In the past few days I have bumped into many people on the street who are so confused by what they are hearing and they want to know what happens next. I have no inside knowledge, but my instinct tells me that the EU can’t go on like this, limping from one crisis to another. Yesterday, the crisis became more acute with the financial markets selling the bonds of Italy, Spain and even France. This is what happens in crises, the contagion becomes too much and everyone is engulfed.
The financial markets are no angels in this story. Those who believe that the markets are not trying to make money betting against the European elite are naive. In fact, any solution to this mess must have an element of capital controls embedded in it to control the excesses of the markets. It is simply not sustainable to have hedge fund managers in Greenwich Connecticut, who only pay 15% of their income in tax to the US government, dictating what happens in Europe – particularly as many of these people couldn’t locate Berlin on a map.
However, it is crucial to accept that while the financial markets are no angels, they did not cause the crisis and up until recently were happy to finance the governments of Italy and Spain, as well as France.
Notwithstanding the power of the markets (which can be controlled), the core of the problem is an enormous inconsistency at the heart of the EU. This inconsistency centres on how the Euro works in 17 different countries.
The credibility of the Euro – as a functioning currency within which countries and people can go about their business and prosper – is now in tatters. And people are moving their deposits because they are petrified.
Angela Merkel says that if the Euro fails, Europe fails.
This doesn’t look like a fair assessment of today’s economic reality. In fact the opposite is the case. Preserving the Euro seems to demand that banks will be protected for their stupidity, while taxpayers will be billed. At the same time, borrowers in certain European countries who need credit have no assess to credit, while borrowers in other countries that don’t want credit, have all the credit they like. And it seems to involve one large game of pass the parcel where the bill for more and more individual and institutional debts are being passed onto more and more people who had nothing to do with the debt in the first place.
When you look at what happens to money within the Eurozone over the economic cycle, a worrying pattern emerges. At the heart of the Euro is a self-reinforcing negative dynamic, which amplifies booms and exacerbates busts. This is the nub of the issue. In good times, when perceptions of risk are small, too much money flows from the core countries to the peripheral countries via bank loans either to the governments of the periphery or the private sector of the periphery. This means that anything can be financed at the top of the boom with other people’s money. The Greeks built Olympic Stadiums and we built Ghost Estates. Now they both lie empty and the bill remains unpaid because there is no money around to pay for them.
But where has the money gone?
Back to the core is the answer. According to the ECB, €122 billion of private money has left Ireland since January 2008. This has gone back to the core, it is no longer here and that is the reason we can’t pay for anything; the money is all gone.
If you think about this movement of money using the basic rules of economics, you will see there is something wrong with the picture.
In basic economics, when there is a recession the demand for money falls. This is because you don’t go out to spend or to invest and therefore, your demand for money falls. This should lead to lots of surplus money sloshing around and thus the “availability” of money increases. Eventually, with all this money sloshing about, the banks begin to “throw money at people” and confidence emerges again, people begin to spend and the cycle kicks off again.
But what happens if the downturn in the periphery is matched by a flight of money out of that country? In this circumstance the “normal” rules of economics do not pertain. The flight of cash from periphery to core leads to less money or credit being available for the peripheral recovery and therefore the normal recovery stalls and stutters, before stagnating.
This is the structural fault in the Euro. To use a Bertism, the Euro makes “the boom boomier and the bust bustier”.
So what’s the way out? Obviously the way out is for the central bank of the Euro, the ECB, to prevent that cyclical flow of cash. But how would it do that?
It could do that by turning on the taps and buying up all the debt that is being held in peripheral banks, injecting liquidity and making sure that there is loads of money sloshing about. It can do this easily, after all it prints the stuff.
But we are not seeing that from the ECB. Instead we are being pushed either in the direction of fiscal union or bust. But fiscal union, without an active central bank, won’t fix the problem. And a messy implosion of the Euro would cause massive dislocation as savings are debased with huge social and emotional consequences.
