That’s because the threat of a disorderly Greek default – which could still take place inside the euro – has the potential to trigger a cascade of bank runs and knock-on crises across the eurozone whose impact could dwarf the Lehmans crash of 2008.

OK, it’s Seumas on economics so obviously it’s wrong.

But I’m not sure that I actually get it. Why would a Greek default knock over the banking system?

The private sector holders (ie, the banks) of Greek sovereign debt all too a 70% haircut only a few weeks ago. I’ve not checked but I think the new debt issued now trades at 50% or less of par.

So the purely private sector effect of a Greek Government default is going to be trivial.

Sure, all the Greek banks go bust in such a default. But there cannot be a single European bank that has not written down any such Greek banking “assets” to something equivalent to the value ofnthe sovereign paper, ie spit.

And it’s not as if the banks haven’t had 3 years to prepare for this either.

The ghastly losses will be in the official accounts: the ECB, the EFSF and so on, where Greek sovereign paper is being valued at par (I think). And the Target 2 system will go kablooie: but that again is central banks, not private ones.

As far as I can see, and I’m sure I’m overstating this but still, the risks and costs of a Greek default have now been almost entirely socialised. The private sector banks have already taken their lumps, written down their Greek assets and the difference between the current 15% of original par value and 0% in disorderly default is, umm, not very much.

Agreed, it all becomes rather more scary if Spain and Italy etc follow but Greece itself I just can’t see it.

So, where am I going wrong?

The euro, in short, is ripe for what Joseph Schumpeter called creative destruction. Capitalism, according to Schumpeter, was the story of constant, normally gut-wrenching change, in which innovation put established firms out of business and made whole sectors obsolete. Anybody working in the music industry, publishing or newspapers in the past decade understands what Schumpeter was talking about.

Does Schumpeterian theory apply to the eurozone? In a way, it does. The centre of gravity in the global economy has moved from Europe, which looks old-fashioned and lumbering in a world of rapid innovation and loose networks. Tweaking the flawed model in the way François Hollande is suggesting will not do the trick. The only real solution is to rip up the blueprint and start again with the small group of countries that could hack it together. Making the eurozone work is like finding a long-term business model for HMV or Thomas Cook. Like them, monetary union is the past, not the future, an analogue construct in a digital world.

G8 summit: David Cameron’s plan for saving euro: make Germans pay
Angela Merkel will come under pressure to use German taxpayers’ money to help rescue struggling European countries, including Greece and Spain, by underwriting their debts.

I don’t think they understand. The bank runs have started. The Greek banking system is simply draining away at something ungodly like 0.5% a day. The Spanish system isn’t that far behind.

To a reasonable approximation there just isn’t the time left for a political solution. They’ve pissed about for two years already.

There is a banking/financial solution possible: simply print euros, flood the banking system with new cash so that even as the runs continue the banks stay upright. But if you don’t so that then there just isn’t, I submit, time to do anything else.

This is obviously just musing, but I do wonder about our rulers really. Many of the continentals insist that the whole system is set up to favour neoliberal finance, the banks are too powerful, it’s all big money’s fault.

But they seem not to understand that very big finance at all. They simply d not see that fractional reserve banking is a confidence trick, a very useful one, but a trick all the same. And when that confidence goes, as it is going, the all the Canutes of politics cannot stop the tide.

You’d expect people who insist the system is in thrall to banking to understand a bit more about banking.

Citing a secret government document, he said Greeks were already pulling £80 million a day out of the country’s banks. Almost €1 billion (£795 million) has been withdrawn since the last elections on May 6.

That’s yer slow bank run for you.

And the only place the Greek banks can get more money is the ECB, who demand collateral at a steep haircut and the Greek banks don’t have much of that left.

It could well be that the Greek banks fall over as people anticipate the possibility of Grexit: in which case, why not just go ahead with Grexit anyway?

We agree, however, that the single currency needs to survive and succeed

That’s the bit that Ed Balls and the Slime Lord don’t explain.

Why does the single currency need to survive?

Why the euro was a stupid idea

The euro is doomed, because it was a stupid and unworkable idea in the first place, says Tim Worstall.

31 Comments

You know, just. Right. Off.

Lovely people, great continent, deliriously happy to cooperate as necessary, visit, trade, gorge and sluice: just not willing to share a system of governance with you, sorry.

It is now being challenged by parties of the left that reject a
failing neoliberal system

He’s still not got it , has he?

