News & Analysis
Sink- or Swim-Time for the EU
Is the Bundesbank spoiling for a fight over the destiny of EMU? Free-Market Analysis: Bundesbank chief Axel Weber has pushed his attack on EMU's policy elites one step further. This time he has undercut the triumvirate – ECB chief Jean-Claude Trichet, Eurogroup chief Jean-Claude Junker, and Commission chief Jose Barroso – with an op-ed for the Financial Times excoriating their plans to head off another round of the debt crisis by giving real teeth to the eurozone's €440bn bail-out fund. He claimed that the latest EFSF proposals – which investors had already pocketed as a done deal – would amount to "eurobonds more or less through the back door." – UK Telegraph
Dominant Social Theme: Germany will make a fuss and then go along.
Free-Market Analysis: We've written recently about Ambrose Evans-Pritchard's change of heart regarding Spain, an important change given that he is perhaps the most prominent Euroskeptic writing for a major news daily in Britain or Europe. A week ago, Evans-Pritchard decided that Spain was going to be able to service its debt after all, given a combination of competitive high-tech factories, a well-educated labor force and a high-savings rate. The EU was not going to take a tumble after all, or not right away. This he indicated came as a surprise to him. If there were going to be an EU unraveling, he decided, it would come from Portugal, Greece or perhaps Germany. You can see our commentary on that here:
Now, in this article (see excerpt above), like a homing pigeon, Evans-Pritchard returns to his previous position as a Euroskeptic. We've never sure if Evans-Pritchard entirely believes his presentations or if he is at least partially playing a devil's advocate. He's no Austrian, believing in doing away with central banking, though he does evince from time to time a hankering for a gold standard. But mostly, when it comes to solutions, Evans-Pritchard seems to want monetary inflation; at least he has spent several years suggesting it and warning that the ECB's tightfistedness is exacerbating the financial crisis.
The reason we enjoy commenting on Pritchard's article is because for a mainstream journo he is refreshingly candid about the EU's failings. And despite his strange affection for Keynesian-style monetary stimuli, he is well-informed about the ins and outs of fiat money and breaks many stories about EU monetary policy. In this regard he certainly does not hew the line of the Anglo-American elite that developed the EU and the euro; the elite's dominant social theme is a simple one ... "We shall overcome." (Charlemagne's empire rises once more.) On the other hand, as we regularly point out, the elite's fear-based promotions function via Hegelian dialectic. Evans-Pritchard certainly provides a position that others do not.
In this article, above, he is returning to familiar themes, and providing some additional clarity as well. It does seem that there is a genuine split between Axel Weber and Angela Merkel. Not only that, but this split is mirrored in German society as well. By coming out so publicly against current German policies regarding the EU, Evans-Pritchard suggests that Weber is "sending a message" to the eight judges of the German Verfassungsgericht who will rule on whether the recently agreed-to EU bailout is constitutional.
The understandings with which Germany entered the EU's initial common market seem on the surface to forbid Germany from underwriting the profligacy of other nation states. Or so the argument goes. Here's what we wrote on the subject a week ago: "Nonetheless, the lawsuit is not liable to have much traction. The court is a powerful one within the German system, but the position of the courts has generally been pro-integration."
We thank the Irish Times (which goes on at length) for that bit of analysis. But Evans-Pritchard, back in his euro-skeptic mode, seems to give Weber's position a good deal more credence: " He may have scuppered any chance of a deal to boost the fund at next month's EU summit. The markets are not going to like that ... Specifically, he slammed proposals to cut the penal rate of interest rate charged on the rescue for Greece, Ireland, and any other supplicants. He called it a ‘danger', no less."
Evans-Pritchard goes on to explain Weber's larger stance, his reluctance to have the EU purchase the PIGS dodgy bonds; likewise, he criticized the idea of having the EU print money and lend it to the PIGS so that they could then buy their own discounted debt. Both of these schemes and others were bound to be dangerous as "the risks of the remaining private bondholders would increase sharply, thereby significantly heightening the pressure to sell."
Evans-Pritchard believes Germany is backed into a corner. If its leaders go along with Europe, Germany will essentially have become the EU's guarantor, a fate that its population has increasingly dreaded would come to pass. If Germany's court system and its cadre of anti-EU leaders remain committed to a strong (German) currency, it is the EU itself that will suffer, maybe terminally.
