Finito?

[Ecthy]

I don't see what all the fuss is about. National fiscal sovereignty isn't threatened by Germany. What Merkel has in mind is possible intervention by European institutions.

If, of course, those are even run by Germans when they're not (think ECB), then KH's Staufer solution may become a reality.

[a.kitman]

what?

[dannubis]

All the talk of conquest was too much for his German mind. He probably is going bezerk right now...

[Ecthy]

Speaking of which, what side of the Belgian turmoil are you on?

[dannubis]

Is there any other side than utter suckiness to this ****ed up situation ?

[a.kitman]

i really didnt expect he was gona go hitler on me like that

[Ecthy]

Obviously I wasn't directly responding to you.

You're dumb in a boring way.

[Ecthy]

Is there any other side than utter suckiness to this ****ed up situation ?

Why is there no re-election? Obviously this wouldn't work more than once, but there's nothing much to lose, right?

[a.kitman]

Obviously I wasn't directly responding to you.

You're dumb in a boring way.

why are you so defensive?

[dannubis]

Why is there no re-election? Obviously this wouldn't work more than once, but there's nothing much to lose, right?

A re-election would solve nothing. Flanders would vote a little bit more right. Wallonia would vote more left. And again we would face half of a legislature without a governement.

The problem is you only have regional parties in the federal parliament. This de facto means belgium as a unity doesn't exist. It is just a collection of diametrically opposed interests.

[notyoueither]

http://www.theglobeandmail.com/news/...rticle2265343/

European unity teeters as leaders fail to agree on measures to resolve debt crisis
susan sachs
BRUSSELS— From Friday's Globe and Mail
Published Thursday, Dec. 08, 2011 9:49PM EST
Last updated Thursday, Dec. 08, 2011 10:23PM EST


European Union leaders agreed on the need for tougher fiscal regulation but not on the details of how and when to achieve it, after the European Central Bank dashed market expectations it would move forcefully to stem the euro area’s debt crisis.

Meeting under a pall of political and economic gloom, the assembled presidents and prime ministers also sought desperately Thursday to prevent their divisions over euro-zone regulation from leading to a potentially fatal breakup.

It was their 15th meeting in 23 months in search of a formula to convince investors they can come up with the discipline and cash to restore confidence in the euro. The two-day summit is scheduled to end Friday.

They also faced a crisis of confidence in the durability of the EU itself, the worst in the 60 years since Europe started to build a union of collective trade and values on the ashes of centuries of war and mutual distrust.

Although the leaders appeared to be moving closer to an agreement to require deficit and debt limits, the long wrangling did not send the reassuring signals that world markets wanted.

The European Central Bank let it be known that it did not plan to substantially increase its purchase of the sovereign debt of the euro zone’s most distressed countries. Combined with reports that EU leaders were still at odds over whether to create a massive bailout fund for debt-ridden countries, stocks dropped sharply across Europe and in the United States.

Loss of faith in the euro, and the deepening recession in Europe, would have worldwide ramifications. “Should the crisis deepen and spread further to the larger European economies, transmission to Canada could become more severe,” Bank of Canada Governor Mark Carney said.

“An adverse outcome for Europe,” he added, “would also raise the risk of a significant impairment of funding conditions for Canadian institutions.”

Meeting into the pre-dawn hours Friday, EU leaders haggled over whether to accelerate a new rescue fund for euro-zone countries threatened with insolvency. A sticking point was whether it should be combined with loans into a super-fund to backstop countries buried under debt or unable to afford to borrow in the markets.

They accepted a German-French proposal that countries adopt some version of a constitutional or budget-balancing guarantee and accept penalties from the EU for incurring more debt than their economies can handle.

The crisis has outlined in stark terms the rifts among Europeans over how much political power to assign to the EU to police its members’ budgets and how much money it will get to prop up the most debt-ridden countries.

French President Nicolas Sarkozy and German Chancellor Angela Merkel triggered the anxiety with a joint proposal earlier this week that would empower the EU to impose deficit ceilings, vet national budgets and impose penalties on fiscally wayward governments.

If all EU leaders did not agree, they warned, they were prepared to hold out for a separate and self-regulated fiscal union of just the 17 countries that use the euro as their common currency.

