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The rough politics of European adjustment

If Europe is going to “resolve” the current crisis in an orderly way, it is going to have to move very quickly – not just for the obvious financial reasons, but for much narrower political reasons.  I am pretty sure that the evolution of European politics over the next few years will make an orderly solution progressively more difficult.

For ten years I have used mainly an economic argument to explain why I believed the euro would have great difficulty surviving more than a decade or two.  It seemed to me that the lack or fiscal centrality and full labor mobility (and even some frictional limits on capital mobility) would create distortions among countries that could not be resolved except by unacceptably high levels of debt and unemployment or by abandoning the euro.  My skepticism was strengthened by the historical argument – no fiscally fragmented currency union had ever survived a real global liquidity contraction.

 

Merkel: No, no and ... no (to European Debt Agency)

The Iron Lady of Europe's most powerful economy is opposing calls for two measures that other policy makers believe could help ease the continent's debt crisis. Finance ministers from the 16 euro zone nations were meeting in Brussels today and were expected to discuss calls for boosting the EU's bailout fund and at the same time creating a new bond, dubbed the E-bond, that would be joint European government debt.

Trichet finally mentions the European Debt Agency

In spite of recent decisions by European fiscal and monetary authorities, sovereign debt markets continue to experience considerable stress. Europe must formulate a strong and systemic response to the crisis, to send a clear message to global markets and European citizens of our political commitment to economic and monetary union, and the irreversibility of the euro.

This can be achieved by launching E-bonds, or European sovereign bonds, issued by a European Debt Agency (EDA) as successor to the current European Financial Stability Facility. Time is of the essence. The European Council could move as early as this month to create such an agency, with a mandate gradually to reach an amount of outstanding paper equivalent to 40 per cent of the gross domestic product of the European Union and of each member state.

ECB's Weber says Europe can go beyond 750 bn euros rescue

Axel Weber, German Central Bank president and council member of the European Central Bank, said Wednesday the euro is solid and euro-zone member states will protect it from speculative attacks, even if that means putting more money on the table. He said any speculative attack on the euro would fail as he assumes European countries are ready to increase the EUR750 billion rescue package created in May to fend off threats to financial stability within the 16 member states of the euro zone. "If that amount is not enough, we could increase it," Weber said. "An attack on the euro has no chance of succeeding."

The European Financial Stability Facility was created in May in response to the Greek crisis. It consists of EUR440 of loan guarantees from euro-zone states and is complemented by EUR60 billion in E.U. funds and EUR250 billion from the International Monetary Fund. Weber added that Germany will stand by the euro. He said it is stable and will emerge stronger from the current crisis. "There is no going back" from the common currency, he said.

He also said European Union member states need to gradually introduce a permanent crisis mechanism and that details of such a mechanism need to be laid out soon to send markets a clear message. Weber said he is convinced that in December, euro-zone members will be able to present proposals for such a mechanism. The euro-zone members are trying to agree on a permanent crisis-management mechanism to bail out countries that run into fiscal problems once the current mechanism set up at the height of the Greek crisis comes to an end in 2013.

Swedish Banking Lessons

There are models out there for how to fix the financial system. The big crisis, in the view of many, had its roots in the extensive deregulation of the financial sector and expansive monetary policies. The tax system favored borrowing and the loosening of credit markets led to a dramatic expansion in the stock of debt.

Van Rompuy and Barroso contradict eachother on plan for EU voting rights suspension

29 October 2010: European Council President Herman van Rompuy and European Commission President Jose Manuel Barroso answer questions, from Euractiv.com and Euronews, among others, at the end of the two-day summit of EU leaders in Brussels.

European Financial Stability Fund

What do you call a cross between a supranational, a sovereign and a structured derivatives product?

Until somebody comes up with a more elegant name, you can call it the European Financial Stability Facility.

Asymptotix presents European Stabilisation Bank Proposal Booklet

 

In the summer of 2010 as a logical conclusion to our analysis of Herman van Rompuy's meandering response to the developing Eurozone economic crisis, asymptotix developed the idea of a European Stabilisation Bank; the basic concept is to leave the ECB to do its job (Monetary Policy) but to engage institutions like the EIB in common european fiscal support. Now in 2012 it seems we were way ahead of the game. And our 'viewing figures' in particular those by the European Commission further bear that out.

EU Debt Office, Authority for Bank Resolution Funds & European Financial Stabilisation Mechanism

Michel Barnier, Commissioner in charge of the Internal market and Services presented last week a proposal for Bank Resolution Funds. This came two weeks after the EU Heads of State presented the 750 bn euro rescue package with that mysterious Special Purpose Vehicle (SPV), which aimed at calming down the markets. The turmoil continued and it felt kind of weird that there were no panic news this last Friday (no bad news is good news).

Last week Asymptotix pleaded for a European Debt Bank, or European Union Debt Office, which the Swedes would call it. John A Morrison said:

We are where we are, capital has transitioned to the state, we need public institutions which can properly manage us through this second phase sovereign debt crisis and develop a roadmap for free markets beyond a properly constituted European "Bretton Woods" style "Public Debt Bank" (its not for me to coin the name); philosophically in line with Keynes' thinking.

The Lunatix are on the Grass: A new Bretton Woods proposition for Europe

viaduct morlaix asymptotixSUMMARY 

We are where we are, capital has transitioned to the state, we need public institutions which can properly manage us through this second phase sovereign debt crisis and develop a roadmap for free markets beyond a properly constituted European "Bretton Woods" style "Public Debt Bank" (its not for me to coin the name); philosophically in line with Keynes' thinking.

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