He doesn't mince words, pointing out that Germany must now make a decision as to the solvency of the EU. "It has to choose between a Transferunion and letting EMU die. By Transferunion, I mean full fiscal union: handing power to set taxes, draw up budgets, etc, to an EU government, which can outvote Germany, just as Dr. Weber been outvoted by the majority on the ECB council. This means the end of Germany as a self-governing sovereign nation ... Needless to say, the political class as a whole has never faced up to implications of EMU. Events are now forcing them to face up."
This is of course where Evans-Pritchard goes off the rails once again in our view. He states that the Germans have been caught by surprise and that they never fully understood the ramifications of the EU. And yet, at various times in the past two years, the socialist leaders of the EU have all but stated that an anticipated crisis was supposed to drive the union from an economic one into a political one. Are we to believe that the French and Italians understood but the Germans didn't?
Conclusion: The reality is that after two years of dithering, the economic crisis affecting the EU is probably going to come to a head. Either the EU will move forward to a more powerful union or it won't. There will be substantive chaos if it does not. And in our view there will be singular difficulties if it does. All that we have been discussing was supposed to have been the purview of the EU's top minds; and not fodder for journalism. But now these machinations are well known and we wonder, if a closer union comes to pass, whether the South, already stressed by "austerity" will put up with it.
Posted by Bluebird on 03/02/11 11:11 PM
Daily Bell, I was looking for a story that is not being commented on. I hope it is okay to post this here. I have just finished reading all that Laurel Canyon info. it took a long time because it was a lot of info, plus I did a lot of searches along the way. I never cared much for rock music but my siblings did. I had to listen to a lot of their music. I became quite fond of John Denver and was surprised to find him on the list of "Canyonites". Then I did a search on him and saw he was an activist for about every PE meme that was thrown out there. I may never recover. Just joking, but I was truly surprised! Thank you for so much enlightening! I don't know how the world (and certainly myself)ever got along before you. Reckon Clayton was in the military? Hmm.
Posted by Michael on 02/27/11 10:43 PM
The EU is toast...stick a fork in it. It was doomed from the start. The recent elections in Ireland will create a showdown between the people in Ireland their government and the EU. The people will stand up to the EU and win...but they will pay a price. Other EU members citizens' will see this and monkey see monkey do. The House of cards is weak and the winds of change are blowing. Hold on...this is going to be ugly. Godspeed.
Posted by Jubal on 02/26/11 12:55 PM
Thanks for the advice and posting the direct link to the book. The link I tried to post Click to view link includes a short introduction and works fine for me (I checked it yesterday and, again, today: no internal server error). I'm following your advice now and seeing the results when I post this. However, it's odd because I posted links in the past without problem.
Posted by AmanfromMars on 02/26/11 12:42 AM
The secret to posting links here on the Daily Bell ....
Click to view link
.... appears to be to ensure that they are not posted at the end of a sentence, or even standing alone on a naked line.
Although the Mises link that you posted appears to have a internal server problem, and its failure to render the expected content here, has nothing to do with DB software.
I shall now post this, and hope that the information above proves to be accurate and one can Click to View Link and "The Tragedy of the Euro", by Philipp Bagus, is delivered. :-)
Posted by Jubal on 02/25/11 03:06 PM
There's a problem with the link above. Let's try again:
Click to view link
Posted by Jubal on 02/25/11 02:58 PM
An interesting book about this subject is "The Tragedy of the Euro", by Philipp Bagus:
Click to view link
The book is short and Bagus puts forward some interesting ideas about the politics (Germany getting the Ok for reunification in exchange for joining the euro and, therefore, "the tyranny of the Bundesbank" coming to an end) and economics of the euro. Recommendable reading.
Posted by AmanfromMars on 02/25/11 12:19 AM
"Somehow, Germans are not very good in understanding the human nature." ....... Posted by Bob on 2/24/2011 10:49:47 PM
That is as may be for some, Bob, and there will be many who will agree to fundamentally disagree with you, but there is no doubting that they are brilliant at controlling and empowering virtual machines.
