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Eurocrash: how times change
Leaders of British small businesses, we were told, believed "the euro has been a success by a margin of four to one". This was according to a poll carried out by YouGov, which also found that "a clear majority believed the currency had a long-term future and that Britain should keep open the option of membership".
Although Labour and the Tories remained opposed to ditching the pound, the paper went on to tell us, the economic crisis had revived debate over whether it would ultimately be in Britain's interest to join the eurozone, which this day had acquired its 16th member in Slovakia.
But, by the end of the month, the Greek crisis was fully upon us, with a report that Trichet – then still ECB president - had been forced into repeated assurances that the eurozone was in no danger of falling apart, "despite growing stress in the Greek, Italian, Irish, Spanish and Austrian bond markets".
Amongst other things, this tells you a great deal about the fragility of opinion polls commissioned by partisan groups. This particular example was conducted for Business for New Europe.
It found 56 percent of "business leaders" believed the euro had succeeded since its launch, compared with 14 percent who thought it had failed. A total of 61 percent believed it was a sustainable currency in the long term, while 18 percent disagreed.
I guess you would not get the same result today.
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Richard North 18/08/2012 Eurocrash: political union, a "dangerous illusion"
Having recently published a short book arguing that the Euro is worth saving (but this will require reforms and some countries may be forced to leave), he now writes for the centerist/liberal Die Zeitwith the startling claim that the plan for political union to solve the euro-crisis is "a dangerous illusion".
He starts, in a longish essay by addressing the central conundrum facing the "colleagues", that either "Europe" achieves the quantum leap into the political union or the currency union breaks apart, the working motto having become "We need more Europe".
This, of course, is not new. Issing reminds us of Chancellor Helmut Kohl who on 6 November 1991 declared (to applause from all sides of the house) in the Bundestag:One can not say this often enough. A political union is the indispensable counterpart to the Economic and Monetary Union. The more recent history, and not just the UK, teaches us that the idea that you could get an economic and monetary union without political union in the long run, is absurd.
Thus, the lack of political union is seen as a kind of "original sin," the root of all the euro's problems. Accordingly, it is necessary to supplement the half-finished house of Europe with the political element and to complete it. The logic seems compelling, says Issing, and is still wrong.
As it stands, political union would present a huge political and legal challenge. A completely new contractual basis would be required, coupled with changes in national constitutions and referendums in individual member states. In short, a difficult, long process would be necessary, the outcome of which appears far from certain.
The essential problem here is forensically identified by Issing. In the short-term, the prospect of closer political integration could not make a decisive contribution to the crisis. No one can seriously believe it would have any effect within a few years.
Thus, the real agenda behind more or less "pro-European" rhetoric, therefore, is effectively a demand for unlimited funding, amounting to the slogan: "money today for the promise of a political union tomorrow".
However, political union involves high financial risks for the more solid member states which not only undermine the longer term efforts towards a political union, but destroy the foundation of such a process, namely the identification of the citizens with the European idea.
But Issing nevertheless maintains there is an alternative, other than the collapse of the euro. EMU, he says, is founded on contracts and obligations that were fatally broken countless times and by all countries. (Just think of the violation of the rules of the Stability and Growth Pact by Germany and France in the years 2003/04.)
This has become a habit, an unpunished series of violations of the law that has resulted in an immeasurable loss of credibility for the single currency. To restore lost confidence, each country much take responsibility for the errors of its own policies.
Community financial aid should be given only occasionally, and then only on the basis of strict conditionality, at rates that do not undermine the commitment to reform in the crisis countries. Under such conditions, a monetary union can survive without political union, at least for the foreseeable future.
But, after so many disillusioning experiences, asks Issing, is it not naive to expect that such a regime can be credible? But to that, Issing's answer is, if restoring faith in treaties and obligations is problematical, how much more credible are the even more ambitious plans and promises for a political union?
To believe that political union is the answer is to raise naivety to new heights. Such assumptions, built on such shaky ground, threaten not just the future of the monetary union, but the historic project "Europe", he concludes.
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Richard North 18/08/2012 Eurocrash: euro "a brainchild of political élites"
Finland, though, turns out to have been a red herring, and WSJ, amongst others, have issued a corrective, its copy headed: "Finland EU minister reiterates euro commitment".
This is Alexander Stubb, who says: "every government has various scenarios that they are working with. Our No. 1 scenario is that the euro zone will regain stability and we are working in a constructive way to achieve that goal".
More interesting are comment from former prime minister of Hesse, Roland Koch (CDU), and now head of the construction company Bilfinger, which employs 60,000 people. Interviewed in theSüddeutsche Zeitung, with sections repeated in der Spiegel, he is one of those warning against allowing the single currency to fail.