So what is on the cards? Either we will see a big bang move to political union through another referendum or the Euro will split in two with the core moving towards greater union and the periphery, with a new weaker euro, taking more time.
The first will be almost impossible to achieve politically as referendums have a habit of slapping elites around the head. The second will be all but impossible to achieve technically because with 17 different countries and banking systems, the first sniff of a two-speed Europe will cause massive capital flight.
So we are stuck. Yesterday, we saw the beginning of a run on the French government as French bond yields spiked. This won’t end here.
Meanwhile, the leadership in Germany warns of the biggest threat since the 2nd World War, yet is doing nothing to halt this. And all the while the economies of the periphery grind to a halt. Something has to give and, without real political leadership, we are looking at chaos.
Knowing that a train wreck is coming, and actually seeing it happen, are two very different things.
A post democracy & post Euro look into the future Take a moment and think about the term ‘Poverty’. I guess we could agree that this can be described as a situation which Degrades human dignity Is a matter of human rights Should be of concern to everyone What are the levels of poverty, the grades and hoe do we define it, well there are official description, and as usual bureaucratic statisticians are used to describe the phenomenon and put it into perspective, but I would strongly appeal to our common sense to describe it in clearer terms. Professor Godfried… Read more »
I actually cant wait for the train wreck. I want something to happen as soon as possible. If they had just let this wreck come in the first place we would probably be doing a little better right now in my opinion.
subscribe.
US passed the 15….
http://www.usdebtclock.org/
Kenny’s Speech at the Konrad Adenauer Foundation:
http://www.irishtimes.com/focus/2011/kennyspeech/index.pdf
Just in – Mix up in Kenny’s Speech
– Here’s the one he was supposed to give;
http://www.youtube.com/watch?v=pHfZ3JFzHgU&
Listen to this interesting interview on Pat Kenny this morning. He is talking to Proffessor Steve Keane: http://www.rte.ie/radio/radioplayer/rteradioweb.html#!rii=9%3A3111565%3A133%3A16%2D11%2D2011%3A
I would much prefer Germans running Irelands finances than the present crowd . David is constantly looking for a quick fix , default , printing money ….new soft euro. Thats not going to happen , in Germany they have the lowest unemployment in 20 years they are cutting income tax there is no crisis there , its only us PIIGS. Merkel says that it will take 10 years to sort out . Germans have had no wage inflation in 10 years they are uber competitive . For Ireland its going to be a long hard slog , there is no… Read more »
A fiscal Union should allow Eurobonds. The ECB could be allowed to buy a certain percentage of these.
The US Fed bought 80% of US government bonds in 2009.
They cant do that for Italy as they are not Italies central bank.
Fiscal union is nessecary.
So if every route looks grim: – “And a messy implosion of the Euro would cause massive dislocation as savings are debased with huge social and emotional consequences.”
– What is the likely extent of this potential social disaster in the short, medium and long term?
What is Competitiveness We seem to speak about this important word first when comparing our national performance and another country namely Germany .Competitiveness commences in our personal lives and our personal budgets . To sample how this is compared try to go to Lidle Supermarkets and stand and watch at the check out the following : What items you buy ? What items others buy ? What other nationalities buy ? I am always doing this and it tells so much about the consumer beside you . For example recently I saw a Chinese couple purchase a complete large box… Read more »
One route less grim than all the others.
Allowing capitalist consequences to capitalist failure. Give the bank bondholders 0 % on the Euro. Nothing.
It might make them hire smarter people in future.
