Back to the '70s

Raedwald

FRIDAY, 7 SEPTEMBER 2012

Back to the '70s

If you visited Homeric Greece, rural Spain or even the Mezzogiorno in the '70s you will have been struck by several things. Firstly, that they had no effective toilets. Second, that all the young men were gone - fled to contract work on the coastal resorts, in the cities, gone abroad - but gone from the stone-washed villages in any case. Thirdly, you would have remarked the freight-carrying capacity of an average 5'5" grandmother; I once saw such a one with a sheeted bundle on her back followed by a donkey also carrying a load, with the grandmother's about twice as large. Today, of course, things are vastly different. The young men lounge about on benefits, with no jobs to be had and the EU have fitted load-restricters to the grandmothers. The toilets still don't work, though. 

As the markets get over their two-day long little blip of hope at Draghi's announcement and look for the meat, the focus will return to Greece. Unusually the Guardian has secured a column today from a relatively sane correspondent (the Blessed Simon Jenkins excluded, of course) in Costas Lapavistas. 

Banks are at the epicentre of the eurozone crisis, not states. The solution would have been to shut down bad banks and create healthy ones across Europe. But this would have meant German and French taxpayers bearing the costs of restructuring Italian and Spanish banks: an impossibility. Thus, national banking systems have been allowed to drift closer to their own nation states during the past three years: banks have relied on their own states to be rescued, and states have relied on their own banks to borrow. The result has been the fragmentation of eurozone banking, producing enormous divergences in interest rates among member countries. The monetary union is collapsing from within.

But Costas makes the fundamental error so often exposed by Richard North in supposing that the EU's leaders are struggling to find economic solutions to what is in essence a political crisis; as is becoming clear, the economic measures are just a sop to the markets to keep things ticking along whilst they ratchet up political union to the next stage.  

So when Greece (to her eventual benefit) is pushed out of the euro-balloon her citizens can rest assured they have been sacrificed for the greater good of a core European State. One may excuse them for resenting that everyone's been pretending that their fundamental economic strength is greater than it was in the 1970s.

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Eurocrash: a can-kicking success   Friday 7 September 2012 After the "excitement" of yesterday, it seems that the Draghi spell is having its effect. The collective delusion is infecting media and markets alike, so much so that Handeslblatt happily reports that the euro will live to see another day. The report is, in fact, a Bloomberg exercise – a "global survey of 847 customers" – on the future of the euro. The consensus is that Spain will ask for a bailout within a year, Italy will avoid one, and Greece will default (a massive 92 percent believe this), but not just yet. Only 32 percent believe Greece will go this year, compared with 57 percent who took that view in May. Now, 56 percent believe that the country will be eliminated by the end of next year. As to the bigger picture, currently, only six per cent expect a collapse of the eurozone this year. However, this survey was probably completed before yesterday's press conference, but that could only have reinforced the trends seen here. Generally, confidence is growing – albeit slowly. Some 27 percent of the Bloomberg respondents say that the worst is over, an increase of ten percentage points since May. Interestingly, 69 percent suggest that any signs of stabilisation are temporary, but in May that was 80 percent of respondents. Whatever the exact timing of the survey, the Handeslblatt headline certainly seems to reflect the broad thrust of sentiment this morning. Few regard the Draghi "plan" as a long-term solution to the euro crisis, and a Greek newspaper is saying that it doesn't apply to Greece anyway. But, as a can-kicking exercise, it has had exactly the desired effect. It has bought the "colleagues" time, and created some juicy profit-making opportunities in the market casinos. But then, asRaedwald points out, "the economic measures are just a sop to the markets to keep things ticking along whilst they ratchet up political union to the next stage". The "colleagues" are by no means there yet, but they are closer than they were yesterday, and you can also sense in them a mood of growing confidence. They think they are winning and, given the gullibility of the media, such an assumption is not at all unreasonable.  COMMENT THREAD Richard North 07/09/2012

Eurocrash: they hear what they want to hear   Friday 7 September 2012 I watched the Draghi press conference live, and read the transcript. I also watched the question and answer session, and then watched it all again, from the recording on the ECB website. And I was confused. The reason was simple. On Google News, when I last lookedt, there were listed 6,945 reports on the Draghi statement. Thousands, starting with Reuters, had headlines telling us that the president of the ECB had got backing for "unlimited" bond-buying, or words to that effect. Now, go through the ECB releases and the Draghi statements. What is the one word that is notused? You guessed it … "unlimited". Nowhere at all is there any direct use of that word. All Draghi does say is: "No ex ante quantitative limits are set on the size of Outright Monetary Transactions". That "ex ante" is rather crucial. Not least, its use as a qualifier suggests that limits are not ruled out. These can, of course, be ex post. Thus, when embarking on a sequence of transactions, the ECB may not set a limit on the size of transactions at the outset. But, as the sequence unfolds, there is nothing to stop the Bank applying a limit retrospectively. It must also be noted that Draghi applies the absence of an ex ante limit to the size of the transactions – not to the number, nor the programme as a whole.  Individual transactions are in any case self-limiting because all the bond sales are defined by a stated value. Only the programme as a whole can present a potentially unlimited liability. And Draghi made no statement on the size of the programme. Not by any stretch of the imagination, therefore, has the ECB committed to an unlimited bond-buyingprogramme.  In any case, for that to happen, the ECB would need unlimited funds – which it does not have. And when asked (by Reuters) whether the purchases would be unlimited in amount and time, Draghi simply repeated the claim that there are no "ex ante" limits for the amount of outright monetary transactions - i.e., the size of any one purchase.  As to the totality of the purchases, he then said these were to be "adequate to reach our objectives". Putting this together, what it effectively means is that the ECB is not putting any initial cap on the size of individual purchases, although it can apply a limit to how many purchases it makes and may apply a quantitative limit on purchases at some time in the future. But, from the start, the programme as a whole is very evidently limited. The declared intent is to expend only that amount which is deemed "adequate" to meet the objectives. Now, the interesting thing is that all the journalists at the press conference heard this. None of them heard Draghi say -  as The Daily Telegraph, for instance, asserts - that he was launching an "unlimited" bond buying programme. And the reason they didn't hear that is because Draghi didn't say it. But the press corps went into that conference expecting to hear Draghi announce an unlimited programme. What he actually said was something very different. But they still heard "unlimited". Nevertheless, claims of the type made by The Guardian, that the ECB "was prepared to buy unlimited quantities of government bonds", simply can't be justified. As for Draghi, his "programme" is one almighty bluff. The journalists heard what they wanted to hear - what they were intended to hear. They've been conned. COMMENT THREAD Richard North 07/09/2012