The French-German ultimatum raised the possibility that the European Union could increasingly spin off into a collection of overlapping but separate alliances, or what some have called an “à la carte EU.”

Before going into their closed-door meeting, a number of European leaders expressed alarm at the idea of a two-tiered union. Leaders of the Netherlands, Denmark and Poland called for any debt crisis package to include all EU members, whether or not they use the common currency.

“We also have to make sure that we keep the union of 27 together,” said Dutch Prime Minister Mark Rutte. “It is not just a union of 17 euro countries. It is of great importance for a country such as the Netherlands, which is growth-orientated and believes in importance of jobs, that we keep countries such as the U.K., Sweden and the Baltic countries and Poland in.”

While every international summit has its share of personality and culture clashes, this one is more than ever a showdown between strong-willed leaders.

At an earlier meeting over the euro-zone debt debacle in October, Mr. Sarkozy reportedly flew into a rage against British Prime Minister David Cameron, telling him he had no business interfering since Britain had long rejected the common currency and opted out of many EU laws.

British financial institutions, though, are deeply invested in the euro and Mr. Cameron comes to the summit with the same urgency to see it rescued. But he is also under pressure at home to accept nothing that would give the EU any say in how Britain manages its finances or any powers that could jeopardize the euro holdings of the British financial industry.

“The more euro-zone counties ask for,” he told parliamentarians in London this week, “the more we will ask for in return.”

Another dispute with Britain involves the French and German insistence on changing existing EU treaties to cement the fiscal discipline in the euro zone.

“Words alone are not believed any more because too often we did not live up to our words,” Ms. Merkel said a few hours before the summit, at a meeting with centre-right European Parliament deputies.

Mr. Cameron faces demands from within his own party to hold a referendum on any change, a sure-fire recipe for a political crisis at home.

The EU already has separate self-governing blocs. Some countries, but not all, allow free movement of workers between them. Some, but not all, participate in a single-visa zone. But the tough talk from the German and French leaders of a possible go-it-alone fiscal union is seen as a leap beyond.

“Our well-being and our ways of life … can only be preserved in a European Union that works,” wrote Lluis Bassets, deputy editor of the Spanish newspaper El Pais, in a commentary published Wednesday.

The Merkel-Sarkozy plan, he added, would create “a Franco-German Europe, a federalism of two partners who are inviting those who want in to join up.”

Ms. Merkel’s high profile on the debt crisis has triggered an unusual wave of Germany-bashing in France and Britain, where some media and politicians have portrayed her as the embodiment of a revived Teutonic drive to dominate Europe.

If that same backlash leaks into the EU summit meetings, Ms. Merkel’s ability to negotiate down from her absolute positions could be compromised.

“It’s dangerous and it doesn’t increase this government’s room for manoeuvre,” said Almot Möller, a European policy specialist with the German Council on Foreign Relations.

The political consequences of failure hang heavy over the deliberations. The ratings agency Standard & Poor’s warned this week that it could downgrade the creditworthiness of 15 of the 17 countries in the euro zone.

French officials, among others, lashed out at the timing of the announcement as a bit of presummit arm-twisting engineered by the United States. Mr. Sarkozy, facing re-election in April, is desperate to maintain his country’s prized AAA rating.

A downgrade could set off a politically unpalatable chain reaction, increasing borrowing costs not only for the national and local governments but also for quasi-governmental agencies such as the French national railroad.

Mr. Sarkozy has already announced three austerity plans since the summer, based mainly on tax increases and speedier pension reforms, but would face the even more politically unpalatable prospect of spending cuts and higher unemployment.

Europe’s financial troubles have already toppled six governments in the past year.

Italy, the third biggest euro-zone economy after France and Germany, is drowning in debt. Spain and Ireland are deeply mired in recession dating back three years to the spectacular bust of their speculative real estate booms.

Greece was saved from default by a major bailout, but there are open debates among European economists and politicians over whether it should remain in the euro zone given its debt burden and deficit.

Until now, only Germany and Spain have written debt and deficit ceilings into their laws. The French Socialist opposition has blocked a similar proposal, as did Austrian leftist parliamentarians in a vote on Thursday.

