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**GRG55** · March 08, 2010, 10:39 PM

Re: An IMF for Europe? EMF?

Originally posted by D-Mack View Post

An IMF for Europe? EMF?

March 8, 2010 - 9:15 am by Forex District � Comments (2)

With ongoing concerns over Greece and clear signs that the President of the Central bank Jean-Claude Trichet and others oppose that aid to Greece be via the International Monetary Fund (IMF), has given weight to a proposition by some economists to create an IMF-style institution for the EuroZone.

According to the Telegraph UK, Germany’s finance minister has said that “the euro-zone should consider creating an institution similar to the International Monetary Fund to avoid another Greek crisis.”...

Huh???

"...avoid another Greek crisis"??? With an IMF-like institution?

Hmmm...did the existence of the IMF prevent the Mexican "peso crisis"? Or the repeated meltdowns in various Latin America nations, particularly Argentina? Or the "Asian crisis"? Or the massive credit bubble and collapse of same in Japan?

The IMF exists to "ride to the rescue" [other than the exceedingly rare instance when it's told to bugger off by the likes of Mahathir Mohamed]. A European equivalent wouldn't prevent diddly squat. In fact it would probably revel in "Greek crises". Bureaucrats love nothing better than to feel needed.

**D-Mack** · March 09, 2010, 05:51 AM

Re: An IMF for Europe? EMF?

"Never let a serious crisis go to waste. What I mean by that is it's an opportunity to do things you couldn't do before."

**Shakespear** · March 10, 2010, 09:33 AM

Re: An IMF for Europe? EMF?

Judging by this report, this EMF will be a busy body.

Page 1 NATIONAL CENTER FOR POLICY ANALYSIS
Measuring the Unfunded Obligations
of European Countries
Europe is undergoing two major transitions. On the demographic front, many European countries are
undergoing rapid population aging as their Baby Boom generations enter retirement, senior citizens live
longer and fertility rates remain well below the population replacement level. On the economic front, 15
European countries have adopted the euro as a common currency, eliminating the ability to use mon-
etary policy to achieve country-specific economic goals. Both transitions will place tremendous, conflict-
ing pressures on the domestic national budgets of European countries.
Executive Summary
These countries remain politically committed to maintaining fiscal
discipline, but large portions of their government budgets are funded on a
pay-as-you-go basis. That means that no real resources are set aside and
invested each year by government or individuals to prefund future expen-
ditures on such programs. Spending on promised retirement and health-
care benefits for the elderly will increase. But there will be fewer work-
ers to pay benefits as the bills come due, and the growth of income from
which to extract taxes to support these programs will slow. As a result,
all European countries have large unfunded liabilities � the difference
between the projected cost of continuing current government programs
and net expected tax revenues. In general:
The average EU country would need to have more than four times (434
■
percent) its current annual gross domestic product (GDP) in the bank
today, earning interest at the government�s borrowing rate, in order to
fund current policies indefinitely.
At the low end, Spain would need to have almost two and one-half
■
times (244.3 percent) its annual GDP invested.
At the high end, Poland would need to have 15 times its GDP invested
■
in real assets, forever!
No EU government has made the necessary investment. As an alter-
native, the next-best option is for these countries immediately to gradu-
ally but significantly increase saving and investment. In particular, the
average EU country could fund its projected budget shortfall through
the middle of this century if it put aside 8.3 percent of its GDP each and
every year. Despite this adjustment, a budget shortfall is likely to emerge
after 2050, requiring additional fiscal reforms

http://www.ncpa.org/pdfs/st319.pdf

:eek::eek:

**ViC78** · March 10, 2010, 12:02 PM

Re: An IMF for Europe? EMF?

This is the best take I have read on the story. This guy is smart and funny.

