Tag: EU

The New York Times asks Tyler Cowen about the present state of the EU:

Today, very few countries in the euro zone are capable of making credible commitments or binding agreements with the others. Quite simply, democracy is having its say. The French soon may elect a left-wing candidate who, in essence, wants to exempt France from fiscal rules and place more fiscal risk on Germany. The Dutch can no longer form a governmental consensus on the budget. The Irish will be putting the fiscal compact up for a referendum, and the Greeks are holding an election in May. Even in Germany there could be problems holding together the ruling coalition.

In general, voters are unwilling to give up their say over policy, or to regard the European Union or euro zone as necessarily superior to national interests. When it comes to the specifics, it appears increasingly likely that at least one national electorate will pull the plug on the entire set of bailouts and austerity programs.

There is no way to pull off the required cross-national agreements. Resources are being drained from euro zone banks, which are contracting their lending to business. This will make the current recession worse, which in turn will necessitate further unpopular policies, including cuts in government spending. Euro zone countries will become more nationalistic in hard times, and more likely to vote against incumbent governments, no matter what the specific issue at stake. It is hard to see a stabilizing outcome, so the best bet is on a crack-up of some of Europe’s major economies, including Spain and Italy.

There is an old saying in economics, namely “no monetary union without a corresponding fiscal union.” It could be added “no fiscal union without a corresponding electoral union.” In the longer run, we will probably end up with none of these institutions.

The euro zone probably was unworkable from the beginning, and now we are seeing why.

What we’re seeing here is the last desperate gasps of democracy as the new aristocratic age struggles to be born. The outcome of the current crisis is far from certain, but at least we’re now able to see relatively clearly what the most likely possibilities are. The collapse of the Dutch government and the surge of the anti-EU National Front in France show that the strategy of the European political elite, which is to offer the people a choice between pro-EU Party A and pro-EU Party B, is no longer working. Even in the UK, which is slightly insulated from the problems of the Euro thanks to its retention of the pound sterling, the popularity of UKIP is now growing rapidly due to the recognition that there isn’t any meaningful euroskepticism in the Conservative Party anymore. (Note to Daniel Hannan – you’re a leader, not a follower, and so it’s time to switch to UKIP).

Since the European masses are turning against the EU, the next tactic of the EU elite will be to suborn leaders like the Socialist Hollande, who are elected on moderately anti-EU promises. I expect Hollande to turn around and stab his left-wing nationalist followers in the back by embracing the austerity programs designed to keep the banks out of default, thus assuring that Marine Le Pen and the National Front will have a real chance of winning the next set of French elections. But the overall pressure is growing, and so when the bait-and-switch tactics fail, the new European aristocracy will turn to the solution they’ve imposed in Italy and Greece, which is to altogether abandon democratic rule. Right now, these aristocratic interregnums are short-term, but no doubt another debt or currency crisis will provide the justification for extending them where they already exist and imposing them where they don’t. The only way they can push for the political and fiscal union for which the monetary union was the bait is by throwing out all but the last vestiges of democratic government.

But the long-awaited nationalist tide is just beginning to rise, which is an excellent thing considering the monstrous and authoritarian nature of the globalist aristocracy. The potential problem is that in order to smash the edifice constructed by the ruling aristocracy, the nationalist pendulum will swing farther than it needs to. Thanks to the machinations of the multiculturalists, there are no shortage of scapegoats readily on hand for the angry and newly nationalistic natives; in fact, one wonders if the elite’s encouragement of mass immigration might have been intended as a means of both distracting and marginalizing the nationalist forces from the start. Either way, it’s already clear that it won’t work; the National Front won 30 percent of the real French vote and similar results will be seen in other elections across Europe.

The Euro debacle keeps getting more and more interesting:

The central bank of Germany will no longer accept bank bonds backed by Ireland, Greece and Portugal as collateral, becoming the first euro-zone central bank to exercise a new privilege to protect its balance sheet from the region’s debt crisis. The decision signals the determination of the Deutsche Bundesbank to limit risks from the nonstandard measures the European Central Bank has taken to combat market stress during the crisis.

More broadly, it reflects concerns that the ECB’s crisis-fighting measures may be encouraging banks to shift debt of dubious value to central-bank balance sheets, ultimately exposing taxpayers to what may wind up being toxic assets.

Translation: the Germans are getting tired of propping up the Euro and the rest of the European Union.

At long last, the politicians are turning against the Euro and the European Union:

“The euro is not in the interests of the Dutch people,” said Geert Wilders, the leader of the right-wing populist party with a sixth of the seats in the Dutch parliament. “We want to be the master of our own house and our own country, so we say yes to the guilder. Bring it on.”

Mr Wilders made his decision after receiving a report by London-based Lombard Street Research concluding that the Netherlands is badly handicapped by euro membership, and that it could cost EMU’s creditor core more than €2.4 trillion to hold monetary union together over the next four years. “If the politicians in The Hague disagree with our report, let them show the guts to hold a referendum. Let the Dutch people decide,” he said.

The Dutch aren’t the only ones. The open challenge from the new Spanish premier is arguably even more serious:

The Spanish rebellion has begun, sooner and more dramatically than I expected.
As many readers will already have seen, Premier Mariano Rajoy has refused point blank to comply with the austerity demands of the European Commission and the European Council (hijacked by Merkozy).

Taking what he called a “sovereign decision”, he simply announced that he intends to ignore the EU deficit target of 4.4pc of GDP for this year, setting his own target of 5.8pc instead (down from 8.5pc in 2011).