I have just read a vary ominous report. Notice how the so-called markets toppling governments? Greece, Italy, (Ireland got to vote, well). Everybody must notice this domino effect. Even the Irish Ind. excused the end of democracy, sad but necessary. But notice what happened in Athens, just before Papandreou resigned – the entire Army chiefs of staff were replaced in one swoop. Now Italy’s Marionette Monti has placed a high-ranking NATO officer as Defense Minister – Admiral Giampaolo Di Paola directly involved in the illegal Libya war. Just coincidentally military exercises involving Sardinia, Israel, Greek and Italian units. Looks like… Read more »
The one of the main problem of modern society is an addiction to money. But money as a fire is a good servant but a terrible master. Also as a fire money is only a tool to achieve an economic activity but it mustn’t ever be a goal. As far as I know we can’t eat money, money can’t entertain us money can’t give us a hug or take us to the cinema. In split of a second we might face a situation when we won’t be able to purchase anything what we need or want with money we currently… Read more »
Now that you mention grim crossroads, financial algebra was never the solution. Monti’s Italian cabinet of Goldman Sachs and Inter-Alpha bankers and military (have we had that before) is an open book for anyone to read. Mario Monti is the number two of a political organization called the “Spinelli Group,” named for the late Altiero Spinelli, the famous founder of the European Federalist movement. Number one is Jacques Delors; number three is Joschka Fischer. The Spinelli Group was created last year as a political association among members of the European Parliament in order to stop the comeback of the “intergovernmental… Read more »
David, I have to say I am confused by this article. On the one hand, you say that the problem stems from the unsustainable crony bailouts but then you seem to say it stems from the imbalance of core savers. Personally, I think the problem of core versus periphery is not the key problem. I believe ‘We are where are’ because of bailing out failed banks, making markets nervous and forcing unsustainable debts onto the taxpayer. In essence, we are rewarding failure and therefore we get more of the same. I believe core versus periphery imbalance is important but I… Read more »
The EU has underperformed for the past 30 yrs, yet not 1 Irish politican is in favour of dropping the euro, never mind leaving the union! The 5 wealthiest nations in europe in 5 yrs time will all be non euro members.Aus/NZ and Canada are racing ahead.
Seems that there be trouble in them there be trouble in them that hills. The IMF European chief has resigned . Anton’I owe’ Borges is a former Goldman Sachs vice chairman in London who had served as chairman of the Hedge Funds Standards Board prior to joining the IMF. Last month, Borges suggested publicly that the global lender could buy Spanish or Italian bonds alongside the euro zone’s bailout fund. He then quickly backed away from the idea, saying the IMF could only lend its funds to countries and could not intervene in bond markets directly. Christine Lagarde is now… Read more »
If every ex Goldman Sachs employee was sacked from their policy making positions in the EU and US then the world would be a btter place.
Folks, why are we are so down on “Capitalism” ? even the limited socialist version that has been practised in this country for too long, I read with longing David’s account of the fund managers sitting in the U.S paying their 15% Tax rates, how that compares with the obscene levels of taxation we suffer here,reduced as we are to a “pocket money society” where our incomes are raided and wasted by government in such areas as housing / health and education, why o why does it have to be like this, can we not be given control of our… Read more »
+1, WJ.
Taxation is fascism.
http://www.youtube.com/watch?v=mhsS2C7v2dU
Well somehow or other it always seems to be IBEC that devises the most utterly stupid ideas on how to fix the Irish economy. The latest is a real stinger. IBEC want to provide social welfare in a smart card, so that you will only be able to shop in the RoI with the money. Officially they are in favour of this because they are saying that there are people who are saving their social welfare. Specifically, this is aimed at people who are travelling to the North to try and buying cheaper materials for their own households. Now, this… Read more »
Gravy
Do we remember our first real sovereign bribe ? Do we remember Jacques Delors the diminutive money bags who opened the flood gates with Albert Reynolds to allow our lands flow with milk and honey ?
It seems so long ago and so recent and soon to be forgotten .
Oh those days of excitement and we all learned to be Greedy .
He will be written into the soon to be ‘The Anals of The Five Masters ‘. ….and Malachy will turn in his grave.
