon, whose 2010 median household income of $97,874 was the highest in New Jersey and fourth-highest in the U.S, saw food-stamp usage surge 513 percent between 2007 and 2010, although the overall numbers are small.
    “Sometimes people will come in a Mercedes,” said Gina Davio, 41, program director of social services at Fisherman’s Mark, a non-profit social-services center in Lambertville, a city of 3,900 on the Delaware River. “Sometimes they come in nothing but Ralph Lauren, but you never know: That may be all they have left.”

    Nationwide, requests for emergency food assistance increased over the past year in 25 of 29 cities surveyed by the U.S. Conference of Mayors. Unemployment led the list of reasons for requesting the aid, followed by poverty, low-wage jobs and high housing costs, according to the survey released today. Eighty-eight percent of the cities reported an increase in the number of persons requesting food assistance for the first time.

    Financial services led capitalism has failed and is continuing to fail in the USA and UK and EU . There is no recovery nor will there be one until confidence is restored in the international monetary system and that won’t happen until western governments break up the biggest banks so that they are no longer too big to fail and until banking services proper are fire walled against investment banking of the casino/hedge fund variety .Investments in the latter should come with a health warning and a note on the investment brochure that taxpayers will NOT bail out those who ‘gamble ‘ their funds on movements in currency exchange rates etc etc.

    And finally western governments need to reintroduce the death penalty for crimes of capital committed by the likes of Madoff and hundreds of others who have gouged out the American and world economy for their own selfish gain this past decade or more !

    Hanging is too good for them :(

  • Greenflag

    Note there are now some 50 million Americans on Food Stamps and most of them would probably be in that group of 150 million Americans who have zero assets -nothing bar the clothes on their backs . Meanwhile of the remaining 150 million or so some 100 million or two thirds have lost asset values in their properties and have seen their retirement funds gouged out .

    The 8 million jobs lost immediately after the Lehman collapse have not returned nor look as if they ever will . Meanwhile graduating classes from colleges are going into unemployment or trying to hide in further study .Others are just adding to the 28 million unemployed and underemployed .
    Corporate America is sitting on hordes of cash but won’t invest in the USA .Why should they anyway .Americans are too indebted and simply don’t have the spending power to restart the economy . Seven of the past 8 recessions were only recovered from via the resumption of activity in the construction sector -the exception was the ‘recovery ‘ due to the Second World War .

    But the USA is nowhere near a recovery in the building sector .In fact millions more are expected to foreclose next year .

    As I said above already the ‘system ‘ is ‘bollixed ‘ possibly even beyond a normal recovery . It’ll take blood on the streets most likely before the financial terrorists of Wall St and the City of London are brought to heel !

  • Alias

    Greenflag, there is no point citing at the economies of the UK, the US and the EU just to support your pre-determined conclusion that the EU is not to blame for the financial problems within the EU because similiar financial problems also afflict those other two countries.

    It is not at all surprising that those three economies should have similiar financial problems since all three central banks within those economies implemented similiar expansionist monetary policies and all three got the similiar results from them. On the other hand, economies that didn’t implement those policies don’t have similiar results.

    Ireland’s external debt has grown to 2,378,000,000,000 US dollars since it joined the eurosystem. Do you know what Ireland’s external debt was a mere 13 years ago? It was a tiny 11 billion punts.

    Sorry, but there is no merit in any claim other than the claim that membership of the eurozone has been an unmitigated economic financial disaster for Ireland.

  • Greenflag

    Alias ,

    There is ALSO no point in misconstruing what I stated ‘

    ‘your pre-determined conclusion that the EU is not to blame for the financial problems within the EU because similiar financial problems also afflict those other two countries.’

