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Merkel demands hand over of sovereignty before any other options considered

The once unthink­able is now an agen­da item for a June 28–29 EU sum­mit: A “fis­cal com­pact” treaty that will cre­ate a new bud­get over­sight agency with a pro­posed list of pow­ers that seems to grow by the day. This includes the author­i­ty to “har­mo­nize” labor laws, tax-poli­cies, and social secu­ri­ty sys­tems. Not only the will this new “author­i­ty” have the pow­er to veto and direct the bud­gets “pri­or­i­ties”, but Merkel is now call­ing for it to have the pow­er to review nation­al bud­gets before they’re draft­ed.

In oth­er words, each euro­zone mem­ber’s nation­al gov­ern­ment is to become a rub­ber stamp for “the author­i­ty”. Cart­man would be proud. And what do the eco­nom­i­cal­ly dis­tressed euro­zone mem­bers get in exchange for hand­ing their sov­er­eign­ty over to Berlin? Eurobonds that help pool the risks and low­er the cost of bor­row­ing, right? Nope, that’s still off the table. As per usu­al Eurobonds are sort of on the agen­da. But these eurobonds are way less , umm, “fun” than the pri­or eurobond pro­pos­als.

For starters, the Bun­des­bank argues eurobonds already exist in the form of the implic­it lia­bil­i­ty the ECB has if a mem­ber nation ever dumps the euro and leaves. It hails from the sto­ried who-needs-brakes-I-have-an-airbag school of risk man­age­ment. It’s a hell of a thing to watch not one but a whole col­lec­tion of free soci­eties open­ly embrace a sys­tem of planned dis­as­ter cap­i­tal­ism run by peo­ple that are obvi­ous­ly lunatics:

Euro­zone bonds some way off, risk-shar­ing already real­i­ty

By Ana Nico­laci da Cos­ta

LONDON | Mon May 28, 2012 11:41am EDT

(Reuters) — Ger­many keeps reaf­firm­ing its long-stand­ing oppo­si­tion to shared euro zone bonds but ana­lysts say the region is already head­ed towards implic­it mutu­al respon­si­bil­i­ty for nation­al debts and Berlin will come under increas­ing pres­sure to suc­cumb.

The region’s com­plex TARGET2 pay­ments sys­tem, which hosts pay­ment flows between euro zone mem­ber states, sug­gests there is already a good deal of risk-shar­ing implic­it in region­al struc­tures, not to men­tion the expo­sure the Euro­pean Cen­tral Bank has to periph­er­al debt.

That shared lia­bil­i­ty may fall short of the kind of joint risk-tak­ing fore­seen for a com­mon bond, where one coun­try is respon­si­ble for the non-pay­ment of debt by anoth­er.

But ana­lysts say the build up of imbal­ances in the sys­tem — as the ECB replaced pri­vate sec­tor lend­ing which dried up for periph­er­al coun­tries — reflects the lat­est in a num­ber of cri­sis-fight­ing steps that have increased region­al inte­gra­tion.


Econ­o­mists say the imbal­ances car­ry only become a prob­lem when one or more coun­tries leave the euro.

But if a mem­ber state does exit and its cen­tral bank is not able to hon­or its lia­bil­i­ties with the ECB, the cost could end up with the rest of nation­al cen­tral banks.

The prospect of an euro exit is no longer so far fetched. The once unmen­tion­able is now open­ly dis­cussed by offi­cials.

“If there are loss­es on these claims that the ECB has, these loss­es get dis­trib­uted in the euro area as a whole, accord­ing to (nation­al cen­tral banks’) cap­i­tal shares at the ECB,” said Gun­tram Wolff, deputy direc­tor of Brus­sels-based Bruegel think-tank, which pub­lished the Blue Bond pro­pos­al out­lin­ing a pos­si­ble struc­ture for com­mon debt issuance.

So in that sense it’s a euro bond but a spe­cial euro bond which ... takes on a risk and dis­trib­utes this risk in the entire euro sys­tem.


So ‘No’ to eurobonds — some­thing that offi­cials admit would help the weak­er nations avoid being forced out the euro­zone — because the ECB will pick up the tab if/when the weak­er nations are forced out of the euro­zone. Ok then.

Con­tin­u­ing with the arti­cle...



Berlin oppos­es the con­cept for fear it will end up pay­ing for over­spend­ing in periph­eries. Only when it sees the risks to the euro zone of not act­ing as greater than the domes­tic polit­i­cal cost of putting Ger­many ever more on the hook, is it like­ly to budge.

Chan­cel­lor Angela Merkel, who faces elec­tions next year, showed no sign of drop­ping her objec­tions at a sum­mit of Euro­pean Union lead­ers last week, but new French Pres­i­dent Fran­cois Hol­lande is an advo­cate.

Merkel insists euro zone bonds can only be dis­cussed at the end of a long process towards fis­cal inte­gra­tion. Even if she agreed, it would require the Euro­pean Union treaty to be changed, a process that typ­i­cal­ly takes months or years, not weeks.

“It is unlike­ly, notably for legal rea­sons, that the ‘sil­ver bul­let solu­tions’ which investors would like to see, such as Eurobonds ... can be eas­i­ly envis­aged in the time­frame rel­e­vant for the cur­rent finan­cial tur­moil,” said Deutsche Bank econ­o­mist Gilles Moec. “Indeed, vocal oppo­si­tion to Eurobonds is not weak­en­ing in Ger­many.”

But if a Greek euro exit mate­ri­al­izes, which elec­tions next month could has­ten, con­ta­gion will spread and emer­gency cri­sis action of some sort will be need­ed. Many ana­lysts see com­mon bonds as the best way of solv­ing the cri­sis.


The Bruegel insti­tute in May 2010 pub­lished the Blue Bond pro­pos­al which fore­sees a pool­ing of a chunk of nation­al debt into a senior blue bond with joint lia­bil­i­ty and any­thing beyond that issued as nation­al, junior paper.

The idea is to secure a liq­uid pool of debt with low bor­row­ing costs on the one hand, and keep incen­tives for fis­cal dis­ci­pline on the oth­er.

“That’s the route that we may go down. And it may well be that the Euro­pean Sta­bil­i­ty Mech­a­nism (ESM) rep­re­sents the first stage of that,” James Nixon, chief Euro­pean econ­o­mist at Soci­ete Gen­erale said.

The ESM is the euro zone’s per­ma­nent res­cue fund which will take over respon­si­bil­i­ty for future bailouts in July.

At the end of the arti­cle it’s not­ed that the new Euro­pean Sta­bil­i­ty Mech­a­nism (ESM) that comes into effect in July — a per­ma­nent replace­ment to the exist­ing ad hoc cri­sis response funds — is also seen as a pos­si­ble step­ping stone for a “Blue Bond”-like pro­pos­al, where some set per­cent­age of nation­al fund­ing is cov­ered by a eurobond and the rest is the sole lia­bil­i­ty of indi­vid­ual nation. That’s quite sim­i­lar to anoth­er pro­pos­al that’s recent­ly come out of the Ger­man Coun­cil of Eco­nom­ic Elders: The Euro­pean Redemp­tion Pact, where 40% of a nation’s debt is cov­ered by joint­ly-issued eurobonds and the rest is the oblig­a­tion of the nation. It’s being hailed as ‘inge­nious’ because it would bypass a rul­ing last year by the Ger­man con­sti­tu­tion­al that pre­vents Ger­many from ever giv­ing up its bud­get sov­er­eign­ty, some­thing the high court described as “fun­da­men­tal” to self-deter­mi­na­tion. This rea­son­able dec­la­ra­tion about the fun­da­men­tal neces­si­ty for bud­get sov­er­eign­ty was made in a court case cen­tered on the legal­i­ty of bailout funds for Ger­many’s neigh­bors. You know, the same neigh­bors that are get­ting loss of bud­get-sov­er­eign­ty (and a bunch of oth­er sov­er­eign­ty) as part of the pre­con­di­tions for their “bailouts”. You can’t make this stuff up:


Rul­ing in Greek Aid Ger­man Court Rejects Chal­lenges to Euro Bailouts
dsl — with wires

Ger­many’s high­est court has ruled that relief for Greece and the euro bailout pro­gram is con­sti­tu­tion­al. As expect­ed, the judges are demand­ing a greater say for par­lia­ment in future deci­sions on pro­vid­ing aid to belea­guered euro-zone mem­ber states.