Slovakia’s parliament, on the other hand, overwhelmingly approved a constitutional amendment establishing a debt ceiling of 60 per cent of GDP, the limit set by the euro-zone rules, and goes a step further. After 2018, the cap would be lowered gradually to 50 per cent.

[notyoueither]

http://www.economist.com/node/21541840

The European Union in disarray
A comedy of euros
Britain had a bad summit, but the euro zone had a worse one

Dec 17th 2011


AS YOU read this, lawyers are busily drafting a European fiscal “compact” designed to restore discipline to the euro zone’s economies. In the new year all but one of the European Union’s 27 members are to start thrashing out this treaty’s details. Meanwhile the British government, having fallen out with all its 26 partners, is promising that it will remain a central part of the union—and that London will remain Europe’s financial capital. All is well.

Except that it isn’t. Merely to set out these purported achievements of the latest EU summit in Brussels is to show how hollow they are (see article). Once again Europe’s leaders have failed to solve the euro crisis. The new treaty could easily be killed by the markets or by its rejection in one or more euro-zone country. The EU has suffered plenty of disappointing summits without the sky falling in—a good many of them in the past year. But unlike the marathon dispute over a new constitution, the euro is in a race against time because markets are pushing countries to insolvency. As investors and voters lose faith, the task of saving the single currency grows harder. Sooner or later, the euro will be beyond saving.

This summit also threatens to change the nature of the EU—and not in a good way. One reason is that it has plotted a misguided course for the euro. The other is that Britain, long ambivalent about its membership, has moved closer towards dropping out, even if that would be more by accident than design. An EU without Britain would be more parochial and less liberal. An EU without the euro might not exist at all.

Is it really that bad?

For all the fuss about Britain, the main failure in Brussels was to draw up a plan to save the euro. That requires a trade-off. Governments need to bind themselves to credible fiscal rules that provide incentives for good behaviour. They need to assume some form of joint liability for debts, with only the well-behaved benefiting from the shelter of Eurobonds. In return the European Central Bank (ECB) needs to give total support to all solvent members. That would leave much to do, especially to unleash growth and to reform the banking system. But investors would at least see a clear path ahead.

Instead there was another fudge, with neither the governments nor the ECB doing enough. In the run-up to the summit, the ECB extended its support for euro-zone banks—in effect lending them unlimited cheap money. That will help the banks and might in theory feed the demand for euro-zone sovereign debt. But it hardly counts as the “big bazooka” investors want, if only because the banks are wary of taking losses on ever larger stashes of government debt. Moreover, the ECB remains adamant that it cannot intervene as the lender of last resort to euro-zone sovereigns.

The governments did even less. True, the leaders pledged extra money in the form of loans to the IMF and left open the possibility of boosting the euro zone’s own rescue fund. But there are already signs that not all the cash will turn up as promised. And the fiscal compact that was the summit’s centrepiece is flawed.

The idea is to write fiscal discipline into national constitutions and harness the EU’s institutions to punish profligacy and excess. But such a compact will not safeguard the euro against future booms and busts. Until financial markets crashed in 2008, Spain and Ireland were hailed as economic stars, with lower public-debt burdens and healthier budgets than Germany. By the time their public finances went visibly wrong, it was too late. Worse, the compact will not resolve today’s troubles. The package dwells too much on austerity, and too little on growth. That risks aggravating the deep Europe-wide recession threatening next year, which could prompt a downgrade of the entire zone’s credit ratings and cause economies to miss their deficit targets—triggering still more austerity.

Although the compact was greeted as the acme of European solidarity, it is more likely to provoke strife. The summit poured cold water on the idea of Eurobonds, in which all members would share some or all of the troubled economies’ burden of debt. Instead the adjustment is being imposed almost entirely on deficit countries, guaranteeing that it will be long and painful. If in the coming years elected governments that impose austerity stir up civil unrest, outside enforcers in the EU will before long become a target for popular rage.

Already governments that agreed to the idea of a compact are warning that its ratification depends upon the detail. The Irish government is under pressure to hold a referendum that it would struggle to win. Parliaments from Slovakia (in the euro) and the Czech Republic (outside) could balk. France’s opposition presidential candidate, who is leading in the polls, says he would renegotiate the deal to get Eurobonds and a more active ECB. All across Europe there are murmurs that Germany, which has benefited so handsomely from the euro, is asking too much of everybody else.