    Gordon Brown may have been (was) a poor prognosticator of the future of the gold price and his ‘gold sale’ preceded the Lehman collapse by 5 years -but he was and is right that what we have is NOT just an EU sovereign debt crisis but a global fiscal and monetary crisis . This crisis HAS NOT been addressed by the world’s leading political leaders other than superficially . Whats going on now is a belated attempt by the political leaders of EU and USA and to a lesser extent the UK to ‘catch up’ on the pandora’s box of complex financial tools of mass economic (real economy) destruction let loose on the world since the early 1980’s and in particular since the reform of Glass Steagal Act in 1998 .

    You admit as much yourself above when you state

    ‘ those three economies have similiar financial problems since all three central banks within those economies implemented similiar expansionist monetary policies and all three got the similiar results from them’

    The ‘bigger ‘question is why they implemented expansionary monetary policies . To avoid recession , increase employment -stave off the downside of globalisation for local manufacturing industries or in toto to ensure their -re-election .All of those and more no doubt .

    World economic uncertainty is just as much centred on the future of the dollar and yuan as the euro although you’d never guess it reading the Telegraph or the Daily Mail. In retrospect Gordon Brown did the right thing by staying out of the Euro when he did, but longer term it’s debateable whether staying out will even be in the interest of the City of London .

    Ireland’s ‘unmitigated ‘disaster was to misuse /misinvest ‘cheap money ‘ and to have a government in power that was up to it’s hilt in property developers , fraudulent banksters ,incompetent financial regulators and glad handing politicians in power , more focused on their personal financial troughs than on the national interest.

    Ireland did not need Goldman Sachs to cook the ‘national accounts ‘ in order to join the Eurozone as was the case with the Greeks and even now despite all of what has happened the ‘initial permitted budget deficit limit for entry requirement of 3% which was after the Goldman Sachs hyped ‘facade ‘ was peeled back was seen to be 12% ..Even that appears to have been an underestimate and a Eurostat official statistician (a Greek national) has stated it was probably 15% .

    How much more ‘crisis’ can the Eurozone endure before one or other of the problem countries goes into default -I don’t know but I suspect that it’ll be muddle through for as long as possible until next summer by which time a ‘world wide ‘ solution may have been hammered out by the G20 .

    Whether we end up with a single 17 country or more Eurozone or a two speed EU I don’t know nor much care but I believe that come Dec 2012 or for that matter beyond into the foreseeable future the Euro will survive and prosper but ONLY after the world’s monetary and currency system has been reformed to meet the needs of a multi polar world and not just those of Wall St and the City of London .

  • Greenflag

    Alias ,

    Some good news from another source so will we have a totalitarianism of the extreme right or left ? Whichever don’t forget to be nice to Palestinians as the world descends into economic chaos .. Even if they don’t exist as per USA presidential candidate Gingrich it’s always better to do unto others as you would have them do unto you .

    Back to slightly better news .

    We have an unprecedented situation in the world. There has never been, in world history, a situation where all major sovereign countries are bankrupt. And, in addition, the whole financial system is bankrupt. As we know some countries can print money, like the US and the UK, so therefore their currencies are relatively stable now. It’s not going to last (their currency stability)….

    the full story

    http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/12/14_Von_Greyerz_-_Currency_Collapse%2C_Hyperinflation_%26_Social_Unrest.html

  • Zig70

    Noone has a crystal ball but what they do have are positions. Mine is that the Euro is essential to compete against the US and china as a trading enity but that should be the main purpose not a complex framework. Another beast that needs starved. Also that local powers for things like corp tax are a good thing.
    The financial sectors position seems to be to a man that we are going downwards. They have placed their bets that way and what we see with the threatened downgrading of France is chipping at the cracks to make the bets a reality. The problem is the lack of control over the financial sector to stop them damaging society to their own ends. Morally detatched.
    I liked the analogy on todayFM that the euro leaders are planning better flood defences while drowning, and meanwhile the UK asks for a bigger hose.

  • Alias

    “Ireland’s ‘unmitigated ‘disaster was to misuse /misinvest ‘cheap money ‘ and to have a government in power that was up to it’s hilt in property developers , fraudulent banksters ,incompetent financial regulators and glad handing politicians in power , more focused on their personal financial troughs than on the national interest.”