Financial and social Cannibalism Forget the megalomaniac numbers, the billions and trillions flooding the news channels for a second, as surreal as it is, they are nothing but bits and bites in Computer systems. Forget for a moment the political propaganda theater that is performed on stage in all our countries every morning in the papers, and every evening in the main news channels. Take a few steps back and look at it from the outside, an alien perspective looking from outer space on planet Earth and what happened here in the post WWII, in these few decades only. We… Read more »
I hope the teacher approves…..
http://www.independent.ie/national-news/budget/govt-under-pressure-over-german-inspection-of-budget-2938719.html
The end in sight?
http://www.independent.ie/business/european/debt-crisis-spain-denies-it-will-need-bailout-as-borrowing-peaks-at-euro-high-2938608.html
There are three policies that could be adopted:
1. Quantitative easing, that is pumping money into big zombie bank. This is being done, directly and by stealth, as in the US. This action does not require a central government.
2. Austerities. Being done, along with QE.
3. Stimulus, that is, government spending on jobs, mainly in the private sector. Not being done. In fact governments are destroying jobs.
Can an economy grow, that is, generate more spending and more jobs, using only austerity and QE? Not likely.
There are four policies that could be adopted: 1. Quantitative easing, that is pumping money into big zombie bank. This is being done, directly and by stealth, as in the US. This action does not require a central government. 2. Austerities. Being done, along with QE. 3. Stimulus, that is, government spending on jobs, mainly in the private sector. Not being done. In fact governments are destroying jobs. Can an economy grow, that is, generate more spending and more jobs, using only austerity and QE? Not likely. 4. Debt forgiveness. Probably combined with nationalizing banks and wiping out investor equity… Read more »
@ John Allen, Adam Byrne Coldblow. Can you not get a point over without insulting generalisations. A lot of Irish people are neither fat or stupid and some even eat fruit and veg. Well at least you guys do so that’s a start.
Devaluation to Zero
Come to think about it , it solves many anomalies .Subsequently create a new currency without recourse to the old currency .Re-denominate all Gov pensions and salaries to basics .
Then we can say ‘ Devaluation the Leveller’.
The dog sitting on the nail story/metaphor says it all I think (cited in another thread not so long ago). Until things get bad enough for the 99% to rise up and depose the 1%, and, among other things, until we can go back to Glas-Steagall and proper regulation or forward to something better we are going to head further down the toilet into the USofE and then into whatever the NWO has planned. Of course a world war might come before or afterwards but regardless – make no mistake – as has already been written above, poverty is the… Read more »
Bernard Connolly frightenly connects all the dots.
http://www.nytimes.com/2011/11/18/business/global/the-rise-of-a-euro-doomsayer.html?_r=1&pagewanted=2
http://factdrop.blogspot.com/2011/07/bernard-connollys-crystal-sphere-and-eu.html
http://www.brugesgroup.com/eu/circle-of-barbed-wire.htm?xp=comment
http://www.brugesgroup.com/mediacentre/speeches.live?framed=1&article=18&xp=speech
Compliments to DmcW and to many regular commentators on this forum for the insightful, informed, articulate and intelligent discourse.
Frightenenly! (delivered ..)
David,
Germany are onto the gameplay.
They understand that an insider crony network pillaged the euro in full knowledge they would get bailed out by Germany and ECB printing free money to bail em all out.
Germany cottoned on to this scam and are not playing ball it now seems to be the case.
Why should they bail out an insider crony network creaming the euro.
More on coup d’état ….
In case you missed it, the new head of Deutsche Bank supervisory board is Paul Ashleitner coming from Allianz Achleitner was:
– 1988-1989 Goldman Sachs New York, Vicepresident, Mergers and Acquisitions
– 1989 1994 Goldman Sachs International, London,Executive Director INvestment Banking
– 1994-1999 Goldman Sacg & Co. OHG Frankfurt, Managing Director and Partner of Goldman Sachs Group
So, we have Draghi at the head of ECB, Monti in Italy, Papadimos in Athens, and Achleitner now in Deutsche Bank, and this is just the tip of the iceberg.
and some people still think austerity packages are a tool to fight this ‘crisis’…
When’s the next Wobble , John?