A poor hand misplayed

However did David Cameron, Britain’s prime minister, manage to unite them all? The answer is through a combination of political expediency, inept tactics and fumbled diplomacy. Mr Cameron’s plan was to seek safeguards for the single market and to subject some parts of financial regulation to unanimous approval, in exchange for backing a new treaty. When he failed to get what he wanted, he withheld his support.

In Mr Cameron’s defence, he has to contend not only with Conservative Eurosceptic backbenchers, but also a Eurosceptic public—just as Germany’s Angela Merkel and France’s Nicolas Sarkozy also have domestic political constraints. Furthermore, Britain has real cause to worry about financial regulation. London is host to by far the biggest financial-services industry in Europe—in some areas it has as much as 90% of the EU’s business. The European Commission, egged on by the French and others, has produced many daft proposals to regulate it, as well as suggesting a financial-transactions tax.

But if the politics was expedient, the tactics and the diplomacy were not. Mr Cameron knew what he wanted, but went about getting it the wrong way. He presented a last-minute unilateral demand that would have partially overturned the principle of majority voting on single-market rules, which Britain itself first put forward under Margaret Thatcher over 20 years ago. Had he prepared the ground with other governments in advance he might have succeeded. Had he talked to fellow centre-right leaders on the summit’s eve instead of staying out of their political group, he would have known that he could not.

Mr Cameron’s veto was self-defeating. He may have briefly basked in his backbenchers’ praise, but if his aim was to protect the City and the single market, he has failed. Both are threatened more by Britain’s absence from the summits of up to 26 leaders that will now take place than by Britain’s participation in a treaty of 27 that placed no constraints on it. For decades, British diplomacy has been guided by a determination to keep a seat at the table. It has worked: Britain has not been outvoted on a serious piece of financial-services legislation.

Instead of closing the door, mend the fence

If the euro collapses, or the treaty is stillborn, Mr Cameron may yet claim that he was right all along. It would certainly make his veto seem less momentous. However, other European countries will not soon forget Britain’s attempt to hold the summit to ransom at a vital moment—and to protect financial services, which many of them blame for the crisis. And the Tory Eurosceptics and their Liberal Democrat coalition partners are already at each other’s throats (see article).

At its worst, this might be the start of a process by which Britain falls out of the EU (see Bagehot). Yet it does not have to be—so long as Mr Cameron is prepared to mend fences and align his tactics with a strategy to be part of Europe.

He has made a start by withdrawing his futile threat to block the use of the EU’s buildings and institutions by the 26 members of the new treaty. As power shifts in Europe, there will be more opportunities. Britain can help other non-euro countries who gibe at the new treaty’s strictures as well as euro-zone countries that want to resist protectionism or over-regulation—including Germany. At the very least Mr Cameron should make up with Mrs Merkel, who had previously fought hard to keep the British at the table. A compromise that gives Britain some reassurance about the City and thus lets Mr Cameron return to the table may still be possible. Remember, his recalcitrance at the summit means that the new bulldog Cameron is better equipped to face down the Little Englanders. The question is not whether he can recover Britain’s position, but whether he is ready to do what it takes.

Ultimately, the euro zone faces a similar choice. Its members could strike a grand bargain that deploys the ECB’s balance-sheet and some form of Eurobond in exchange for fiscal integration. The question is not whether they can save the currency, but whether enough of them are prepared to pay the price. This summit suggests not.

[Dauphin]

In Mr Cameron’s defence, he has to contend not only with Conservative Eurosceptic backbenchers, but also a Eurosceptic public—just as Germany’s Angela Merkel and France’s Nicolas Sarkozy also have domestic political constraints. Furthermore, Britain has real cause to worry about financial regulation. London is host to by far the biggest financial-services industry in Europe—in some areas it has as much as 90% of the EU’s business. The European Commission, egged on by the French and others, has produced many daft proposals to regulate it, as well as suggesting a financial-transactions tax.

