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

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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.


One of my friends, who is a very senior executive now in one of the global household names in the computer industry was required about ten years ago to fulfill the troubleshooting "international rescue" role on a very large scale software development project in a European city. As an analyst in this process I was asked to sum up the position in a single sentence; my view as I expressed it at the time, later came to hang round my neck a bit; being often quoted by other people with no connection to that particular project at all; "this is all bol**x"! Professionally my friend then proceeded through a rigorous due diligence process and he came to that final meeting, the showdown, facing off the Project Managers and Technical Experts, the cadre at that time running that mammothly ballooning monstrosity (as many of the e-banking projects of the turn of the millennium were, of course). Maybe my influence on him was partial but he famously concluded that meeting with the question ".... And you have been doing this for how long?" In fact in this particular instance the bursting of the "dotcom" bubble saved face for all, as it became the premise upon which an exit route could be found from this disaster without any member of the cadre taking any responsibility for anything. The only people burned were the investors who had put their capital on the line in good faith. Isn't this becoming a recurring story in a sort of a way, over the last ten years? Do we just blame "Generation X" or is it the oldies like me who are actually running this situation?


So often these technical experts escape unscathed, reputations intact & then (as recent experience reveals) they get hired back again to advise the rentiers on how to get themselves out of the mess which that cadre's technical advice got them into in the first place. My landscape setting here is Ciceronian; I am regaling the senate about learning lessons of history & actually taking account of mistakes made in the past, it is not something which my little world of financial risk management seems any good at today. That position is made even more scary since now everyone in the world is a Risk Manager it seems, everyone from Oscar Wilde's barman in Brussels to Barnie Frank (who seems to me the most unlikely leading figure in banking reform) You couldn't make it up! I don't mind personally anyone and everyone having a view on anything, I am convinced by libertarian arguments for free speech and the concept that through dialogue the best ideas will eventually out; a philosophy which our American friends seem to believe to be uniquely theirs; first described in Vienna.


One has to take some regard of the challenges of "Kapital"; its function in society, its inherent drivers, the subtle differences in how it morphs along the liquidity spectrum and the complex interlinked signals which it sends through that wireless network [ REFERENCE ]. It takes years of training to grasp that and you must have a quantitative brain, which not all of us do. It also helps of course if you get the opportunity in your life to train with a real expert; maybe you are lucky enough like me, to have met several along your road. Real experience like that teaches you what it is that thinkers have been banging on about from Aristotle's consideration of value through Smith and Marx, Keynes, Friedman, right up to the modern day Quantitative precision engineering of Zurich and Edinburgh.


There is a key difference today though from my model of ten years ago above, which makes the whole thing different, the challenge today as a consequence of idiocy has a different jurisprudential imperative (if I use the word 'moral' or 'ethical' you will all just switch off). The BBC journalist Paul Mason painted the picture last night on Newsnight in his depiction of his view that not since the Medicis had banking and the state become so intertwined. As is becoming a commonplace now, we all know that a huge transference of Kapital has occurred at lightening speed all over the globe from the private sector to the state. This obfuscates the quantitative appraisal of that capital. But it means we have a different kind of cadre running the process today and that cadre is responding to a challenge which is not just mammoth, the word global doesn't quite capture it.

Zoom in to the European position and picture the cadre sitting in the room in Brussels where the proposition was made, the cadre gave the advice, to create a Special Purpose Vehicle stuffed full of billions of euros to rescue Greece. I actually do not blame the politicians at all, how could they assess the no-doubt hundreds of powerpoint slides which beat them into the submission of accepting that bizarre mechanic. Le Petit Sarko is reputed to have started screaming at Mrs Merkel, that night, no wonder! Angela for her part then kept her head and has made sensible propositions of a roadmap to get us beyond this disaster towards some kind of steady state which global capital markets can stomach. But Barroso; unelected, leader of the current cadre, those brilliant minds in the European Commission, uses his absurd position to contradict the German chancellor. Whilst from an ironic perspective world capital markets are actually cheering on the German boss. OK it's not doing her or anyone else any good, right now. The commission whirligigs, self regarding super brains, degrees in economics from all the fine schools in Europe and not one single practical clue amongst them must be the only group of people in the world who do not realize that it is their error which sits the whole world on the edge of a precipice right now. You and me have no way to challenge them, we don't know who they are (well we might if we were anoraks); and they speak a private language of their own which allows them to dismiss us like scum as they pass us in the street.


My office in Brussels is no more than 400 metres in a straight line from Justus Lipsius which is the name of the building where the committees meet which control European lives today (and hey you Brits, head out the sand, even if you don't like the EU; it has a helluva influence on your life)! You cannot help but get in the swing of the cycle of the European Committees today, particularly when the military helicopters fly low overhead as is becoming more and frequent in recent months, dropping officials and ministers off on the helipad which is on the roof of Justus Lipsius. Finance on a Tuesday, Security on a Thursday, like clockwork that well financed Commission controlled power game ticks on, tightly managed; on its weekly clock. When everything is going well, we don't care; just get on with it we say; what did we elect you for anyway?