OK, first things first. Everybody knows Greece is going to default, because they�re Greek. Greece has been in a state of default for 105 of the last 200 years. Countries are like people. There are some to whom experience suggests you should never lend money, unless maybe you think you can sell the loan to somebody even more stupid than you are. (Bagholders play a vital role in the modern financial system. The purpose of most financial �innovation� is to obscure what is really going on in order to create more bagholders. But I digress. Where was I?)
Right. So Greece lied about their finances to join the Eurozone with a little help from your friendly neighborhood investment bankers. You might think that if you joined a club by falsifying your application, you would get kicked out, not bailed out. But you see, some of this bad Greek debt is on the books of Eurozone banks, and they cannot afford a second crisis at the moment because, let�s face it, the first one never really ended. As the old saying goes (apologies to J.P. Getty): If you owe Eurozone banks �100 million, that�s your problem; if you owe Eurozone banks �100 billion, that�s Angela Merkel�s problem.
So Merkel and Sarkozy want to bail out Greece, except they don�t because they would face riots in their own countries. (Well, not literally; Germans never riot because they�re German.) It is sort of funny. If France or Germany hands billions of Euros to Greece, their voters will go ballistic. But if the U.S. hands billions of dollars to the IMF and the IMF hands billions of dollars to Greece, Americans will not care, because who knows what the heck the IMF is and what it does, anyway? Americans are a wonderful people. If they understand what is happening, they will either panic or start shooting at you. So it is vitally important to make sure they always wander in a state of confusion long enough to run into a television set.
Now, Greece going to the IMF would be a little like California going to the IMF. (Hm, there�s a thought�) If only there were some kind of �European Monetary Fund� to keep Eurozone citizens as ignorant as Americans about what their governments are doing with their money.
Oh, hello!

German Finance Minister Wolfgang Schaeuble indicated that his government is already thinking about how another Greek crisis can be avoided, saying that the euro region should consider creating an institution similar to the International Monetary Fund.
�We shouldn�t rule anything out, including the creation of a European Monetary Fund,� he said in an interview with the Welt am Sonntag newspaper published yesterday.

Ding ding ding!
Of course, giving money to Greece is throwing it down a black hole. Default is inevitable. The only questions are (a) when and (b) who will be left holding the bag. Well, and (c), how many Greek bonds are gathering flies in the ECB�s discount window.
For the near term, the game is pretty simple: Create a short squeeze in Greek CDS by any means necessary so that Eurozone banks can offload Greek debt to some new bagholders. (Seriously, bagholders are what make the modern financial system go �round.) Of course, this will ultimately make the problem worse. But if there is one constant among politicians of every nationality, it is their desire to kick cans down the road. I do not care about potential crises; can you just guarantee that most people will not understand what I am doing and the crisis (if any) will not occur on my watch?
Investment bankers love questions like that.

https://self-evident.org/?p=762

**GRG55** · March 10, 2010, 11:05 PM

Re: An IMF for Europe? EMF?

Originally posted by ViC78 View Post

This is the best take I have read on the story. This guy is smart and funny.

https://self-evident.org/?p=762

The eurozone crisis is now a nightmare for Germany

By Martin Wolf

Published: March 10 2010 02:00 | Last updated: March 10 2010 02:00

Ever since the federal republic was founded, Germany has had two over-riding strategic objectives: sound money and European integration. These were the twin imperatives learned from the calamities of the early 20th century. The euro embodies these aims. Now they conflict with each other.

Is the right answer to rescue sinners, thereby strengthening the cohesion of the eurozone, but threatening monetary stability? Or is it to let sinners default, thereby strengthening monetary credibility, but weakening cohesion? Germany could avoid such choices before the single currency: uncompetitive countries simply devalued.

Unfortunately, the domestic German debate assumes, wrongly, that the answer is for every member to become like Germany itself. But Germany can be Germany - an economy with fiscal discipline, feeble domestic demand and a huge export surplus - only because others are not. Its current economic model violates the universalisability principle of Germany's greatest philosopher, Immanuel Kant...

...This, then, would be a classic case for intervention by the International Monetary Fund. Normally, the latter would offer temporary liquidity support in return for a devaluation and fiscal stringency. Yet the German government rejects the idea that an outside body should dictate policy to a country that shares Germany's money. It suggests, instead, that a European Monetary Fund should be created, to provide conditional liquidity support. Under the direction of the other members of the eurozone, the EMF would dictate fiscal policy to the sinner...