    You’re a victim of EU propaganda, sadly. That is the line that europhiles are supplied with to use for the purpose of exonerating the EU government and displacing the blame onto national government.

    It is propaganda that simply ignores the inconvienient fact that national government has no role in deciding macroeconomic and monetary policy or in banking regulation. The Central Bank of national government, which had exclusive responsibility for banking regulation, is exclusively under the executive control of the EU’s ECB.

    Indeed, it is unconstitutional under the Maastricht Treaty for the Irish government to offer any advice whatsoever to the Central Bank (which is an instrument of the ECB) about matters that are exclusively its responsibility. If a government acted as you described it would be acting illegally and its instructions would have no force in law.

    Further, it is also unconstitutional under the Maastricht Treaty for the Irish government to act in a manner that does not comply with its legally binding obligation to support the policy of the ECB. If the government was to take the view that the public was borrowing too much money and to express that view to the public then (apart from the fact that it would be interfering in matters that were the exclusive responsibility of the Irish Central Bank) it would in violation of its legal obligation to support the policy of the ECB.

    The government of Ireland’s financial system (monetary, macroeconomic, banking regulation, etc) was the EU, not the national government; and the Irish government was legally mandated not to interfere in matters for which it had no governmental responsibility.

    There was, however, one tool that the government could have used: stamp duty on house sales. This might, in theory, have slowed down houses sales but it would not have slowed down the rampant borrowing that was occuring in other sectors related to consumer spending (cars, holidays, conservatories, 30k weddings, et al) or speculative spending (share price booms etc) so massive private debt would still be a major legacy problem for the economy.

    Contary to the misinformation, Ireland has 777,000 residential mortgages worth €115bn. In other words, if all of those 777,000 residential mortgages were in default, then the amount would be €115 billion and not the several hundred billion in issue. In fact, only 7% are in arrears and the amount is less than 1% of what the government has issued a retrspective guarantee for.

    In contrast to the total value of all outstanding mortgages (115 billion), Ireland’s external debt is 1.67 trillion, In other words, 93% of the debt has bugger all to do with mortgages. That external debt was 1.83 trillion last year, so 160 billion has been paid off it since then – that figure, remember, is more than the total value of all Irish mortgages.

    Monetary and macroeconomic policies are not obscure concepts that have no influence on an economy: they are core drivers of the economy. Those policies determine how much people borrow, when they borrow, why they borrow, and at what policy rate they borrow.

  • Alias

    Incidentally, the reason why stamp duty works “in theory” as a disincentive to buy a house but not in practice is because the house price increases in value beyond a level where it is feasible to impose stamp duty (without driving genuine house buyers out of the market) thereby returning a profit for a speculator. In other words, if a speculator can make a 200k profit on a house (due to nominal interest rates) then he is not going to be disincentivize by a 50k stamp duty.

    Besides, if the public had then asked the government, “Why do you not want us to buy houses?” what would the government say? It could not avoid illegal criticism of the Central Bank/ECB policy. “Look, the Central Bank should raise interest rates to stop all this insane borrowing of hundreds of billions of cheap ECB credit every year, but we can’t tell them to do that because its unconstitutional are we can’t do it ourselves because we gave the sovereignty away. Indeed, we’re acting against the Constitution just telling you this because we’re required to support the ECB’s cheap credit policy.”

    Not going to happen, is it? Once the europhiles give the sovereignty away its exercise, however malappropriate must thereafter be ignored, since to draw attention to it is to draw attention to the inability to change it – and to the crass stupidity of giving it away.

    All the government can do is tailor the fiscal policy to fit the monetary and macroeconomic policy so as to avoid a situation where they conflict with each other, i.e. where the monetary policy is expansionist but the fiscal policy is contractionist. To use fiscal policy as a counterpoint to monetary policy – which is what stamp duty would have been used for – is simply bad economics.

    Once you rise that wave, you’ll ride it until you crashland onto the rocks…