Hi I believe that the situation is being cleverly orchestrated . Europe will brought closer together than ever before, the stage is set for a world government , just look at the two who have been PLACED in government in Italy and Greece , will we see someone lime this arriving into Ireland ? This is technocracy and these are the people who all of a sudden will have the answers on how to solve our problems , appearing lime savours with all the answers Europeans will be delighted to do what they say , ” out of chaos order”… Read more »
Dear David, if the banksters sell national bonds between themselves at steep discounts, and then a universe of uneducated journalists (who studied journalism not finance) screams in every rag some rubbish about 7 percent bond spreads, I could not care. Their gambling odds on national debt are irrelevant. This is not a science fiction movie, where some Ebola style ‘contagion’ engulfs a hapless population causing the audience to reel in horror. Please don’t use the word contagion except to describe the word technocrat. You have no reason to do the biding of the propagandists. Allow me to re-write your words:… Read more »
Further to Brian Lucey’s link above, it today seems that Draghi is taking the bull by the horns and going for broke, buying bonds in bust banks; in essence making ECB Lender of last resort in defiance of the treaty, whilst simultaneously denying that he is doing any such thing. He must have attended a Jesuit school of economics.
http://on.ft.com/s4fCHp
Austerity to bailout banks really works if you want economic stagnation whilst still not having functioning banks
‘This year is now on track to be the worst year for mortgages since 1971 a year when there were 11782 mortgages issued.’
‘fifteen counties without single house build registration’
‘nama to take bad debt charge in 2011 accounts.’
Impressive
Really positive to see the German authorities sayn’ no to the criminal finance class press ganging the Germans into using the ECB as a ponzi get out for pirates scallywags cheats and scam artists.
A nation drugged!
One in five are on happy pills.
http://www.prnewswire.com/news-releases/americas-state-of-mind-new-report-finds-americans-increasingly-turn-to-medications-to-ease-their-mental-woes-women-lead-the-trend-133939038.html
I am not astonished, and this goes hand in hand with my own personal observations when i lived in the USA, a nation steered by fear.
As the state moves from one crisis to another, one man has firmly decided that there are more important things to do. And this time he is not talking about calling his fellow TDs after characters in the Muppet Show.
http://www.independent.ie/national-news/mick-wallacersquos-euro-2012-timeoff-plea-shown-red-card-2939086.html
Gilmore is 100% correct. Mick Wallace should not be allowed turn the Dail into a Muppet show.
Change your Earth desktop background focus!
I did….
http://dl.dropbox.com/u/4914840/stratego.jpg
This situation is getting increasingly disturbing!
Must see!
http://www.zerohedge.com/news/doomsday-klein-bottle-charting-who-owes-what-whom-hint-lots-and-everyone
PIMCO’s El-Erian
But growth, while necessary, is insufficient by itself, given today’s high unemployment and the extent to which income and wealth inequalities have increased. Hence the third dynamic: the West is being challenged to deliver not just growth, but “inclusive growth,” which, most critically, involves greater “social justice.”
http://www.project-syndicate.org/commentary/elerian11/English,/url>
http://www.independent.co.uk/news/business/analysis-and-features/what-price-the-new-democracy-goldman-sachs-conquers-europe-6264091.html David, from what I can see, you are in love with the EU, I’d like to hear your thoughts on the takeover by the globalist banksters of Greece and Italy. Also, it’s obvious you think that central planning and central banking system are something you feel ordinary people should support ( i don’t and never will), and the never ending bond(age)s and printing currency to pay us fools in. How does this reconcile with your views on the international globalist banker occupation of sovereign countries What is your opinion on real proper money, money that can be trusted and… Read more »
Ben bernanke is a expert on the Great Depression and he will do everything in his power to avoid another one .
What led to the rise of Hitler ? And what is ingrained in the minds of Germans ? And what will they do to avoid another one ?
Answer : Printing money .
@33square
I must have been asleep , examples of proven Depopulation events in the last 11 years?