My problem is the unelected aspect of the Commission cadre which is actually taking the complex decisions which not only control European lives today for starters but massively influence global citizens right down to the handmade shawl business in Kampala, never mind the burger van in Greenock. This is where the Medici point plays in you see, that clockwork orange I have described has now suddenly been handed responsibility for the European banking system, doubling its power overnight. Has it the authority do you think? Has it the capability? Can it do the work? Clearly global capital markets are answering in the negative to all three questions. I suppose Barroso in a way has no choice but to defend his status quo as he sees it and main street is no ally of wall street right now, so main street doesn't know what to say, my point is that this time Wall Street is right, the Commission emperor has no clothes!

There are no arcane quantitative issues underlying the basic lack of trust in the Greek solution being exhibited in capital markets, the problem in Europe is that capital markets smell an institutional rat. The arcane quantitative issues are still not resolved but they are phase one crisis challenges we are now in phase two. The "Greek Tragedy" is also just a scapegoat coathanger since the problem at the centre of the world is in Justus Lipsius. The rat which global capital markets smell & which you should catch a whiff of on Main Street is institutional. The capital markets are pointing at Brussels and saying "Hey, you are not setup to manage the European banking system!" Crisis or No Crisis. Anyone could have told the Commission powerpoint jockeys arguing over fonts and bullet styles that night that establishing an SPV to bailout Greece was a suicidal insanity; we knew that in "Nouveau Pont"! But off they went with their brilliant "new" idea, no clue that they were resurrecting Frankenstein's monster.


Let me spell it out, there is nothing wrong with the European Central Bank, it's the Bundesbank writ large, its history its research, indeed the current boss and bosses before him give it a luster and reputation second to none, crucial to European survival right now, crucial to world survival; how they must detest the dollar swaps they are induced to currently and the subterfuge of open market operations which they are clearly involved in, even yesterday, the deputy chairman has no hang ups about letting anyone who knows how to listen, see the signals! The relationship with the Commission is massively dysfunctional however and potentially deeply threatening to our way of life, it's the Commission and its bulwarks we have to look at.

If an unelected body of experts is to run our political lives and our banking system even for the next five years on a path to exiting this disastrous position we are in, is it not obvious that an institutional structure is necessary which clearly delineates functional responsibilities for that management process? Under the auspices of the European Commission ("Cion" is the self referencing code word) there are already European financial institutions which are state owned, this is not going to be a detailed discussion of European institutional structures so I am describing apocryphally a rough model for you to work with. The European Bank for Reconstruction and Development (EBRD) is located in London and The European Investment Bank (EIB) is located in Luxembourg; there are other related institutions but these two Lego bricks will suffice for my argument. Under a sort of "separation of powers" logic, which only really applies to the ECB, these institutions are constituted as separate, Cion manages that through the proposals it puts in front of ministers in Justus Lipsius, right? So right now if Cion wants anything done to influence capital markets, manage sovereign debt or influence credit supply it has to use the ECB to do it; pushing at the personal boundaries of that key institution and causing European tensions, serious ones. The ECB is big enough and powerful enough to talk back to Cion, up to a point since in the end if Sarko and Merkel want something done and they don't have the institutional framework to expedite it, then the ECB has to go along. This is what is killing the euro right now. But the poison at the centre of this systemic institutional dysfunctionality is the unwillingness of the Cion cadre to relinquish the power it maintains by fragmenting European state owned financial institutions other than the ECB and doing the right thing and proposing to ministers via the Justus Lipsius Committee process a new European Financial Institution which would in the first instance subsume EBRD and EIB, re-prioritize those balance sheets and then constitutionally charter that new institution to expedite those Financial Market responsibilities which the German chancellor is calling for. George Osborne's Office of Budget Responsibility is a brilliant idea and Allan Budd is the man to run it; hey Cion are you just going to walk by with your nose in the air? Merkel has called for consolidated government budget scrutiny, noone wants to see France peering over Holland's books but if we had a proper Bretton Woods style IMF for Europe then that requirement might fly. For me in particular sovereign debt issuance in Europe is so highly discredited today that it is a no brainer that we need a new European Financial Institution to manage that in cooperation with the ECB as a service to Cion and the member states, a financial institution which would be of sufficient scale to command world authority.

pint glass asymptotixA ROCK AND A HARD PLACE

This seems so obvious to me that it should have been bullet one on the Greek rescue powerpoint that night in Justus Lipsius. I cannot hear this type of idea being aired from the Commission right now & I think my paranoia that the whole motivating force is the greed for power of that Generation X cadre in Justus Lipsius is what is constraining that proposal, they are relishing their new aggrandizement, reveling without a clue and they will not puncture their own bubble by doing the right thing and ceding power to a properly constituted European "Bretton Woods" style "Public Debt Bank" (its not for me to coin the name); philosophically in line with Keynes' thinking in his little hotel room in 1946. To free-marketeers like me, proper social democrats, another European institution is anathema, I know but its Hobson's choice now, a rock and a hard place, either these faceless powerpoint-geniuses run our means of exchange and capital management or we constitute a transparent and possibly partially accountable institution to do it properly. 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, Geithner telling Europe to Stress Test is so embarrassing and it would not be necessary if we had the right institution in place, the ECB has been advising how to do it for years. This new institutional structure needs to be planned and implemented now, we pay these Commission wonks to think beyond us, well I am doing it for free, I am putting the proposition out there, I don't think I'll go strolling along Rue Archimede after dark for a while.


John A Morrison Profile / email John

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