In a tense­ly antic­i­pat­ed judge­ment, the Ger­man Fed­er­al Con­sti­tu­tion­al Court moved on Wednes­day morn­ing to reject sev­er­al legal com­plaints that had been filed against Ger­many’s par­tic­i­pa­tion in mas­sive efforts to prop up the Euro­pean com­mon cur­ren­cy.

The court said that the bil­lions in aid pro­vid­ed by Ger­many in cap­i­tal and guar­an­tees to high­ly indebt­ed part­ner coun­tries in the Euro­pean Union to shore up the euro had been con­sti­tu­tion­al. At the same time, the court stip­u­lat­ed that the Ger­man fed­er­al par­lia­ment, the Bun­destag, needs to be giv­en a greater say in future bailout mea­sures.

Pre­sid­ing Judge Andreas Vosskuh­le said the ver­dict “should not be mis­in­ter­pret­ed as a con­sti­tu­tion­al blank check for fur­ther res­cue pack­ages.”

The judges ruled that aid pack­age res­o­lu­tions can­not be auto­mat­ic and may not infringe on the deci­sion-mak­ing rights of par­lia­ment. Aid pack­ages have to be clear­ly defined, and mem­bers of par­lia­ment must be giv­en the oppor­tu­ni­ty to review the aid and also stop it if need­ed, the rul­ing said. “The gov­ern­ment is oblig­at­ed in the cas­es of large expen­di­tures to get the approval of the par­lia­men­tary bud­get com­mit­tee,” Vosskuh­le said. The court said that check and bal­ance was need­ed to ensure par­lia­ment retained its sov­er­eign­ty over the bud­get, which it described as a “fun­da­men­tal ele­ment” of demo­c­ra­t­ic self-deter­mi­na­tion.


Ok, so the Ger­man Coun­cil of Eco­nom­ic Elders (awe­some name BTW) has a plan that cre­ates a sort of hybrid 20-year eurobond. And this plan strong­ly sup­port­ed bv the SPD AND Greens accord­ing to the fol­low­ing arti­cle. But the plan also some­how ensures that this new sys­tem — hasti­ly cre­at­ed in a bizarrely rushed con­sti­tu­tion­al cri­sis fol­low­ing a bizarrely exac­er­bat­ed eco­nom­ic cri­sis — does­n’t vio­late last Novem­ber’s Ger­man high court rul­ing that no loss of bud­get sov­er­eign­ty take place in any future bailouts. So how does it pull it off? Well, for starters, the pro­posed 40% joint bond issuance would come with strings attached. Gold­en Strings. More specif­i­cal­ly, gold bul­lion equal to 20% of a “to-be-redeemed” nation’s debt is to be hand­ed over as col­lat­er­al. The Elders appar­ent­ly want to assure the pub­lic not to wor­ry about the gold. It will only be seized of there’s a prob­lem with a coun­try meet­ing it’s debt repay­ment oblig­a­tions. This is the mes­sage being sent to nations that are cur­rent­ly hav­ing trou­bles pay­ing their debts. It’s like they’re not even try­ing any­more:

The Tele­graph
Europe’s debtors must pawn their gold for Eurobond Redemp­tion
South­ern Europe’s debtor states must pledge their gold reserves and nation­al trea­sure as col­lat­er­al under a €2.3 tril­lion sta­bil­i­sa­tion plan gain­ing momen­tum in Ger­many.

By Ambrose Evans-Pritchard, Inter­na­tion­al busi­ness edi­tor

5:22PM BST 29 May 2012

The Ger­man scheme — known as the Euro­pean Redemp­tion Pactoffers a form of “Eurobonds Lite” that can be squared with the Ger­man con­sti­tu­tion and breaks the polit­i­cal log­jam. It is a high­ly cre­ative way out of the debt cri­sis, but is not a soft option for Italy, Spain, Por­tu­gal, and oth­er states in trou­ble.

The plan is draft­ed by the Ger­man Coun­cil of Eco­nom­ic Experts and inspired by Alexan­der Hamilton’s Sink­ing Fund in the Unit­ed States — cre­at­ed in 1790 to clean up the morass of debts left by the Rev­o­lu­tion­ary War. Flour­ish­ing Vir­ginia was com­pa­ra­ble to Ger­many today.

Chan­cel­lor Angela Merkel shot down the pro­pos­als last Novem­ber as “com­plete­ly impos­si­ble”, but Europe’s cri­sis has since fes­tered, and her Chris­t­ian Demo­c­rat par­ty has since suf­fered crush­ing defeats in region­al elec­tions.

The Social Demo­c­rat oppo­si­tion sup­ports the idea. The Greens say they will block rat­i­fi­ca­tion of the EU Fis­cal Com­pact in the Ger­man Bun­desrat — or upper house — unless Mrs Merkel relents.

“The Redemp­tion Pact clev­er­ly com­bines the advan­tages of low­er inter­est rates through joint Euro­pean bor­row­ing with a reduc­tion of debt,” says Green leader Jür­gen Trit­tin. “Joint lia­bil­i­ty would be lim­it­ed in both time and scale.”

The plan splits the pub­lic debts of EMU states. Any­thing up to the Maas­tricht lim­it of 60pc of GDP would remain sov­er­eign. Any­thing over 60pc would be trans­fered grad­u­al­ly into the redemp­tion fund. This would be cov­ered by joint bonds.

Italy would switch €958bn, Ger­many €578bn, France €498bn, and so forth. The total was €2.326 tril­lion as of Novem­ber but is ris­ing fast as Europe’s slump cor­rupts debt dynam­ics. The sink­ing fund would slow­ly retire debt over twen­ty years, using des­ig­nat­ed tithes akin to Germany’s “Sol­i­dar­i­ty Sur­charge”.


Note that the “Sol­i­dar­i­ty Sur­charge” that the Redemp­tion pact is being com­pared to was a tax start­ed in 1993 to finance the rebuild­ing of East Ger­many, includ­ing phys­i­cal infra­struc­ture projects. I’m not aware of a sim­i­lar com­mitt­ment to rebuild the phys­i­cal infra­struc­ture of the “redeemed” euro­zone mem­bers but I’m sure there’s some sense of sol­i­dar­i­ty tucked away in there. Some­where.



The inge­nious design gets around the Ger­man con­sti­tu­tion­al court, which ruled in Sep­tem­ber that the bud­getary pow­ers of the Bun­destag can­not be alien­at­ed to any EU body under the Basic Law — the found­ing text of Germany’s vibrant post-War democ­ra­cy.

The court warned that open-end­ed lia­bil­i­ties are uncon­sti­tu­tion­al. The Bun­destag may not estab­lish “per­ma­nent mech­a­nisms which result in an assump­tion of lia­bil­i­ty for oth­er states’ vol­un­tary deci­sions, espe­cial­ly if they have con­se­quences whose impact is dif­fi­cult to cal­cu­late,” it ruled. Chief Jus­tice Andreas Vosskuh­le said that any major step towards EU fis­cal union would require “a new con­sti­tu­tion” and a ref­er­en­dum.