...The balance between income and expenditure in the private, government and foreign sectors must sum to zero. In 2006, Germany, the Netherlands and Austria ran huge private surpluses, relative to GDP, while the private sectors of Portugal, Ireland, Greece and Spain ran huge deficits. Fiscal positions seemed under control everywhere: Ireland and Spain even ran substantial (albeit illusory) fiscal surpluses. Meanwhile, the private surpluses of Germany and the Netherlands were offset by huge capital outflows. In all, we see private disequilibria, but the illusion of fiscal stability, with countries more or less in line with treaty criteria for fiscal deficits.

Then came the crisis: overextended private sectors retrenched. By 2009, the private sectors of almost every member were running a huge surplus: they are all Germans now! So what are the offsets? The answer is: fiscal deficits. The picture for Ireland and Spain is dramatic. In the short run, it is impossible to shift external balances quickly, particularly when domestic demand in the surplus countries is so weak...

...Let me put the point starkly: Germany's structural private sector and current account surpluses make it virtually impossible for its neighbours to eliminate their fiscal deficits, unless the latter are willing to live with lengthy slumps...

...Germany is in a trap of its own devising. It wants its neighbours to be as like itself as possible. They cannot be, because its deficient domestic demand cannot be universalised. As another great German philosopher, Hegel, might have said, the German thesis demanded a Spanish antithesis. Now that the private sector's bubble has burst, the synthesis is a eurozone fiscal disaster. Ironically, Germany must become less German if the eurozone is to become more so.

**ViC78** · March 11, 2010, 10:05 AM

Re: An IMF for Europe? EMF?

Originally posted by GRG55 View Post

Unfortunately, the domestic German debate assumes, wrongly, that the answer is for every member to become like Germany itself. But Germany can be Germany - an economy with fiscal discipline, feeble domestic demand and a huge export surplus - only because others are not. Its current economic model violates the universalisability principle of Germany's greatest philosopher, Immanuel Kant.

This is the crux of the matter isn't it? Everybody cannot be a export-driven economy. There has to be demand somewhere to absorb the excess supply out of these economies. We just might have hit the limit of human consumption and production will have to be brought down commensurate with this fact.
In fact, if we want to prevent fiscal crises, work might have to be shared, because it seems that there isn't enough work to go around because of the limit on consumption. I must be missing something here because this sounds too much like ...... SOCIALISM!! .. HERESY!!!

*adjusts pinko commie hat and opens "Das Kapital" on the Kindle*

**GRG55** · March 11, 2010, 10:47 AM

Re: An IMF for Europe? EMF?

Originally posted by ViC78 View Post

This is the crux of the matter isn't it? Everybody cannot be a export-driven economy. There has to be demand somewhere to absorb the excess supply out of these economies. We just might have hit the limit of human consumption and production will have to be brought down commensurate with this fact.
In fact, if we want to prevent fiscal crises, work might have to be shared, because it seems that there isn't enough work to go around because of the limit on consumption. I must be missing something here because this sounds too much like ...... SOCIALISM!! .. HERESY!!!

*adjusts pinko commie hat and opens "Das Kapital" on the Kindle*

I doubt we've hit the limits of aggregate human consumption...but the global credit collapse has unveiled the previously "hidden" enormous mis-match between productive capacity in many sectors, and the underlying consumption levels. For years we have maintained too much global auto manufacturing capacity, too much housing construction capacity, and so forth. In most cases these sectors are supported by government policy under the guise of being "strategic" to the national interest.

The developed economy auto industry, for example, was in serious trouble long before the financial crisis dropped the bottom out of demand. All that happened was a bad situation got worse, and the mis-match couldn't be ignored by companies or governments any more. But we don't seem to have learned any lessons. Today, we continue to see distortion of the production side of the equation by governments that want to preserve "their" auto manufacturing capacity...which means we are still in for years of overcapacity [I think it was Jim Chanos that pointed out that total global auto manufacturing capacity is now greater than it was at the start of the financial crisis].

The USA really has no choice under its present policy direction but to put up trade barriers to imported autos. Beating up on Toyota is a good start...:rolleyes:. GM and Ford may have large non-USA markets, but the USA is never going to be manufacturing many of the Buicks that GM sells in China, or the Fords that are sold in Europe.

**Shakespear** · March 11, 2010, 10:48 AM

Re: An IMF for Europe? EMF?

That's why in the US the garage sales were so popular. Get rid of the old or store it. Then ....

Keep Buying !!!