Surprise! EU leaders produce little of substance at summit

[jk]

Re: Surprise! EU leaders produce little of substance at summit

the people a the top know they actually do need each other. The Germanics need the "profligate" to keep their currency low. The PIIGS need Germany and co. to prevent a visitation from an Argentina-style default path.

the germans lived with a hard d-mark for years before the euro. and the italians, etc, lived with soft, frequently devalued currencies. no crises except when they tried to tie the currencies to each other, e.g. in the emu, the "snake," etc.

[c1ue]

Re: Surprise! EU leaders produce little of substance at summit

Yes, Germany, France, Italy and Great Britain are the big powers involved. But Britain could never have been forced out if only Germany, France, and Italy wanted to make it happen.

From my point of view, the British wanted only enough of the EU to gain some benefits - and while the eurosceptics in the UK complain about how much the British government follows EU direction, ultimately the UK does not and has not acted in concert with the EU.

At this juncture, it is put up or shut up time - and the UK doesn't seem to want to put up.

Is this a plot to shove that nation out or simply the crisis which emphasizes the half-baked nature of the UK in the EU?

The Netherlands, Finland, Denmark, Austria, Poland, Sweden, Slovenia, Slovakia, Hungary, Romania, Bulgaria, the Czech Republic, and the three now-lean nations in the Baltics ALL have lower debt/GDP ratios than Germany, as well as greater geographic and cultural alignment. And while only the first few have been vocally sympathetic, it is hard to imagine the other ones not quietly agreeing as well. They know that if Germany goes, it is just their own savings on the line instead of Germany's.

All these nations put together don't amount to a hill of beans. They're all either too poor, or too small, or too dependent on a single resource (Dutch North Sea oil).

More importantly, put all together they cannot effect even a small fraction of the monetary credibility Germany and the Bundesbank can.

The Germanics need the "profligate" to keep their currency low.

I'm confused why you think this. If Germany wanted to keep the euro low, they'd print just like everyone else in the EU wants.

The supposition that Germany can be prosperous without the rest of the EU to export to is one which is really needs testing, but in the meantime Germany can get both the benefits of export markets unaffected by relative exchange rates as well as a strong currency to buy needed imports of energy and what not.

[astonas]

Re: Surprise! EU leaders produce little of substance at summit

the germans lived with a hard d-mark for years before the euro. and the italians, etc, lived with soft, frequently devalued currencies. no crises except when they tried to tie the currencies to each other, e.g. in the emu, the "snake," etc.

Yes, but now Germany thinks that the U.S. is about to fumble its reserve currency status, and it wants Europe to be there, ready and waiting, to grab it when it does.

To do that, it needs to be both big AND strong. A large union, with fiscal discipline, and an inflation-only, truly independent, Central Bank. It's an investor's dream.

And just look at the benefits to the Eurozone: Zero currency transaction risk, zero currency transaction losses, buy oil in your own currency, and every time the world gets panicky, it's YOU they want to park their money with, at near-zero rates! The best way to be stable is to be on top. That's why Europe is going along with the plan, too.

And if no one is there to pick it up on the fumble, the U.S. gets to keep it, even if it has the same debt load, or worse, than Europe (as a whole) does. THAT is what the U.S. pressure is about.

It's all about who gets to be the world economic hegemon of the next era. Everything else is misdirection.

[jk]

Re: Surprise! EU leaders produce little of substance at summit

Yes, but now Germany thinks that the U.S. is about to fumble its reserve currency status, and it wants Europe to be there, ready and waiting, to grab it when it does.

To do that, it needs to be both big AND strong. A large union, with fiscal discipline, and an inflation-only, truly independent, Central Bank. It's an investor's dream.

And just look at the benefits to the Eurozone: Zero currency transaction risk, zero currency transaction losses, buy oil in your own currency, and every time the world gets panicky, it's YOU they want to park their money with, at near-zero rates! The best way to be stable is to be on top. That's why Europe is going along with the plan, too.

And if no one is there to pick it up on the fumble, the U.S. gets to keep it, even if it has the same debt load, or worse, than Europe (as a whole) does. THAT is what the U.S. pressure is about.