The fund implies a big sac­ri­fice for Ger­many. Its inter­est costs on joint debt would be much high­er than today’s safe-haven rate of 1.37pc on 10-year Bunds. Jef­feries Fixed Income says it would cost 0.6pc of Ger­man GDP annu­al­ly. The Coun­cil of Experts — or ‘Five Wise Men’ — argue that this would be mod­est com­pared to the growth adren­a­line of res­cusi­tat­ing mon­e­tary union.

Yet it is not char­i­ty either. One offi­cial said a key motive is to relieve the Euro­pean Cen­tral Bank of its duties as chief fire-fight­er. “We have got to get the ECB out of the game of dis­trib­ut­ing mon­ey, and sep­a­rate fis­cal and mon­e­tary pol­i­cy. Ger­many has only two votes on the ECB Coun­cil and has no way to con­trol con­sol­i­da­tion,” he said.
Gold­en Strings
Ger­many would have a lock­hold over the fund, able to enforce dis­ci­pline. Each state would have to pledge 20pc of their debt as col­lat­er­al. “The assets could be tak­en from the country’s cur­ren­cy and gold reserves. The col­lat­er­al nom­i­nat­ed would only be used in the event that a coun­try does not meet its pay­ment oblig­a­tions,” said the pro­pos­al.

This demand could enflame opin­ion in Italy and Por­tu­gal. Both states have kept their bul­lion, resist­ing the rush to sell by Britain and oth­ers. Italy has 2,451 tonnes of gold, val­ued at €98bn in March.

Alessan­dro di Carpeg­na Briv­io, a gold expert at Campe­rio Sim in Milan, said Italy should treat such pro­pos­als with care. “Every­thing being done at a Euro­pean lev­el is in the inter­ests of Ger­many and France, to save their banks. It is not in the inter­est of Italy,” he said.


Yes, the grand plan to save the euro­zone is now a 20-year 1‑strike-and-you’re-out res­cue pol­i­cy. Why only 1‑strike? Well, in the event that it can’t “meet its pay­ment oblig­a­tions”, after that gold gets seized and the state assets are pri­va­tized it’s sort of hard to see what a coun­try is sup­posed to do next (pre­sum­ably it’s kicked out of the euro­zone and turned into some inter­na­tion­al pari­ah or some oth­er form of com­pas­sion­ate tough “love”). And this is the plan that the Ger­man Left is championing...it’s appar­ent­ly been too gen­er­ous for Merkel’s taste.

So what about the rest of the euro­zone? Is there going to be any mean­ing­ful push back fol­low­ing France rejec­tion of the great Merkozy in favor of social­ist Fran­cois Hol­lande? Will Hol­lande pro­vide the much need­ed coun­ter­bal­ance to the seem­ing­ly unstop­pable push towards a “fis­cal union” that turns nation­al par­lia­ments into lit­tle nation­al jokes and treats the imme­di­ate fis­cal cri­sis like it’s gold­en fire­sale? Will there be any real push­back at all? Are you kid­ding?

Europe mulls major step towards “fis­cal union”

By Noah Barkin and Daniel Fly­nn

BERLIN/PARIS | Sun Jun 3, 2012 1:45pm EDT

(Reuters) — When Jean-Claude Trichet called last June for the cre­ation of a Euro­pean finance min­istry with pow­er over nation­al bud­gets, the idea seemed fan­ci­ful, a dis­tant dream that would take years or even decades to real­ize, if it ever came to be.

One year lat­er, with the euro zone’s debt cri­sis threat­en­ing to tear the bloc apart, Ger­many is push­ing its part­ners for pre­cise­ly the kind of giant leap for­ward in fis­cal inte­gra­tion that the now-depart­ed Euro­pean Cen­tral Bank pres­i­dent had in mind.

After falling short with her “fis­cal com­pact” on bud­get dis­ci­pline, Ger­man Chan­cel­lor Angela Merkel is press­ing for much more ambi­tious mea­sures, includ­ing a cen­tral author­i­ty to man­age euro area finances, and major new pow­ers for the Euro­pean Com­mis­sion, Euro­pean Par­lia­ment and Euro­pean Court of Jus­tice.

She is also seek­ing a coor­di­nat­ed Euro­pean approach to reform­ing labor mar­kets, social secu­ri­ty sys­tems and tax poli­cies, Ger­man offi­cials say.

Until states agree to these steps and the unprece­dent­ed loss of sov­er­eign­ty they involve, the offi­cials say Berlin will refuse to con­sid­er oth­er ini­tia­tives like joint euro zone bonds or a “bank­ing union” with cross-bor­der deposit guar­an­tees - steps Berlin says could only come in a sec­ond wave.


Ok, so we’ve gone from calls for a “fis­cal union” that Merkel opposed a year ago to today’s calls by Merkel for a far more expan­sive fis­cal union that appears to explic­it­ly give Berlin sov­er­eign­ty over its neigh­bors bud­gets, and agree­ment to this new vas­sal-state union is being called a pre­req­ui­site if Berlin is to con­sid­er any oth­er options. Wow. An entire con­ti­nent is get­ting scammed by the most overt and extreme form of polit­i­cal black­mail I think I’ve ever seen. Thanks Europe, I’m no longer quite as ashamed by my fel­low Amer­i­cans’ col­lec­tive propen­si­ty for falling for jaw-drop­ping­ly bla­tant polit­i­cal cons. This is clear­ly a glob­al phe­nom­e­na.

Con­tin­u­ing with the arti­cle...



Spain, whose bank­ing trou­bles have made it the lat­est tar­get of finan­cial mar­kets, sig­nalled over the week­end that it was on board with a key ele­ment of the plan.

Prime Min­is­ter Mar­i­ano Rajoy backed the cre­ation of a new euro-wide fis­cal author­i­ty of the kind Trichet sketched out in a speech in Aachen, Ger­many last year.

But oth­er states, includ­ing the bloc’s sec­ond-biggest mem­ber France, have deep reser­va­tions about ced­ing so much sov­er­eign­ty.

New Pres­i­dent Fran­cois Hol­lande rode to vic­to­ry in a French elec­tion last month promis­ing new steps to boost growth. At the EU sum­mit lat­er this month, he and oth­er lead­ers were expect­ed to gang up on Merkel, press­ing her for new growth-enhanc­ing mea­sures.

But after a series of mod­est con­ces­sions from the Ger­man leader, a loose con­sen­sus on a growth strat­e­gy already appears to have been reached weeks before the lead­ers meet.

Now, the main focus of the sum­mit seems like­ly to be on steps need­ed for a “fis­cal union”, a debate which puts Hol­lande in a far more dif­fi­cult posi­tion, even if peo­ple who know him well say his vision of Europe is much clos­er to the fed­er­al­ist Ger­man mod­el than those of his Gaullist pre­de­ces­sors.

“It’s a big chal­lenge for Hol­lande,” said a senior French offi­cial who declined to be named. “I think that he is ready for (clos­er fis­cal inte­gra­tion) but I think the rest of the French polit­i­cal class — both on the left and right — is not.”

The hope in Berlin and oth­er cap­i­tals is that if lead­ers can present a cred­i­ble plan for mov­ing towards a fis­cal union, fur­ther con­ta­gion — even in the event of a Greek exit from the euro zone — can be lim­it­ed, one senior cen­tral banker said.

But even if the Ger­mans do win over the French and oth­er scep­ti­cal coun­tries like Fin­land and Aus­tria, there are seri­ous doubts about whether a 5–10 year plan for clos­er inte­gra­tion — weighed down by lengthy nation­al debates over treaty change — will be enough to restore investor con­fi­dence now.