The neoliberals have been screaming for years that the euro is a bad idea, that it shouldn’t exist and if it does Greece certainly shouldn’t be in it. And that the only solution for Greece’s woes (and Portugal, Spain, Italy etc) is to stop being in it.

The is true whether we use the US meaning of neoliberal, Krugman P for example, or the much less important UK version of neoliberal, like me.

We’ve all been leaping up and dopwn screaming that default, exit and devaluation is what has to happen. Otherwise there will be this decades long process of internal devaluation. Either way is hard, either way a loss of wealth to the locals, but one way is a fuck of a lot easier than the other.

The “neoliberals” here are arguing exactly the case that Seumas thinks we’re not. It is the broadly social democratic centre of European politics that we are both arguing against. Those who are, as is the way of these things, the general establishment and thus the most conservative of all the political groupings.

Default, devaluation and start again: this is the neoliberal solution!

A bigger immediate threat is that a Greek exit from the euro – rated as a 50-75% probability by Citigroup – will have a domino effect on Portugal, Spain and Italy.

Jason Conibear, director of foreign exchange firm Cambridge Mercantile, said the euro was currently as attractive to investors as a toxic derivative during the sub-prime crisis: “There’s every chance the euro will go into freefall in the weeks ahead against all the major currencies. Investors are waking up to the fact that the once-ridiculous notion the euro could collapse is increasingly the most likely outcome.”

It was a ludicrous thing to have in the first place and the sooner its gone the better.

Gonna be painful but it’ll be a lot more painful to keep it.

Looking around southern Portugal economic activity is simply grinding to a halt. Leaving the euro, expanding the money supply, defaulting on the debt, devaluing the currency. These aren’t, as some seem to think, heterodox or unusual prescriptions.

They are, in fact, the straight old IMF prescriptions for countries in this situation. This is just mainstream economics.

Peter Mandelson: Britain should still consider joining the euro

Words fail…

Ulrich Beck, Daniel Cohn-Bendit,Yuri Andrukhovych, Jerzy Baszynski, Zygmunt Bauman, Senta Berger, Patrice Chéreau, Rudolf Chmel, Jacques Delors, Gabor Demszky, Chris Dercon, Doris Dörrie, Tanja Dückers, Peter Eigen, Olafur Eliasson, Joschka Fischer, Jürgen Flimm, Anthony Giddens, Alfred Grosser, Ulla Gudmundson, Jürgen Habermas, Dunya Hayali, Michal Hvorecký, Eva Illouz, Mary Kaldor, Navid Kermani, Imre Kertesz, Rem Koolhaas, Kasper König, György Konrád, Michael Krüger, Adam Krzeminski, Wolf Lepenies, Constanza Macras, Claudio Magris, Sarat Maharaj, Olga Mannheimer, Petros Markaris, Robert Menasse, Adam Michnik, Herta Müller, Hans Ulrich Obrist, Thomas Ostermeier, Petr Pithart, Martin Pollack, Alec Popov, Ilma Rakusa, Peter Ruzicka, Joachim Sartorius, Saskia Sassen, Hans-Joachim Schellnhuber, Helmut Schmidt, Henning Schulte-Noelle, Martin Schulz, Gesine Schwan, Richard Sennett, Martin M. Šimečka, Johan Simons, Javier Solana, Michael Thoss, Klaus Töpfer, Klaus Wagenbach, Richard von Weizsäcker, Christina Weiss, Wim Wenders, Bob Wilson, Michel Wieviorka.

As to their major proposal yes, there is indeed a suitable answer:

A new contract needs to be agreed between the state, the EU, the political structures of civil society, the market, social security and environmental sustainability.

What is good about Europe? What is the value of Europe to us? Which model could and should be the basis for Europe in the 21st century? These are open questions that urgently need to be addressed.

And I shall address such questions for you. Firstly, you can fuck off, all of you.

Secondly, the European Union can fuck off.

Thirdly, the Council of Europe can fuck off.

Oh, and did I say that you can all fuck off?

For to ask these questions is to prove why Britain simply should not be a part of whatever idiocies you continentals wish to indulge in. We just don’t do things this way. We’ve a thousand years of the organic growth of the structure of our society: we’ve never let madmen with a plan anywhere near how our State is constructed. As opposed to, say, the French, who had what was it, four different constitutions between 1939 and 1959?

So you go off and play your games and we’ll continue to muddle through as we always have done.