It's all about who gets to be the world economic hegemon of the next era. Everything else is misdirection.

this is an interesting theory, but where's the growth? the employment? the productivity? it can't all be just within germany, as it seems to be now. this past weekend i saw some graphs of unemployment in european nations- up in italy, up in spain, etc, DOWN in germany; and so on for other economic indicators. this is not a big and string UNION, it appears to be a moderately sized, strong germany, surrounded by a coterie of weak dependents.

[astonas]

Re: Surprise! EU leaders produce little of substance at summit

this is an interesting theory, but where's the growth? the employment? the productivity? it can't all be just within germany, as it seems to be now. this past weekend i saw some graphs of unemployment in european nations- up in italy, up in spain, etc, DOWN in germany; and so on for other economic indicators. this is not a big and string UNION, it appears to be a moderately sized, strong germany, surrounded by a coterie of weak dependents.

I don't disagree. But I think Germany will not have nearly as hard a time sharing the wealth, be it employment, growth, or even fiscal transfers, if the tradeoff is that it gets to have a turn as top dog. For as tough a reputation as it has right now, Germany remains more of a socialized nation. That includes a desire for international camaraderie with like-minded neighbors. In this case, the like minded neighbors are the more fiscally-conservative northern and eastern states of Europe.

Remember the (quickly hushed) SPD minister who proudly proclaimed that "All Europe is speaking German now?" a few weeks back? He was hushed not because he felt that way. He was hushed because no one wanted anyone to hear what they were all thinking.

[GRG55]

Re: Surprise! EU leaders produce little of substance at summit

i think the fiscal rules will prove unworkable, but the most interesting part for me is that this is potentially a step towards pushing the uk out of the eu.

So what started off as a problem in [with?] Greece, spread to the PIIGS, morphed into a problem with the common currency, has now become a problem with the UK needing to be removed from the EU?

Interesting to say the least. :-0

[GRG55]

Re: Surprise! EU leaders produce little of substance at summit

From my point of view, the British wanted only enough of the EU to gain some benefits...

LOL Do you seriously think that wasn't the same motive for all the others?

Altruism is much overated...especially in politics.

[unlucky]

Re: Surprise! EU leaders produce little of substance at summit

I don't disagree. But I think Germany will not have nearly as hard a time sharing the wealth, be it employment, growth, or even fiscal transfers, if the tradeoff is that it gets to have a turn as top dog.

My wife is German. Her view, and the view of her relations, is that Germany as "Top Dog" is Anathema. Discussion of a Europe-dominating Germany provokes a deep visceral revulsion. Dunno if that view is representative of others in Germany, but FWIW.

[jk]

Re: Surprise! EU leaders produce little of substance at summit

So what started off as a problem in [with?] Greece, spread to the PIIGS, morphed into a problem with the common currency, has now become a problem with the UK needing to be removed from the EU?

Interesting to say the least. :-0

i think the struggle over a tobin tax is most interesting: the tax is a way to restrain some of the most destructive practices of the financial industry and so is, of course, anathema to the city. the eu ex-uk appears less beholden to the fire economy, and more intent on taming it. this is why the extrusion of the uk is interesting. it will leave the anglo-saxon world and the financial centers of london and ny to the fire-men/banksters and try to have an eu which is more bound to the productive economy.

[jpatter666]

Re: Surprise! EU leaders produce little of substance at summit

My wife is German. Her view, and the view of her relations, is that Germany as "Top Dog" is Anathema. Discussion of a Europe-dominating Germany provokes a deep visceral revulsion. Dunno if that view is representative of others in Germany, but FWIW.

Concur -- Germany is not psychologically ready for European leadership. Nor is the rest of Europe ready to accept it.

Nor will they be until at least everyone from that time is gone. Probably another 20-40 years.

But this leads into additional problems; Germany might want to leave the Euro, but is *highly* sensitive to charges that they "destroyed Europe for the third time"

[GRG55]

Re: Surprise! EU leaders produce little of substance at summit

i think the struggle over a tobin tax is most interesting: the tax is a way to restrain some of the most destructive practices of the financial industry and so is, of course, anathema to the city. the eu ex-uk appears less beholden to the fire economy, and more intent on taming it. this is why the extrusion of the uk is interesting. it will leave the anglo-saxon world and the financial centers of london and ny to the fire-men/banksters and try to have an eu which is more bound to the productive economy.