Ha! Yes, Hol­lan­de’s big chal­lenge is con­vinc­ing the rest of France’s elites to agree to sign away the nation’s bud­get, tax, and labor poli­cies. Oh my have things gone awry over in the euro­zone. And even if there IS a fis­cal union put into place and the euro­zone turns into some weird Ger­man vas­sal-state domin­ion, EVEN THAT might not be good enough for “the mar­kets” to restore “investor con­fi­dence”. Wow, “the mar­ket” is appar­ent­ly dom­i­nat­ed by lunatics that want to see some sort of rad­i­cal over­haul of the right to self-deter­mi­na­tion. That seems like one of the issues that Hol­lande is fac­ing too.


14 comments for “Merkel demands hand over of sovereignty before any other options considered”

  1. And now we have Wolf­gang Schaeu­ble reit­er­at­ing the demands...fiscal union BEFORE eurobonds. And the first step in the cre­ation of this union? Set­ting up a penal­ty sys­tem for gov­ern­ments that don’t meet their debt-reduc­tion goals:

    Europe needs real fis­cal union: Ger­many’s Schaeu­ble
    (AFP) — 06/05/2012

    FRANKFURT — Before Europe launch­es com­mon bonds or so-called eurobonds, it must first estab­lish a true fis­cal union, Ger­man Finance Min­is­ter Wolf­gang Schaeu­ble said in a news­pa­per inter­view Tues­day.

    “The gov­ern­ment has always said that before we start talk­ing about joint debt man­age­ment, we need real fis­cal union,” Schaeu­ble told the busi­ness dai­ly Han­dels­blatt.

    The top­ic of eurobonds — pool­ing the debt of euro­zone mem­ber states to dri­ve down bor­row­ing costs — has split the 17-nation bloc and was the main stick­ing point at an infor­mal EU sum­mit last month.

    Nev­er­the­less, cre­at­ing a fis­cal union was a “medi­um-term project,” the finance min­is­ter insist­ed.

    A first step was the fis­cal pact, agreed to by 25 of 27 Euro­pean Union mem­bers and which is designed to shore up the tur­moil-hit euro­zone by penal­is­ing coun­tries that fail to keep their deficits in check.

    A bank­ing union, too, would be anoth­er stage.

    “We should take one step after anoth­er,” Schaeu­ble said.

    The path Europe has to take “is not an easy one and it won’t always be fair,” he warned.


    France is spear­head­ing a dri­ve for eurobonds, in effect pool­ing the debt of euro­zone coun­tries, in order to raise fresh debt fund­ing.

    It and oth­er euro­zone states say eurobonds could fund des­per­ate­ly need­ed growth poli­cies after years of aus­ter­i­ty have pushed the econ­o­my into reces­sion.

    But Ger­many is firm­ly opposed to such a move, argu­ing it takes away the pres­sure for reform in spend­thrift coun­tries and also under­mines mar­ket dis­ci­pline.


    “You know the fis­cal pact is the begin­ning of the fis­cal union and in the longer term you could imag­ine stricter over­sight,” he added.

    “Such ques­tions will cer­tain­ly be dis­cussed” at a forth­com­ing meet­ing of EU lead­ers in Brus­sels on June 28–29, the spokesman said.

    Great, so agen­da for the June 28–29 meet­ing is to turn the euro­zone into a giant boot­camp for way­ward teens...the extra psy­cho kind of boot­camp for way­ward teens.

    Posted by Pterrafractyl | June 5, 2012, 8:47 am
  2. Ger­man pub­lic oppo­si­tion to pro­pos­als to ease up on aus­ter­i­ty has been one of the most fre­quent­ly cit­ed rea­sons for Merkels unre­lent­ing oppo­si­tion such ideas. This does­n’t bode well:

    Near­ly half of Ger­mans want Greece to leave euro: poll
    BERLIN | Tue Jun 5, 2012 9:05am EDT

    (Reuters) — Near­ly half of Ger­mans want Greece to leave the euro zone and a third is very afraid that the coun­try’s debt cri­sis could threat­en the euro, a poll in Stern mag­a­zine showed on Tues­day,

    Accord­ing to a sur­vey of 1,001 Ger­mans con­duct­ed by For­sa research insti­tute, 49 per­cent of those polled want Greece to quit the sin­gle cur­ren­cy while 39 per­cent want it to stay.

    Near­ly two thirds want Ger­man Chan­cel­lor Angela Merkel to keep insist­ing that Greece stick to agreed aus­ter­i­ty mea­sures despite grow­ing crit­i­cism of this course in oth­er euro zone coun­tries such as France, the poll said.


    In Tues­day’s sur­vey, near­ly two thirds of Ger­mans expressed a lack of under­stand­ing for those Greeks who want to vote for oppo­nents of aus­ter­i­ty mea­sures.

    A third said they would have sec­ond thoughts about spend­ing their hol­i­days in Greece at the moment.


    And now in Spain, which is close to being frozen out of the bond mar­kets over grow­ing bank­ing con­cerns, Prime Min­is­ter Rajoy is call­ing for fis­cal and bank­ing unions that basi­cal­ly hands the coun­try over to Berlin. And what’s the alleged impe­tus for these calls for a clos­er union(union of unequals...it’s a VERY tra­di­tion­al mar­riage)? Well, there appears to be a grow­ing sense in Spain’s bureau­cra­cy that Ger­man pol­i­cy mak­ers are mak­ing mat­ters much worse than nec­es­sary because of ongo­ing con­cerns over whether Ger­many is even inter­est­ed in any long-term com­mitt­ment to the euro. If only Berlin had agreed to clos­er inte­gra­tion ear­li­er this whole Spanich bank­ing col­lapse could have been avoid­ed, or so the thin­kling goes. So Spain’s elites are con­cered that Berlin isn’t com­mit­ted enough to them (sor­ry Spain, she’s just not that into you) so they’re plead­ing to become a vas­sal state in order to win back Berlin’s ever­last­ing love. And, once Spain can con­vince “the mar­ket” that Berlin is real­ly and tru­ly com­mitt­ment to Spain, only then will true love warm the cold hearts of “the mar­ket” and let love reign supreme. Or, well, at least some­thing is going to reign supreme...

    You have to give cred­it where cred­it is due..Spain is beg­ging to be tak­en over and Ger­many is say­ing “no, the terms aren’t good enough”. Bra­vo, Angela. Bra­vo. Play­ing hard to get has nev­er been so prof­itable:

    In Spain, Ger­many is vil­lain, not sav­ior
    By Fred­er­ick Kempe
    June 4, 2012

    MADRID — What brought me to Spain dur­ing the most threat­en­ing week of the country’s recent his­to­ry was an invi­ta­tion to speak about one of Europe’s dark­est hours a half-cen­tu­ry ago, pegged to the Span­ish-lan­guage pub­li­ca­tion of my book Berlin 1961: Kennedy, Khrushchev, and the Most Dan­ger­ous Place on Earth.

    One of Spain’s most senior gov­ern­ment offi­cials was quick to make the con­nec­tion between 1961, when Germany’s post­war divi­sion was deep­ened by the Berlin Wall, and the his­toric moment today, when a reuni­fied Ger­many, act­ing from its most pow­er­ful Euro­pean perch since the Third Reich, will deter­mine whether the con­ti­nent will be new­ly divid­ed — this time along North-South lines, with Spain out­side the euro. But more sharply, this offi­cial — who won’t speak for attri­bu­tion as he must deal dai­ly with Ger­man coun­ter­parts — believes Germany’s actions (and, more fre­quent­ly inac­tions) have put the euro and the Euro­pean Union project itself at risk.