And do recall, that you can all just fuck right off.

A European Year of Volunteering for Everyone – for taxi drivers and theologians, for workers and the workless, for managers and musicians, for teachers and trainees, for sculptors and sous-chefs, for supreme court judges and senior citizens, for men and women – as a response to the euro crisis!

The young people of Europe may be better educated than ever before but they still feel powerless in the face of the looming bankruptcy of nation states and the terminal decline of labour markets. Every fourth European under the age of 25 is unemployed. In the many places where disenfranchised young people have set up camp and made public protests they are clamouring for social justice. Wherever such camps are – in Spain, Portugal, the countries of North Africa, American cities or Moscow – this demand is being made with great force and fervour. Anger is mounting over a political system that rescues banks with eye-watering mountains of debt but squanders the future of young people in the process. But how much hope can be held out for a Europe with a steadily ageing population?

US president John F Kennedy astounded the world with his idea of founding a peace corps. “Ask not what your country can do for you – ask what you can do for your country.”

We, the undersigned, wish to provide a mouthpiece for European civil society. For this reason, we are asking the European commission and national governments, the European parliament and national parliaments to create a Europe of actively employed citizens and to secure the financial and legal requirements for the European Year of Volunteering for Everyone – as a counter-model to the top-down Europe, the Europe of elites and technocrats that has prevailed up to now that considers itself responsible for forging the destiny of the citizenry of Europe – if need be, against its will. For it is this unspoken maxim of European politics that is threatening to destroy the entire European project.

The aim is to democratise the national democracies in order to rebuild Europe in the spirit of the rallying cry: “Don’t ask what Europe can do for you but ask what you can do for Europe – by doing Europe!”

No progressive thinker – from Jean-Jacques Rousseau to Jürgen Habermas – ever wanted a democracy that consists merely of being able to periodically vote. The debt crisis that is currently driving Europe apart is not simply an economic problem but also a political one. We need a European civil society and the vision of younger generations if we are going to solve the burning issues of today. We cannot afford to allow Europe to be transformed into the target of an “angry movement” of citizens protesting against a Europe without Europeans. Europe cannot function without Europeans committed to its cause, and Europeans cannot do Europe unless they can breathe the air of freedom.

The practical action transcending the narrow bounds of nation state, ethnicity and religion that the European Year of Volunteering for Everyone is meant to promote is not intended as an institutionalised fig leaf for European failures. The vision is instead to open up space for creativity. Far from being a means of providing handouts to unemployed youth, the European Year of Volunteering for Everyone is an act of self-assertion by European civil society: an act that can be used to construct a new proactive constitution from the bottom up in order to re-establish Europe’s political creativity and legitimacy. Political freedom cannot survive in an atmosphere of fear. It only thrives and becomes established where people have a roof over their heads and know how they are going to live tomorrow and in their old age. That is why the European Year of Volunteering for Everyone needs a robust foundation of finance. We ask businesses in Europe to make their appropriate contribution.

If Europe is to develop a bottom-up culture, it cannot afford to fall back on predefined courses of action. The citizens of such a Europe will want to go to other countries and get involved in transnational problem areas in which national states are no longer able to offer appropriate solutions – environmental degradation, climate change, mass movements of refugees and migrants, and farright radicalism. They will also want to make use of European networks of art, literature and theatre as stages to promote the European cause. A new contract needs to be agreed between the state, the EU, the political structures of civil society, the market, social security and environmental sustainability.

What is good about Europe? What is the value of Europe to us? Which model could and should be the basis for Europe in the 21st century? These are open questions that urgently need to be addressed. For us in “We are Europe” the answer is this: Europe is a laboratory of political and social ideas without parallel anywhere else in the world. But what constitutes European identity? You might say that Europeanness arises out of dialogue and dissent between the many different political cultures – of the citoyen, the citizen, the staatsbuerger, the burgermatschappij, the ciudadano, the obywatel. But Europe is also about irony; it is about being able to laugh at ourselves. There is no better way to fill Europe with life and laughter than for ordinary Europeans to come together to act on their own initiative.

If agreed at a Brussels summit in June, the Commission’s budget would mean that the annual tax burden for paying EU membership contributions would rise to £666 for every British household.

Can we leave yet?

 
They didn’t succeed, as we know. But they’re having another go.

Austrian centre-right MEP Othmar Karas has called for an end to massive bankers’ bonuses, which in some cases amount to 10 times the basic salary.