I am not nearly so optimistic that a Tobin tax will have the effect advertised. First, humans are incredibly adept and creative at finding ways around the rules...be they taxes or any other form of regulation...so I expect the ultimate outcome of a Tobin tax will be to raise the cost of financial services for non-financial corporations and those citizens that can least afford it, while the pros and the wealthy move their transactions off the regulated exchanges and further and further away from scrutiny and regulatory control.

Second, it seems to me that the primary underlying problem the world over is excessive leverage, and an inability to service that debt. Private sector debt. Corporate debt. Public debt. And the economic sector that is able to lever up the most is banking and finance. I do not believe that the continental European politicians are generally any different in how they will treat their precious banks than the UK, USA, Japan, China or anywhere else in the world. They have been bailing them out [why was Greece "bailed out" at all?]. They will nationalize their banks if there is no other alternative. They will recapitalize the banking sector at the public's expense.

The danger the UK faces is that it became more dependent on the FIRE sector than other European economies [except, perhaps, Switzerland]. As this sector continues its secular decline in size and influence the UK has the largest adjustment to make. But Germany and France are not exempt from that adjustment either, and my sense is that the UK is better placed to make that adjustment...in part because it isn't in the currency union and therefore doesn't have nearly the challenges of an Ireland, Spain or Greece as a result. Even if the UK is forced out of the EU trade zone, I can hardly imagine continental Europe offering better trade terms to, say, China than they will to trade with the UK.

The bond market is pricing US Dollar and UK Pound sovereign risk much lower than continental Europe sovereign risk. Is that market irrational? I don't think so.

[jk]

Re: Surprise! EU leaders produce little of substance at summit

The bond market is pricing US Dollar and UK Pound sovereign risk much lower than continental Europe sovereign risk. Is that market irrational? I don't think so.

the bond market knows the uk and u.s. can print; thus there is no risk of non-payment, i.e. no credit risk. ray dalio divides the world along 2 axes: countries that can print versus those which cannot, and countries that are net debtors versus those which are creditors. the uk and eurozone are separated along the first axis.

[GRG55]

Re: Surprise! EU leaders produce little of substance at summit

the bond market knows the uk and u.s. can print; thus there is no risk of non-payment, i.e. no credit risk. ray dalio divides the world along 2 axes: countries that can print versus those which cannot, and countries that are net debtors versus those which are creditors. the uk and eurozone are separated along the first axis.

Understood. But one would expect that the bond market would be forcing rates up for those currencies that can easily be inflated, and placing a premium on Euro denominated bonds [from the strongest Euro economies] given the ECB has been running the least expansionary policy [outside of perhaps the Reserve Bank of Australia] and benefits from that infamous German imposed discipline.

But that is not happening. The governments of the USA and the UK can borrow money at the lowest costs in the world now.

Is that because the bond market is irrational? Or does the bond market discount the potential for the amount of future printing needed by the UK and the USA? And if it is the latter, why would that be? A perception of more flexible and competitive economies? More military strength in an uncertain world? A banking system that is still overlevered, but perhaps less so than continental European counterparts? Something else?

[jk]

Re: Surprise! EU leaders produce little of substance at summit

Understood. But one would expect that the bond market would be forcing rates up for those currencies that can easily be inflated, and placing a premium on Euro denominated bonds [from the strongest Euro economies] given the ECB has been running the least expansionary policy [outside of perhaps the Reserve Bank of Australia] and benefits from that infamous German imposed discipline.

i think those are the reasons that the euro is still over us$1.30. it's showing up in the currencies.

But that is not happening. The governments of the USA and the UK can borrow money at the lowest costs in the world now.

Is that because the bond market is irrational? Or does the bond market discount the potential for the amount of future printing needed by the UK and the USA? And if it is the latter, why would that be? A perception of more flexible and competitive economies? More military strength in an uncertain world? A banking system that is still overlevered, but perhaps less so than continental European counterparts? Something else?

what's the average holding time of a bond now? 90 seconds?

[astonas]

Re: Surprise! EU leaders produce little of substance at summit

i think those are the reasons that the euro is still over us$1.30. it's showing up in the currencies.

I do think that the U.S. reserve currency status is a massive effect here as well. There are real, even if not vast, costs and risks associated with being a non-reserve currency.