    It is in that con­text, he said, that Spain has put for­ward an urgent plan for a Euro­pean bank­ing union, com­plete with a pan-Euro­pean deposit guar­an­tee fund and bank­ing super­vi­sor. The idea has now been endorsed by the Euro­pean Com­mis­sion, Euro­pean Cen­tral Bank Pres­i­dent Mario Draghi, Italy, Ire­land and oth­ers. Ger­man Chan­cel­lor Angela Merkel has not fol­lowed suit. Span­ish offi­cials are lob­by­ing hard for this idea because they believe it’s urgent­ly need­ed, but also because they hope to force Germany’s hand in a man­ner that would move mar­kets and reverse Spain’s down­ward spi­ral. So that his pur­pose couldn’t be missed, Span­ish Prime Min­is­ter Mar­i­ano Rajoy over the week­end sur­pris­ing­ly called for cen­tral­ized con­trol of nation­al bud­gets in the euro zone — tee­ing up a cru­cial auc­tion of Span­ish trea­sury bonds this Thurs­day.

    Yet Rajoy’s top eco­nom­ic advis­ers say that what­ev­er they may do them­selves, it is beyond them to remain in the euro if mar­kets aren’t more con­vinced of Germany’s com­mit­ment. Although Rajoy’s gov­ern­ment has reduced pen­sion bur­dens, intro­duced labor mar­ket reforms, recap­i­tal­ized banks, cut deficits and writ­ten debt lim­its into the con­sti­tu­tion, mar­kets con­tin­ue to bet against Spain. Ten-year sov­er­eign bond yields, at more than 6.5 per­cent, are 550 basis points high­er than those in Ger­many and per­ilous­ly close to the 7 per­cent lev­els at which Por­tu­gal, Ire­land and Greece required bailouts.


    One con­ver­sa­tion after anoth­er in Madrid under­scored a grow­ing Span­ish res­ig­na­tion that their fate rests in Ger­man hands and an esca­lat­ing frus­tra­tion that Ger­man lead­ers have been too slow to rec­og­nize the eco­nom­ic stakes, the his­toric moment or what steps could most quick­ly save the euro project.

    Span­ish experts list the many things Ger­man lead­ers could have embraced in past months that might have pro­duced a dif­fer­ent out­come: euro zone bonds, an expan­sion of funds avail­able from the Euro­pean Sta­bil­i­ty Mech­a­nism (cur­rent­ly 500 bil­lion euros) and the abil­i­ty of banks to access them direct­ly, a more expan­sive Euro­pean mon­e­tary pol­i­cy or a Europe-wide guar­an­tee for the threat­ened bank­ing sys­tem.

    The fail­ure of the Ger­mans to act with the urgency and scale oth­er Euro­peans con­sid­er nec­es­sary has led mar­kets to believe, along with more than a few Spaniards, that Ger­mans them­selves may no longer think the euro was such a good idea and that it may be time to cut their loss­es. That notion has been dra­mat­i­cal­ly fed by the new pub­li­ca­tion of for­mer Bun­des­bank direc­tor Thi­lo Sarrazin’s best-sell­ing book, Europe Doesn’t Need the Euro.

    A sur­vey in Germany’s Focus mag­a­zine last week, which got wide notice here in Spain, showed that while 45 per­cent of Ger­mans agree with Chan­cel­lor Merkel’s view that a euro fail­ure would lead to a broad­er Euro­pean fail­ure, near­ly the same num­ber, or 43 per­cent, embrace Sarrazin’s oppos­ing the­sis. (Twelve per­cent are unde­cid­ed.) Indeed, a rumor is swirling around Madrid that the Ger­mans are already secret­ly print­ing Deutschemarks. Although this has no appar­ent basis in fact, it does reflect the mood.


    Yet the Rajoy gov­ern­ment now acts with full knowl­edge of the moment. If Spain leaves the euro, it would be a set­back of his­toric dimen­sions. The coun­try would overnight go from being an inte­gral part of the world’s largest eco­nom­ic mar­ket — to again being a sec­ond-rate Euro­pean play­er.

    Spaniards are con­vinced Ger­many would lose even more, in exports, in glob­al posi­tion, and in the many unpre­dictable rever­ber­a­tions of the euro’s unrav­el­ing.

    Yet until they see a more con­vinc­ing Ger­man response, Span­ish offi­cials brace for the worst even while lob­by­ing Berlin and Brus­sels with the inten­si­ty of the damned.

    Posted by Pterrafractyl | June 5, 2012, 2:40 pm
  3. There con­tin­ue to remain only two, long-term solu­tions to the euro prob­lems:

    1. Each nation return to Mon­e­tary Sov­er­eign­ty by read­opt­ing their sov­er­eign cur­ren­cy
    2. Finan­cial merg­er into a qua­si “Unit­ed States of Europe.”

    That’s it. No oth­er solu­tions.

    But sad­ly, the twin goals of “trade sim­pli­fi­ca­tion” and “euro sta­bil­i­fi­ca­tion” con­tin­ue ever onward, while the peo­ple suf­fer from the igno­rance of their lead­ers. With each gear, lever and pul­ley added to the Rube Gold­berg euro machine, trade becomes more com­pli­cat­ed and the euro less sta­ble, and the euro nations plunge from reces­sion toward depres­sion.

    Posted by bambi | June 6, 2012, 2:05 pm
  4. @Bambi: Every cri­sis has a gold­en Shock Doc­trine lin­ing:

    Solu­tion #3 is nei­ther intra­na­tion­al nor intra-Euro­pean but inter­na­tion­al.

    A world eco­nom­ic con­fla­gra­tion would be fol­lowed by (U.S.-German) attempts to coor­di­nate a frame­work of inter­na­tion­al eco­nom­ic “reg­u­la­tions” com­bined with frame­work for uni­fied cur­ren­cy mar­ket sys­tem, reg­u­lat­ed by inter­na­tion­al board of cor­po­rate elite “trustees” from Ger­many & U.S. who have zero account­abil­i­ty & are un-elect­ed.

    All the bet­ter if there’s an “Inter­na­tion­al 9/11” with simul­ta­ne­ous “Al Qae­da” attacks not mere­ly on New York & D.C. but also on Berlin, Lon­don, Jerusalem, Ankara, Mum­bai, Oslo, Paris, Tokyo & Ottawa.

    Then, of course, you could also simul­ta­ne­ous­ly orga­nize an inter­na­tion­al frame­work of “inter­na­tion­al anti-ter­ror reg­u­la­tions & trav­el secu­ri­ty restric­tions” with some new “emer­gency Free Trade de-reg­u­la­tions” thrown in.

    The Euro could “give way” to a new inter­na­tion­al “super­dol­lar” (new “bub­ble”, any­one?) that is man­aged in Berlin & acqui­esced to by a weak Demo­c­ra­t­ic pres­i­dent who is #3 in pop­u­lar votes but cho­sen pres­i­dent by default in a split House of Rep­re­sen­ta­tives’ “Elec­tion of 1824” sce­nario this Novem­ber (Novem­ber 9, to be exact).

    Look at the price of oil per bar­rel: It’s at prices not seen since 1999, but the price of gas does not fol­low.

    Like­wise, it does not fol­low that there are only two sce­nar­ios for the fate of Europe, nor that engi­neered “plot twists” do not lie ahead (see July 4, 2012).

    But, of course, those plot twists are pre­dictable, and any­one fol­low­ing the unavoid­able facts that this web­site presents knows that (spoil­er alert) Ger­many ris­es again, and U.S. fas­cists are only too hap­py to facil­i­tate that, with a side dish of North Amer­i­can Oper­a­tion Con­dor.