“We are looking at a set limit,” Karas told the parliament’s economic affairs committee in Brussels on Thursday (12 April). He explained that under his model, bonuses should not surpass a ratio of one-to-one on fixed salaries.

How did we get into this situation? Where the son in law of some fucking Nazi gets to decide how English companies, in England, are allowed to contract with their staff?

What the hell’s it got to do with him?

Can we leave yet?

Sharon Bowles, the UK Liberal Democrat MEP who chairs the EU parliament’s economic affairs committee, also proposed that “golden hellos” should be clawed back if performance fell short.

Dear Lord, you’d think these people would be able to understand their own arguments, wouldn’t you?

And the argument here is that a bonus encourages people to strain too much, to take on too much risk in order to get the bonus. It might be true and it might not be but that is what the argument is.

So, in the case of a golden hello, does someone take more risk in order to earn it? No, obviously, they don’t. But if that golden hello can be clawed back? Then yes they might.

Golden hellos actually solve the problem of excessive risk taking……

And as for this tosspot:

Belgian Green Party member Philippe Lamberts said he could not find any evidence that the remuneration policies at banks such as Deutsche Bank or Societe Generale “correspond to any real value creation”.

“I am getting fed up of people saying this issue is populist and we should not go into that. Variable salary cannot be bigger than fixed salary,” he said. “Don’t tell me you need two-fold, three-fold, five-fold variable salary to do good work. This is false,” he said.

Remind me why we handed over the power over what a private business in London (or Bath, Bristol or Birmingham) can pay its employees and how to some Gaia worshipping loon from Flanders? Is this really essential to stopping Germay invading France. Again?

Blame Brussels, not us, says FSA after Prudential attack
The City watchdog has hit back at claims by Prudential that its policies are “ludicrous” and “horrendous”, insisting it is just the middle man between government, Europe and industry.

Pension liabilities may double under EU rules
Britain’s biggest companies may each see their pension liabilities more than double to £2.5bn under “destructive” new European proposals, with many schemes forced to close, an analysis warns.

Can we leave yet?

Good work there Richard.

In a move that has astounded British MEPs, Jose Manuel Barroso, president of the EC, announced that the levy could halve European Union members’ contributions.

Mr Barroso has proposed that countries keep a third of the proceeds of the levy themselves and give two-thirds of it to Brussels. Europe’s budget would become “self funding”, Mr Barroso said, and would cut national contributions by a total of €54bn.

Yes, of course, it’s still a stupid tax etc.

However, let’s agree that national contributions get shelved and the FTT becomes own resources of the EU.

The important point here would be that the EU has made the decision itself: we’ll only have the FTT revenues and not come back for any more.

The actual revenues from an FTT are going to be a pittance as compared with the estimates. So let’s do it and hold them to it.

They get whatever few billions an FTT would raise and that’s it, no more. Thus they get driven into bankruptcy as we all see the stupidity of their own decisions.

Bit tough on everyone else, true, but almost, almost, worth it, to see them hoist with their own petard.

Ireland has shocked Europe with plans for a referendum on the EU’s fiscal treaty, a move that risks an unprecedented fragmentation of the eurozone and a major clash with Germany.

Put on the popcorn!

Germany to set the terms for saving the euro

No.

Germany’s set the terms for what it thinks will save the euro, what it hopes will save the euro.

But whether it will save the euro isn’t in Germany’s, or any politicians’, hands. It’s all of us, in our interactions in hte markets, that will decide that.

And this is a bit of a death knell for that democracy thing, isn’t it?

“The debt brakes will be binding and valid forever,” said Merkel.

“Never will you be able to change them through a parliamentary majority.”

I’m not particularly enamoured of politicians borrowing and spending like drunken sailors. But the idea that a German politician can tell the Poles not to spend their children’s inheritance does rather grate.

Yes, I know the rules on weirdly shaped veggies were relaxed a few years bak. But that’s an horrific number. And it stems from the way we allowed some anally retentive OCD types to gain power in the bureaucracy who were then able to foist their compusions upon the rest of us.

Apparently they’re frit of curved cucumbers and straight bananas and so they must be made illegal.

At which point we’re throwing away 20% of our harvest. If we didn’t have to do that either we could be importing less food or moving the other way, farming 20% less land. More wildlife, less fossil fuels used.

The collecive costs to us of this are enormous. And all because some Belgian law scribbler was frightened by ugly vegetables under the bed when a child.