In the twenty years or so that I have been following EU affairs closely, I cannot remember such a bold and open act of defiance by any state.

There is no real left-right divide in Europe anymore, as the Europhile-Euroskeptic one is much more significant. While the mainstream parties have long succeeded in their game of taking Europhile positions of varying degrees of enthusiasm – Eurofast vs Euroslow – the parliamentary systems have permitted the development of a continent-wide anti-EU political movement of the sort that the two-party system in the USA tends to preclude.

And eventually, the anti-EU side will win because the iron laws of economics are on their side.

Amidst all the sound and fury in the media signifying nothing, the banks are calmly going about planning for the scheduled Greek sovereign default:

Senior bankers on Wall Street have been given detailed documentation setting out a timetable to Greek default, including firm dates and technical ‘orders’ about last use of the euro as a currency there. The revelation arrived at Slogger’s Roost last Monday, since when I have been trying to obtain corroboration. This arrived in the early hours of today (Thursday). One of the banks is Barclays Capital (Barcap) run by controversial figure Bob Diamond. The other must remain anonymous for the time being, in order to protect sources. The document asserts that Greece will officially be declared in default by all the ratings agencies after the close of business on Friday march 23rd .

Legitimate? We’ll find out soon enough. It’s certainly a lot more credible than the multiple announcements of a deal that has miraculously saved Greece, the Euro, the EU, and the global economy. How many of them have we seen generate short-term EU/USD spikes in the last six months, ten or eleven?

I think it’s fairly obvious that the Eurobankers and their pet politicians knew from the start that they weren’t going to do any more than the initial “bailout”. But this way, they can pretend that the process is under control and business should proceed as before.

I’ve been predicting this since it was forced upon the people of Europe. Now, the first material signs of its demise have appeared:

Are quasi-drachmas being issued?

These financial instruments are bonds, and have all the characteristics of Hellenic Republic Bonds: they bear international securities identification numbers (ISINs); they are negotiable on the Athens Exchange and they rank pari passu with other Greek debt. The government, in one of its press releases, notes that “bondholders who choose to discount these bonds at the banks will crystallise a 19% discount versus their original claim.”

We would argue, however, that they are more than just another bond issued by the Greek government. To be specific, they seem to us very akin to what economists call quasi-monies. These quasi-monies have appeared in a number of cases, usually put in place by government to find an escape valve out of nominal fiscal rigidities in the face of a financing issue. This especially happens in a case of a government of a monetary union that cannot print money to fund its deficit….

If a country issues a bond as repayment, even temporarily, for a supplier, then there is no withdrawal of money from the private sector as no-one purchases the bond with cash. It is a form of barter in which the vendor provides a good to the administration and receives a financial instrument created ex nihilo from the same government.

There have already been possibly apocryphal reports of Italians using lira and Spaniards using pesetas. But this is the first time that an EU government is printing a new monetary instrument that can be used in exchange for goods and services.

Have you ever noticed that those who say failure is not an option and refuse to consider any backup plans almost inevitably end up failing? Applying that principle, what can one now conclude about the Euro?

The reason is that in Europe, the mere admission that Plan B is a possibility, apparently set off a chain of events that makes Plan B an inevitability: “…officials there feared that releasing the information could fuel further doubts and instability in the euro zone.”

And so Europe is left to fend on its own, with the mere mention of the possibility of failure being completely ignored, as the mere contemplation of failure is not only no longer an option, but apparently an outright admission of defeat. Needless to say, the fact that European banks have no way to hedge anything any more, CDS trading having been killed, thank you ISDA, and now supervisory bodies themselves telling banks to not even consider Plan B, is enough reason why the LTRO will be an abysmal failure.

Because one does not need to be a rocket scientist to realize that when everyone is telling you that even Plan B is improper, then it is all too clear there is absolutely no Plan Whatever.

Game Over for the Euro would appear to be fast approaching, even faster than I had expected. The Fourth Reich looks to be even shorter-lived than the Third One.

It’s not enough. He still needs to give the British people their promised referendum on the Fourth Reich. But it is a start:

After a marathon meeting that started at dinner time on Thursday evening and finished at 6am on Friday, eurozone member states agreed to create an intergovernmental treaty to forge stricter budgetary controls for the group’s member states. Britain has opted to remain out of the treaty.

“I said before coming to Brussels, that if I could not get adequate safeguards for Britain in a new European treaty, then I would not agree to it,” David Cameron said.

“What is on offer is not in Britain’s interest, so I didn’t agree to it. Let me explain why this matters, of course we want the eurozone countries to come together and to solve their problems, but we should only allow that to open inside the European Union treaties, if there are proper protections for the single market and for other British key interests. Without those safeguards it is better not to have a treaty, but to have those countries make their arrangements separately. That is now what is going to happen.”

Frankly, I am astonished. I assumed Cameron was going to sell Britain out, as Thatcher, Major, Blair, and Brown all did before him. It doesn’t mean he won’t eventually do so, but then again, Britain has always been extraordinarily tardy about recognizing continental threats to its existence. This is a good sign, as it represents the first material cracks that will eventually break apart the third great attempt to subjugate Europe under an unaccountable and authoritarian regime.

Britain has no more to fear from being out of the European Union than it had from its refusal to join Napoleon’s Greater France or Hitler’s Greater Germany. David Cameron would do well to reflect upon which historical British leaders are revered today, the Wellingtons and Churchills or the Chamberlains and Blairs.