    Even Soros is ready to bend at the knee to the Ger­man Empire: http://www.latimes.com/business/money/la-fi-mo-soros-euro-20120604,0,5425788.story

    See what hap­pens when you pass Taft-Hart­ley, cre­ate the CIA, and agree to cov­er-up a coup in Dal­las?

    Posted by R. Wilson | June 6, 2012, 6:56 pm
  5. A lot of folks these days say Ger­many should just dump the euro and go back to the DM. The nice, sta­ble DM. An inter­na­tion­al safe haven dur­ing times of dis­tress. Of course, it’s worth repeat­ing that one of the prob­lems with being a nation that exudes strength and sta­bil­i­ty in the world is that it’s hard to exude much else in terms of real exports dur­ing a time of glob­al cri­sis. Not only are your trad­ing part­ners no longer buy­ing as much, but your cur­ren­cy can get real­ly expen­sive:

    SNB For­eign-Cur­ren­cy Hold­ings Hit Record on Inter­ven­tion
    By Simone Meier — Jun 7, 2012 7:00 AM C

    The Swiss cen­tral bank’s for­eign- cur­ren­cy reserves surged to a record in May as the euro region’s increas­ing tur­moil forced pol­i­cy mak­ers to step up their defense of the franc floor.

    Cur­ren­cy hold­ings rose to 303.8 bil­lion Swiss francs ($318 bil­lion) from 237.6 bil­lion francs in April, accord­ing to a state­ment pub­lished on the Swiss Nation­al Bank’s web­site today. Wal­ter Meier, a spokesman at the SNB in Zurich, said a “large part” of the increase was due to cur­ren­cy pur­chas­es to defend the min­i­mum exchange rate of 1.20 francs per euro.

    The cen­tral bank finds itself engulfed by the euro region’s wors­en­ing fis­cal cri­sis after Spain’s bank­ing woes and Greece’s incon­clu­sive elec­tions raised the specter of a break-up of the cur­ren­cy union. SNB Pres­i­dent Thomas Jor­dan said last month that pol­i­cy mak­ers are “observ­ing a con­sid­er­able upward pres­sure on the franc” as investors shift into havens includ­ing the Swiss cur­ren­cy.

    “It’s quite a sig­nif­i­cant increase,” said Alessan­dro Bee, an econ­o­mist at Bank Sarasin in Zurich. “The euro cri­sis is deci­sive — if there’s a fur­ther wors­en­ing, the SNB will be forced to remain active on mar­kets.”


    ‘Dras­tic Moves’

    SNB pol­i­cy mak­ers imposed the cur­ren­cy ceil­ing in Sep­tem­ber after the franc reached near par­i­ty with the euro in the pre­vi­ous month, rais­ing the threat of defla­tion. Jor­dan said in an inter­view with Son­ntagsZeitung pub­lished on May 27 that a gov­ern­ment-led pan­el is weigh­ing mea­sures includ­ing cap­i­tal con­trols to weak­en the franc if the tur­moil esca­lates.

    “We don’t expect fur­ther mea­sures,” said Alexan­der Koch, an econ­o­mist at Uni­Cred­it Group in Munich. “Dras­tic moves such as cap­i­tal con­trols are cer­tain­ly being dis­cussed. But not least due to the neg­a­tive impact this would have on Switzerland’s rep­u­ta­tion as a finan­cial cen­ter, we expect it to hap­pen only in a Lehman-like cri­sis sce­nario.

    The cur­ren­cy hold­ings are cal­cu­lat­ed accord­ing to stan­dards by the Inter­na­tion­al Mon­e­tary Fund at the begin­ning of every month.

    Note at the end the talk of “dras­tic moves” like “cur­ren­cy con­trols” are being dis­cussed (i.e. using laws that restrict the buying/selling/moving of a currency/currencies in order to manip­u­late a tar­get cur­ren­cy’s rel­a­tive val­ue and/or pre­vent a “hot mon­ey” cri­sis). Cur­ren­cy con­trols are a pret­ty stan­dard tool for a nation to imple­ment, in the­o­ry. But one of the quirks of the age of alleged­ly unfet­tered free-trade and glob­al­i­sa­tion is that use of things like cur­ren­cy con­trols is con­sid­ered impo­lite, to put it mild­ly (unless your appli­ca­tion of cur­ren­cy con­trols is cou­pled to glob­al free trade in such a way that the con­trols end up arti­fi­cial­ly sup­press­ing the pay of blue col­lar work­ers around the world...then it’s large­ly cool). So, if Ger­many does indeed return to the DM, it’s going to be in a bit of a bind should Berlin ever decide that mar­ket based cur­ren­cy “inter­ven­tions” (like the kind that is cost­ing the Swiss so dear­ly) are too expen­sive. We’re in a “cur­ren­cy con­trols are anti-cap­i­tal­ist and gen­er­al­ly real­ly bad” kind of world and that’s a sta­tus quo that Ger­many’s export sec­tor needs to main­tain its export dom­i­nance. Mar­kets have to remain “open for com­pe­ti­tion” glob­al­ly when your the globe’s top exporter. It’s one of the catch-22’s of mod­ern inter­na­tion­al eco­nom­ics that a top exporter will have to deal with increas­ing cur­ren­cy val­u­a­tions because its econ­o­my is doing so well and that increased val­u­a­tion harms exports. It’s just an inher­ent aspect of our eco­nom­ic sys­tem as it’s set up. And it seemed like Ger­many had found a rather bril­liant loop­hole, in the form of the euro­zone, that allowed it to sup­press its cur­ren­cy AND guar­an­tee exports AT THE SAME TIME by sim­ply pay­ing for the occa­sion­al inevitable euro­zone bailout. That’s part of rea­son so many observers are utter­ly con­found­ed at Berlin’s increas­ing­ly bizarre behav­ior that threat­ens to destroy one of the great­est eco­nom­ic gim­micks in his­to­ry.

    Posted by Pterrafractyl | June 7, 2012, 10:05 am
  6. exact­ly as I fore­cast in “Ger­many’s FOUR Reichs”(2002)Merkel is dri­ven by Ger­man Elite

    Posted by Harry Beckhough | June 8, 2012, 2:17 am
  7. @R.Wilson.. I like your phrase ‘engi­neered plot twists.’ I con­tin­ue to be con­found­ed at how arti­fi­cial the entire glob­al eco­nom­ic cri­sis real­ly is. Real peo­ple by the bil­lion are being harmed and the ongo­ing cat­a­lyst and excuse for death and dis­as­ter are ... book­keep­ing entries. The things peo­ple need to cre­ate pros­per­ous and equi­table soci­eties are all still there but won’t be used. The for­mal­ly infor­mal, for­mer­ly covert pow­er bro­kers of the world are tak­ing for­mal pow­er because of book­keep­ing entries.

    Time to strip and line up for our show­ers? Not me.

    Posted by Dwight | June 8, 2012, 8:32 am
  8. And here we go again! Spain gets a troi­ka:

    Mar­ket eupho­ria over Span­ish bank bailout fiz­zles

    By Sonya Dowsett and Gareth Jones

    MADRID/BERLIN | Mon Jun 11, 2012 10:39am EDT

    (Reuters) — Finan­cial mar­ket eupho­ria over a Euro­pean bailout for Spain’s debt-strick­en banks fad­ed quick­ly on Mon­day as investors sound­ed the alarm over its impact on pub­lic debt and bond­hold­ers, and eyed the next risks in the euro zone’s debt cri­sis.

    EU and Ger­man offi­cials said Spain faces super­vi­sion by inter­na­tion­al lenders after the deal to lend Madrid up to 100 bil­lion euros ($125 bil­lion), con­tra­dict­ing Prime Min­is­ter Mar­i­ano Rajoy who insist­ed the cash came with­out such strings.