It's a numbers game. Might as well democratically ask two lions and a lamb what they should eat for dinner. Damn right the lamb will want to veto.

[C0ckney]

good article on the economics, not so good on the politics.

ultimately this deal is not credible and will do nothing to solve the underlying problems. it's just more power being centralised to the EU, who have proved so utterly incompetent so far during the crisis.

[notyoueither]

The EU in this crisis reminds me of the end of the Polish state.

[C0ckney]

which one and why?

[DanS]

This summit actually has so far had a bigger positive impact than I expected. Probably, this is due to everyone agreeing that investors would not have to take a "haircut" on any country's bonds other than Greece's.

[notyoueither]

which one and why?

I'm thinking of the ineffectiveness of the nobles' democracy that weakened the state. I don't know a whole lot about it, just what I've read in passing.

Europe does not seem capable of taking the steps that are needed to sustain the Euro.

[C0ckney]

I'm thinking of the ineffectiveness of the nobles' democracy that weakened the state. I don't know a whole lot about it, just what I've read in passing.

Europe does not seem capable of taking the steps that are needed to sustain the Euro.

there's not even the pretence of democracy when it comes to the EU anymore.

there are a number of problems, including the fact that saving the euro is not going to sort out the economic problems in various countries. indeed the euro is a cause of some of the problems they face.

[C0ckney]

i should also point out that anything to do with the euro address the biggest problem at all. the fact that the european banking system is insolvent. this whole 'crisis' is really a banking crisis at its heart.

[OneFootInTheGrave]

It is a structural crisis, #1, structure of EU, which is fuelled by strucutural failure of Greece predominately which is more just a symptom, or a focal point for overall EU "unfinished" integration situation. Banks just come there in the follow up, ie if the governments go bust, banks will as well, but the buck stops with the EU integration itself, as there is plenty of € firepower to sort it all out if the zone was actually financially integrated and not only a group of squablling countries with the same currency.

Greece itself is a basket case, run like a third world country with resources to previously unlimited first world finance ... but as bad as it is, that would only be a blip on the EU radar if the supporting institutions actually had a mandate to support the currency.

[C0ckney]

there are massive structural problems with the EU and the euro. having 17 countries, with very different economies, cultures and ways of doing business but with a single currency and interest rate was never going to work. it has taken a banking crisis to expose these flaws to even the most determined of europhiles.

if european banks were solvent, then greece would have been allowed to default. if french banks weren't about to go bust we wouldn't have seen sarkozy bending over backwards to ensure that banks will not have to take 'haircuts' on debts, i.e. losses on their bad investments. instead, naturally, these will be passed to taxpayers. we wouldn't see emergency credit being extended (recently in larger amounts and for longer terms, primarily US dollar funding) to banks. if european banks weren't scared witless about the solvency of their counterparties, we wouldn't see them depositing money with the ECB instead of lending to each other. all of these bailouts to countries, are, in reality, bank bailouts. to protect them from their enormous losses on sovereign debt. why do you think that greece is still being given money, why every 'tranche' is approved despite the fact that greece misses every target and breaks every agreement imposed by its creditors? it's not because the troika are goodhearted people, it's because they know full well that the default of even a small country like greece will bring the whole sorry house of cards crashing down.

the other problem is our long lost friend democracy. the european political class have just imposed a move towards fiscal union without asking for the consent of their electorates. their currently scrambling around for ways to avoid asking the people, because they are afraid (as well they might be) that the people of europe do not support what is being done. what will happen when the people of greece or italy or another country decide they are not happy with the austerity being imposed from ber....sorry brussels, by people they never elected and have no democratic control over?

[C0ckney]

bah!

[OneFootInTheGrave]

Yes, the nondemocratic nature of EU and the institutions is a major problem, also the political drive to unify on "less important" issues first and wait for the "right time" to sort out the major ones. Well the right time came too early (now), but it would most likely be too early if it came at any time over at least next 20 years, and it forces the hand from mostly not elected politicans to draw up the plan and make it into a functional superstate. Which in itself looks destined to failure before it starts, like all those false start conferences they have been having over the crisis during the past months.

