When asymptotix first developed a European Stabilization Bank proposal, our thinking was just “common sense”, maybe driven a little by some experience not only of capital markets but of Public Sector policy development and specifically of the EU. It is possible that when I myself first wrote “The Lunatix are on the Grass: A new Bretton Woods proposition for Europe” I was thinking in a sort of “Kydland & Prescott[1]” / “Political Economics” [2] way. I was schooled in all that stuff way back when in the Adam Smith School in Glasgow.  That blog led us into the Stabilization Bank (SB) paper; but really we were driven by only one method; Structured Common Sense! And with the blogs we are always in a hurry; “it’s just a blog after all” !?! In fact a lot of this blog post here, I have said before in summer 2010 or summer 2011; it is GroundHog Day  every day in Van Rompuy space! But in blog-land I have no editor!

Asymptotix made that stablisation bank proposal; that was me, supported by my two trusty and experienced colleagues both with deep  experience of Cion and of Monetary Economics but we were not the only ones; the table below shows you the evolution of the EMF or Stabilization Bank idea from 2010 thru 2012. The seminal paper is published ironically the afternoon of my early morning ‘Bretton Woods’ blog, called Lunatix [above]! (I couldn’t have read it). It’s now referred in “the business” as “Gros & Mayer” (see below); although the Schulmeister piece gives it a run for its money, hey they are all good.  The point is the SB is not rocket Science, its equivalent to an EMF (at asymptotix on the website we thrash out blogs, there are some more formal papers I know it’s hard to tell the difference); the table of references below evidences that there is a consensus as to what the solution to the Eurocrisis needs to look like.

The EFSF/ESM construct was the backstop for the EU member states’ sovereign bond markets. The point is the EFSF/ESM framework proposal was a) not credible at all, from the moment of announcement at 4am on 10^th may 2010 & quickly became perceived as evidently unworkable as the summit process repeatedly refined the announcement through those Groundhog late nights and bleary dawns of Van Rompuy’s broken Summit record; 2010 thru 2012. The challenge is not to dig into the minutiae of that clearly politically compromised over elaborate construct or to crawl forensically over the entrails of the precise cause of death; it is to ask the question why did the EU not do the right thing? Now that there is clearly a consensus as to what the right thing to do is and given that those proposals have been around since the beginning, the question is why does the EU apparatus (Van Rompuy at the apex as spokesman and Head of Taskforce never mind Council President) not do the right thing? What is the problem?

HERE ARE THE REFERENCES WHICH ESTABLISH THE EMF/ESB CONSENSUS

ORIGINAL ASYMPTOTIX COMMENT (edited version) of 9^th November 2010:

Since we at asymptotix first published our consolidated proposal for a European Stablisation Bank here the German government has in the autumn semester led the way towards the concept generally referred now as a "Permanent Crisis Mechanism (PCM)" for the EU. It is today clear, particularly in the case of Ireland, that the EFSF is not functional in regard to European debt markets. This would be obviously resolved if the EFSF were to be established as a financial institution (bank) and a normal participant in such markets as we originally envisaged. I think it is fair to claim that we at asymptotix were the first in the world to make this proposition backed by the appropriate analysis. The Task Force led by Council President van Rompuy is taking the initiative to implement a blueprint. The German Govt.’s press release of its ideas for an EMF are now a 404 error.

What is expedited now in regard to the EFSF and what will inevitably out-turn to be some form of European Stabilization Bank (by any other name) will impact European (indeed global) fixed income markets and thus all capital markets. All that the asymptotix Stabilisation Bank idea is (was) about was to establish a kind of firewall in the transmission mechanism to allow the EU to buy time to engage in the Fiscal Union process. Instead we got the half cocked EFSF. The question that YOU should be asking yourself is; if the cadre (group) of people who designed the EFSF and left themselves exposed to criticism such as asymptotix can make but more than that caused this leg of the global financial crisis; if that set of people could not get the simpler step of establishing the monetary firewall right (mainly because they did not see it would be necessary) then could you trust them to architect EU fiscal union!

Given the consensus that an “EMF” structure is the answer, then a lot of the crisis in Europe is self inflicted. The European Commission has been in charge & it has had the right answer in its toolbox (arguably since the beginning) but with the powerless lop-sided and non-functional EFSF/ESM structure it has enraged global capital & created Armageddon. There has to be an answer to why?

But! What is the cost of failing to do the right thing at the time required? Did the Commission miss a crucial market-expectational window in May 2010 when it could have created institutional 'shock and awe'? Is it the case that letting things drift for another 15 months simply because Commission experts did not understand monetary economics nor capital markets & internal commission power games were a greater priority than public service and thus being forced by markets to what should have been done in the first place is going to cost European tax payers an additional half a trillion euros that otherwise would NOT have been necessary? I believe this to be the case. And I think that curve rises every day! Do remember the bigger picture (particularly Herr German voter) under this proposition it's a one-off capitalization, not an open-ended fiscal blank cheque. It's a Monetary Solution to a Capital Market problem but it takes some grasp of both of these complex domains to make a proposition like the EMF/ESB which actually might work. Is it the case that had an ESB been developed as a policy proposal at the moment those Lunatix went tripping on that grass in May 2010 with the EFSF. Would implementation of an ESB then (as advised here) have cost a half if not a quarter what its INEVITABLY going to cost today or whenever "Europe" gets around to its inevitability and thus any further delay is simply going to entail that the costs of the inevitable and obvious solution simply rises inexorably?