    Euro­pean stocks leapt to a four-week high, with investors scoop­ing up bat­tered finan­cial shares. But Span­ish and Ital­ian bond yields rose sharply as doubts set in about the impact and terms of the deal, designed to avert a run on Span­ish banks.

    Cyprus, which is deeply exposed to Greece, strong­ly hint­ed on Mon­day that it may apply for an inter­na­tion­al bailout before the end of this month, both for its banks and for the state. It would be the fifth mem­ber of the 17-nation euro area to require assis­tance since the debt cri­sis erupt­ed in Greece in late 2009.

    The Euro­pean Com­mis­sion’s top eco­nom­ic offi­cial, Olli Rehn, told Reuters in an inter­view that the pre-emp­tive action to sup­port Spain “is crit­i­cal for calm­ing down mar­ket tur­bu­lence in Europe and (ensur­ing) the prop­er func­tion­ing of the finan­cial sys­tem in Spain”.

    Bond­hold­ers are wor­ried that the res­cue will weigh on Spain’s fast-ris­ing pub­lic debt. They also fear that if the euro zone’s future per­ma­nent bailout fund, the Euro­pean Sta­bil­i­ty Mech­a­nism, is used for the res­cue, they will be sub­or­di­nate to offi­cial cred­i­tors and face loss­es in any debt restruc­tur­ing.

    “The EU is sell­ing this as a ‘great vic­to­ry’, but when you look at the details, this is a loan, and we don’t know yet where the mon­ey will be com­ing from. At the end of the day, it will increase Spain’s debt-to-GDP ratio no mat­ter what they say,” said Steen Jakob­sen, chief econ­o­mist at Saxo Bank in Copen­hagen.

    Pre­vi­ous “bailout bounces” have been short-lived, often fiz­zling with­in a day or two as investors antic­i­pate the next flare-up in the euro zone’s unre­solved debt cri­sis.

    Greece’s gen­er­al elec­tion next Sun­day could rapid­ly sour mar­ket sen­ti­ment if rad­i­cal left­ists hos­tile to the aus­ter­i­ty terms of Athens’ EU/IMF bailout out­poll the main­stream con­ser­v­a­tive and cen­ter-left par­ties that signed the deal, or the vote ends in anoth­er dead­lock.

    Rajoy said on Sun­day Madrid had scored a vic­to­ry by secur­ing aid from euro zone part­ners with­out hav­ing to sub­mit to a full state res­cue pro­gram, say­ing Spain’s res­cue had “noth­ing to do” with the pro­ce­dures imposed on Greece, Ire­land and Por­tu­gal.

    But EU Com­pe­ti­tion Com­mis­sion­er Joaquin Almu­nia and Ger­man Finance Min­is­ter Wolf­gang Schaeu­ble said that as in those oth­er bailouts, a “troi­ka” of the Inter­na­tion­al Mon­e­tary Fund, the Euro­pean Com­mis­sion and the Euro­pean Cen­tral Bank would over­see the finan­cial assis­tance.

    “Of course there will be con­di­tions,” Almu­nia told Spain’s Cade­na Ser radio. “Who­ev­er gives mon­ey nev­er gives it away for free.


    Bra­vo Angela, Bra­vo. *golf clap*:

    Italy Moves Into Debt-Cri­sis Crosshairs After Spain
    By Andrew Davis and Nadine Skoczy­las — Jun 11, 2012 9:37 AM CT

    The 100 bil­lion-euro ($126 bil­lion) res­cue for Spain’s banks moved Italy to the front line of Europe’s debt cri­sis as an ini­tial ral­ly in the country’s bonds fiz­zled on con­cern it may be the next to suc­cumb.

    Italy’s 10-year bonds reversed ear­ly gains today in the first trad­ing after the Span­ish bailout and fell for a fourth day, send­ing the yield up 20 basis points to 5.98 per­cent.

    “The scruti­ny of Italy is high and cer­tain­ly will not dis­si­pate after the deal with Spain,” Nico­la Marinel­li, who over­sees $153 mil­lion at Glen­de­von King Asset Man­age­ment in Lon­don, said in an inter­view. “This bailout does not mean that Italy will be under attack, but it means that investors will pay atten­tion to every bit of infor­ma­tion before decid­ing to buy or to sell Ital­ian bonds.”


    Posted by Pterrafractyl | June 11, 2012, 7:14 am
  9. Per­spec­tive. Not that it helps much in our post-per­spec­tive world, but it’s still kind of inter­est­ing.

    Posted by Pterrafractyl | June 11, 2012, 11:01 pm
  10. **Pun alert!**

    A bailout? Not quite. A failout? That sounds more like it:

    Spain bond yields at record as Fitch cuts 18 banks

    June 12, 2012 11:25 AM ET


    MADRID (AP) — Spain’s bench­mark bor­row­ing rate hit its high­est since the coun­try joined the euro cur­ren­cy after Fitch cred­it rat­ings agency down­grad­ed 18 domes­tic banks on Tues­day.

    Spain’s 10-year bond yield rose to hit 6.81 per­cent in late after­noon trad­ing accord­ing to data provider Fact­Set, while stocks see­sawed and began to dip just before mar­kets closed, indi­cat­ing that investors con­tin­ued to find more ques­tions than answers in Spain’s deci­sion to seek help for its ail­ing bank sec­tor.

    Spain agreed last week­end to take a Euro­pean bailout for its banks, tap­ping into a €100 bil­lion ($125 bil­lion) euro area bailout fund, but investors are wor­ried it will not solve the coun­try’s prob­lem as the gov­ern­ment may have trou­ble pay­ing the mon­ey back.

    Fitch said in a state­ment that its down­grade of the banks was a result of a pre­vi­ous down­grade of the Span­ish sov­er­eign debt on June 7. Fitch said it had con­duct­ed stress tests, both on the Span­ish bank­ing sec­tor as a whole and on indi­vid­ual banks, updat­ing results from tests done in 2011.


    So how does a bank­ing bailout get imme­di­ate­ly fol­lowed by bank­ing down­grade over sov­er­eign debt con­cerns? Well, one way is to ensure the bailout is real­ly just a giant loan to a sec­tor of the econ­o­my that has become a giant black hole and make the pub­lic pick up the tab. That’ll do the trick.

    **The pun alert has been can­celled**

    Posted by Pterrafractyl | June 12, 2012, 8:28 am
  11. One of the mem­bers of the Bun­des­bank claims that the ECB has done its job to buy time for ail­ing gov­ern­ments:

    Bundesbank’s Dom­bret Says ECB Has Done its Job to Solve Cri­sis
    By Jana Randow and Gabi Thesing — Jun 12, 2012 5:33 AM CT

    Bun­des­bank board mem­ber Andreas Dom­bret said the Euro­pean Cen­tral Bank has done its job to buy time for gov­ern­ments to fix weak­ness­es in the euro’s foun­da­tions.

    “To those who ask what else the Eurosys­tem can do, I say that we have done our part, now it’s up to the polit­i­cal lead­ers to deliv­er on the fis­cal and struc­tur­al pol­i­cy side and decide on gov­er­nance issues,” Dom­bret said in an inter­view in Lon­don yes­ter­day. “This is why it can’t be a short-term fix.”

    Well, that’s a relief that all that time was bought. Let’s see, that was 4 hours and 40 min­utes of relief at a cost of $125 bil­lion which comes out to a cost of $446,420,571.42 per minute of relief. Not, um, the best price could imag­ine but no one’s ever said “the mar­ket” does­n’t have expen­sive tastes.