The banks vs the governments - you can call it catch 22, but ultimately this does not really matter which one comes first, as it will ultimately be up to the structural integration or disintegration of EU where the solution will be found. It is basically an outcome "as expected" with the eventual crisis, which is resolving right now, with no necessarily good outcome in sight.

If the EU stays, it is too nondemocratic to start with, and that bad taste will stay with everyone going forward, seeding the seed for eventual dissolution - if it ever comes to it. The dissolution itself will be just a massive economic blow for everyone involved, with no real winners and just economic losers all around, the only positives may be personal liberties and such not exactly tangible positives like local flexibility that would come out of the dissolution. Nothing else to do other than sit and watch.

[KrazyHorse]

i should also point out that anything to do with the euro address the biggest problem at all. the fact that the european banking system is insolvent. this whole 'crisis' is really a banking crisis at its heart.

Are you a ****ing idiot? If euro banks are insolvent it's because the value of the euro sovereign bonds they hold have dropped through the floor.

Furthermore, the euro governments are twisting the arms of their banks to load up even further on domestic sovereign debt (which they may or may not be succeeding at).

[C0ckney]

Are you a ****ing idiot? If euro banks are insolvent it's because the value of the euro sovereign bonds they hold have dropped through the floor.

Furthermore, the euro governments are twisting the arms of their banks to load up even further on domestic sovereign debt (which they may or may not be succeeding at).

no, but unlike you it seems, i actually know what i'm talking about. banks are in trouble for a variety of reasons, losses on sovereign debt, housing bubbles bursting, mortgages in foreign currencies going sour etc.

the euro governments have been trying to get everyone to buy their bonds or contribute to the 'rescue' funds. the oil states, the chinese, the other BRIC nations, heck if the martians landed tomorrow, we'd no doubt see a headline by friday about them being asked to buy some european government bonds. the ECB has bought a huge amount of bonds, creating a false market, to help out banks with large bond exposures. in actual fact banks have been reducing their exposure using the ECB since it began its bond buying program.

[DanS]

C0ckney: I think you mostly have the cause and effect backward, as KH says. Most of the banks in France, for instance, are very close with their government -- unfortunately they are almost arms of the government. As a first measure to solve the sovereign debt crisis in Greece, the French banks were requested to buy add'l Greek bonds. Same thing with the German banks. The German economy didn't have a bubble.

I can see where you are coming from with regard to Spain only. Spain's sovereign debt was well under control until the real estate bubble burst. As far as I can tell, Spain's banks are very much under water. The gov't may eventually take on that burden, so that's why Spain's yields are trading so high, even though its debt-to-GDP isn't all that bad (about 80%, including the regional gov't debt).

As far as I can tell, Spain's real estate has a ways to fall. But it's tough to know for sure, because the Spanish real estate market makes me very thankful for the hyper-transparent and efficient US real estate market (on a comparative basis). The price discovery mechanism in Spain is something of a mystery to me.

[Dauphin]

I thought the logic was that Spain's yields are so high because Spain's tax revenue forecasts were so poor - a result of non-government debts being so high leaving little room for growth, profits, consumer spending (etc) and ultimately tax revenues. All points intertwine, I guess.

[DanS]

Well, they may intertwine, but it seems pretty clear where the Spain bank problems originated -- i.e., the real estate bubble. The easiest explanation for the high yields, even though the Spanish public debt load is more or less manageable, seems to be the expectation that the public debt load will soon become unmanageable. What rational private pocket would put money into the Spanish banks to make them solvent?

[C0ckney]

dans, ireland as well. its banking system collapsed as a result of a property bubble bursting. so that's two of the six eurozone countries who are most in danger.

the problem of foreign currency mortgages (swiss franc denominated ones) is very serious in easten europe and some balkan countries. however as well as affecting banks in those countries (to say nothing of the people who've seen their mortgage payments climb by 40% or more), it has also affected swiss, austrian and italian banks, as well as some in nordic countries.

there was also the problem of many banks having business models which became unsustainable when the credit crunch hit. northern rock in the UK, several irish banks, banks in the baltic states, which led directly to their difficulties.

all these things combined, together with sovereign debt issues have led to a perfect storm of tight credit conditions and a lack of confidence which continues and is in fact worsening. it's a complex picture and it helps no one to over simplify it.