The destruction of the euro would return the integration of Europe to zero, he says, adding: "Zero is zero – not 1990 but taking us back to 1945". No one should aim for a failure of the monetary union or even a withdrawal of Greece. "The economic consequences for us, I think that's completely unpredictable", Koch then said.
Contributing very substantially to the debate is Handelsblatt, which has been a major player in building this ongoing political crisis in Germany. Top spot in the readers' stakes is a report that the EU commission wants the ECB to overseeing all major banks in the eurozone, as well as credit unions and savings banks.
This is another conflict in the making as Merkel has already signalled that the ECB should only supervise the 25 largest banks. But there is huge industry opposition as well.
Nationally or regionally active banks should continue to be under the supervision of national banking, says George Fahrenschon, president of the German Savings Banks and Giro Association (DSGV). "It is neither necessary nor realistic to expect the ECB to exercise supervision over all the 8,400 financial institutions in Europe", he says.
The story gets a commentary from Oliver Stock, executive editor of
This ECB-critical line is reinforced by a separate guest post from Brun-Hagen Hennerkesm (pictured), chairman of the Familienunternehmen foundation. He says that the Bank is contemplating state financing, which is "destroying trust".
A good Europeans is one, "who respects the European treaties and the relevant national law and thus helps to ensure that the stability of the eurozone does no harm", Hennerkesm asserts. This was what Merkel attempted, but the Germans are quite alone in this. So finally, "the euro is proving a brainchild of political élites", he concludes.
Yet another report has the Association of Young Entrepreneurs in Germany convinced that EU law has been broken over the bailouts - and hoping for a signal from the European Court of Justice. Marie-Christine Ostermann says that Karlsruhe is too focused on the narrow question of the involvement of [the German] parliament, so it needs the ECJ to look at breaches of EU law.
And then we have Draghi, the Great Satan himself, with a report headed, "The Big Bertha will fire again". Leading economists are convinced that Draghi will keep his promise and Bank will go with massive intervention in the bond markets - with all its consequences.
This brings us to the British media which tells us that the markets have ended the week on a high "amid hopes for a eurozone solution and banking sector shrugging off scandal".
Will Hedden, sales trader at IG Index, says: 'The slow easing of tension about the eurozone crisis has been the chief hallmark of the past two weeks of trading. He adds: 'We know the crisis is far from a real solution, and that all we've had so far are fine words, but investors seem content to think that the ECB is readying something fairly impressive with a view to using it sometime in September".
Sentiment, we are told, is also being helped by German chancellor Angela Merkel's pledge while on a visit to Canada that Germany will do everything it can to save the euro.
This narrative has swept all before it so far in August, helped along by the perception that the Federal Reserve is also tiptoeing closer to more stimulus. This has allowed markets to take bad data in their stride, Hedden then avers.
And, of course, nothing can get between a man and his narrative. Except that there is more than one narrative. “Europe is now speaking openly about the end of the euro", says Die Welt. For better or worse, this is the one to watch.
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Richard North 18/08/2012 Eurocrash: a matter of political willpower
According to figures released by Greece's Finance Ministry, the peak debt was reached in the fourth quarter of last year, when it stood at an all-time record of €367.9 billion.
Despite the bailouts, despite the austerity programme, despite selling off government assets, therefore, debt is going back up again. No wonder the German papers yesterday were screaming that Greece must go bankrupt, with earlier sentiment telling us that that the Greek austerity plan was not realistic.
Nor is the grief confined to the Hellenic Republic. According to the paper, nearly ten percent of loans in Spain have gone "bad".
The Spanish National Bank has announced that, at the end of June, 9.42 percent of all borrowers - from private citizen to companies - were at least three months in arrears. These loans amounted to more than €164 billion, eight billion more than in May.
Small wonder, then, that Spanish banks want €100 billion in refinancing, while in Brussels, officials are already preparing the upcoming weeks for what Die Welt calls a "hot autumn". This will start, says the paper, with the next troika report, which will be relentless in exposing the Greek fiasco.
In the first week of September, auditors of the EU commission, the ECB and the IMF will travel to Athens again and, if the expected testimony from them is as devastating as feared, payment of the next €31-billion tranche of the bailout to Athens is questionable.
Even before the troika report, there is the widespread reported funding gap of €20 billion, although some are saying it could be twice as high. And yet, despite all that, we get Reuters reporting that growing numbers of economists have changed their minds and conclude that the country's fate lies inside the currency union rather than out.
Greece's future in the eurozone is no longer an economic question but one of political willpower, which remains firm in Athens and Brussels, in spite of opposition from politicians in Germany, the agency reports.
So there we are – exactly what we've been saying all along – this is a political rather than an economic issue. But it would be unwise to under-rate the Germans. They will have the final say.
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Richard North 17/08/2012
Saturday, 18 August 2012
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