    Also, Italy, con­sid­er­ing the costs/per minute of “relief”, you might want to start your own rainy day “relief fund” in case any future relief becomes nec­es­sary. It prob­a­bly won’t be nec­es­sary giv­en the great job the euro­zone elites did with the Span­ish bailout. But, and I know this isn’t the best time, you might need to start fill­ing that PIIGY Bank soon:

    Wor­ry for Italy Quick­ly Replaces Relief for Spain

    Pub­lished: June 11, 2012

    VENICE — Con­cerns grew on Mon­day that Italy could be the next vic­tim of Europe’s finan­cial infec­tion, lead­ing ner­vous investors to sell Ital­ian stocks and bonds and damp­ing eupho­ria over a week­end deal to bail out Spain’s banks.

    Ital­ian offi­cials pri­vate­ly expressed con­cern that the 100 bil­lion euros, or $125 bil­lion, that Europe pledged to Span­ish banks might not stop the trou­bles from spread­ing.

    Italy’s main stock index was Europe’s worst per­former on Mon­day, a day when Unit­ed States stocks were also dragged down and investors flocked yet again to the safe har­bor of Amer­i­can and Ger­man gov­ern­ment bonds. Even the Ital­ian prime min­is­ter, Mario Mon­ti, a Euro­pean tech­no­crat who came to office after the euro cri­sis forced out Sil­vio Berlus­coni last Novem­ber, has begun to acknowl­edge the dan­gers posed to his country’s 1.56-trillion-euro econ­o­my ($1.95 tril­lion).

    The main fear is that Italy can­not grow its way out of a reces­sion fast enough to pay a moun­tain­ous nation­al debt. Oth­er con­cerns include the fact that Italy, with the third-largest euro zone econ­o­my after those of Ger­many and France, will have to shoul­der a large por­tion of the bailout bill even as it grap­ples with its own sharp eco­nom­ic down­turn.

    Because Italy does not have enough eco­nom­ic growth to gen­er­ate the mon­ey itself, the gov­ern­ment will prob­a­bly have to bor­row it at high inter­est rates, adding to an already heavy debt load.


    Posted by Pterrafractyl | June 12, 2012, 10:57 am
  12. Calm­ly, slow­ly, the patient is fit­ted with their new attire. The patient is told it’s only tem­po­rary. Just a gen­er­a­tion or so. Sure, Dr. Merkel. Sure:

    Bloomberg News
    EU Nears Com­ple­tion of Fis­cal Strait­jack­et as Cri­sis Spreads
    By Jonathan Stearns on June 13, 2012

    The Euro­pean Union moved clos­er to com­plet­ing a frame­work for tougher con­trols on spend­ing by euro- area gov­ern­ments in a Ger­man-led bid to pre­vent a repeat of the debt cri­sis that increas­ing­ly threat­ens the sin­gle cur­ren­cy.

    The Euro­pean Par­lia­ment today vot­ed to let the EU screen the bud­gets of nations ear­li­er and mon­i­tor more close­ly coun­tries such as Italy where ris­ing bor­row­ing costs threat­en finan­cial sta­bil­i­ty. The assem­bly also approved tighter EU fis­cal sur­veil­lance of nations such as Greece, Ire­land and Por­tu­gal after they exit res­cue pro­grams.

    The two pieces of draft leg­is­la­tion com­ple­ment 2011 laws that grant­ed the EU stronger pow­ers to sanc­tion spend­thrift euro coun­tries. The lat­est rules, which the EU’s nation­al gov­ern­ments must still endorse, also fol­low a new Euro­pean treaty aimed at lim­it­ing bud­get deficits.


    Draft Bud­gets
    The new pack­age of more-intru­sive EU fis­cal sur­veil­lance of coun­tries would let the Euro­pean Com­mis­sion exam­ine their draft bud­gets before approval by nation­al par­lia­ments. Annu­al spend­ing plans would have to be sub­mit­ted to the Brus­sels-based com­mis­sion, the EU’s reg­u­la­to­ry arm, by Oct. 15 the pre­vi­ous year.

    In addi­tion, the com­mis­sion would gain the right to clos­er over­sight of euro nations fac­ing grow­ing finan­cial dif­fi­cul­ties through “reg­u­lar review mis­sions.” Such a step would insti­tu­tion­al­ize an infor­mal prac­tice under which, for exam­ple, the EU last year dis­patched experts to Rome to mon­i­tor Ital­ian bud­get progress.

    Fur­ther­more, euro-area coun­tries emerg­ing from aid pro­grams would be sub­ject to a new sur­veil­lance sys­tem under the draft leg­is­la­tion.


    Sec­ond Amend­ment
    A sec­ond amend­ment intro­duced by the 754-seat assem­bly would move euro-area gov­ern­ments in the direc­tion of debt shar­ing by estab­lish­ing a Euro­pean redemp­tion fund based on joint lia­bil­i­ty. Under this pro­pos­al, coun­tries would trans­fer debt exceed­ing the EU’s thresh­old of 60 per­cent of gross domes­tic prod­uct into the fund, with this por­tion being paid back over 25 yearsas gov­ern­ments pur­sued bud­get con­sol­i­da­tion and took steps to boost eco­nom­ic growth.


    Be patient good patient. When this is all over (in 25 years) you’ll be a new you. So just sit back, relax, and enjoy the treat­ment.

    Posted by Pterrafractyl | June 16, 2012, 8:04 pm
  13. Ah, the ol’ bad cop/impon­der­ably bad cop rou­tine:

    Merkel Sees No Lee­way for Greece, Reject­ing Sig­nals of Soft­en­ing
    By Tony Czucz­ka and Patrick Don­ahue — Jun 18, 2012 11:16 AM CT

    Ger­man Chan­cel­lor Angela Merkel said Greece shouldn’t be grant­ed lee­way on terms for its bailout, reject­ing sig­nals from her for­eign min­is­ter that cred­i­tors may relent on aus­ter­i­ty mea­sures.

    The state­ments by Merkel today at the Group of 20 sum­mit fol­lows a vic­to­ry in Greek elec­tions for par­ties sup­port­ing the bailout. It clash­es with indi­ca­tions made by euro-area finance min­is­ters and Ger­man for­eign-pol­i­cy chief Gui­do West­er­welle, who said Europe could con­sid­er giv­ing Greece more time.

    “The impor­tant thing is that the new gov­ern­ment sticks with the com­mit­ments that have been made,” Merkel told reporters at the G‑20 meet­ing in the Mex­i­can resort of Los Cabos. “There can be no loos­en­ing on the reform steps.”

    Merkel, who has reject­ed a range of cri­sis-fight­ing pol­i­cy options from joint­ly issued debt to stim­u­lus fund­ing, added a soft­en­ing of demands on Greece to the list of mea­sures Ger­many would reject.


    ***spoil­er alert****

    I think I fig­ured out the sur­prise twist at the end of the Great Euro­zone Moral­i­ty Play. It’s not about “aus­ter­i­ty” or “pro­duc­tiv­i­ty”. It’s about “dis­ci­pline”. Let the pain be your guide along the path towards free­dom from free­dom. Learn how one pain can les­son anoth­er. Is not this sim­pler?

    Posted by Pterrafractyl | June 18, 2012, 2:46 pm
  14. @Pterrafractyl and com­pa­ny–

    “. . . . But the Red House Report is a bridge from a sun­ny present to a dark past. Joseph Goebbels, Hitler’s pro­pa­ganda chief, once said: ‘In 50 years’ time nobody will think of nation states.’ . . .”

    Rather prophet­ic, no?


    Dave Emory

    Posted by Dave Emory | April 14, 2013, 3:53 pm

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