And with regard to Posted by Nicholas Lee on 2/24/2011 3:36:22 PM, which seems to have struck bull's eye gold with every point, it does appear that the Federal Reserve/United States of America relationship is the perverse model being used for the ECB/EU mirroring clone ...... with Fiat Currency Chancers/Chancellors thinking that their control of a paper tiger empire will allow them to purchase nations and nations' solid and liquid assets/infrastructure for virtually nothing using a currency invented out of thin air and printed/quantitatively eased electronically into the system, as and when they require it.
It is the old game of arrogant bankers thinking that they know all too well human nature and how easily it can be bought wholesale for a fistful of dollars. And then with an artificial and subjective price* put upon everything, a raising and a lowering of it, allied with a control of money supply, creates an enslaved population ...... which is an invidious and insidious form of global terrorism, which creates ever more powerful enemies of the System.
Quite why anyone, other than a psychotic and psychopathic fool and/or totally misguided tool, would want to create a System which guarantees their own catastrophic destruction, is a mystery probably easily solved with a realisation that they lack the necessary greater intelligence which recognises the folly and replaces it with a creative alternative notion and most innovative program.
* How very odd not, that a struggling dollar has the oil price hiked up to unpleasant highs, and how very convenient that oil is priced/purchased in dollars. It is a rigged Great Game, which now cannot be be continued without Total Information Awareness and IT and Media Control, and that is both Virtually and Practically Impossible without Cyber Command of Computers for Current and Future Powered Direct Communications, which is ITs new Space Place where IntelAIgent Spooks and CyberIntelAIgent Cooks hang out, ZerodDay Trading their ProgramWares and Sublime Skill Sets to Any and All in Need of Feed and Seeding of a Better Beta and AI Source Core Lode Nodes for SMARTer InterNetworking Servers.
SINS one can really enjoy providing.
Posted by Bob on 02/24/11 10:49 PM
So, let us cut all this BS, after the WWII, Germany was not a sovereign nation. In my opinion, Germans were outright naive and stupid. During the hight of the Cold war, when the West desperately needed W. Germany, they were incapable of getting a good deal for themselves.
Instead, they were hoping that by working hard and being fair, Germany would be rewarded a proper leadership position in the EU. Somehow, Germans are not very good in understanding the human nature. Just staying out of the American adventure in Iraq, Germany saved itself from a lot of grief and expenses.
I think that Germany national interests will be better served by taking "a rest" and stepping aside. That is, being neutral and being a "friend" with everybody instead of trying to prove its righteousnesses. Let Americans, British, French, Greek, Chinese, etc., try to solve their own domestic and geopolitical problems and make their own ruinous mistakes.
Posted by Vauung on 02/24/11 09:12 PM
@ Nicholas Lee
That was so good I've been rendered (almost) completely speechless.
Posted by Nicholas Lee on 02/24/11 03:36 PM
The EU is a tyrannical, undemocratic, autocratic and dishonest disaster area. The sooner it collapses, the better. Then we can busy ourselves in dealing with the resulting substantive chaos which will at least have the virtue of being part of the real world instead of the current fairy world fantasy peopled by the most unpleasant bunch of self-seeking politicians in history.
Posted by Peter on 02/24/11 03:08 PM
In the game of Hegelian football its Ambrose Evans-Pritchard's role to ensure that the goal posts are in conformity with the uncertainty principle at all times.
Posted by Bionic Mosquito on 02/24/11 07:04 AM
"He states that the Germans have been caught by surprise and that they never fully understood the ramifications of the EU. And yet, at various times in the past two years, the socialist leaders of the EU have all but stated that an anticipated crisis was supposed to drive the union from an economic one into a political one. Are we to believe that the French and Italians understood but the Germans didn't?"
It is possible that some understood and others didn't. Also the view from those in the EU might be different than the views of those in the various national governments. Most politicians are not so perceptive, to look out 5, 10, or 20 years to see the possible ramifications of their actions. Only the next election matters. So I think it is fair to say some Italians, some French, and some Germans saw it coming, and others didn't (or did but thought they could stay as part of the new, EU inner circle).
I think there will be some difficulty of the national politicians giving up control to the EU. They are big fish in their little ponds, and do not want to become irrelevant. They also want to be re-elected. I say this also not discounting the fact that the EU is a train with an awful lot of momentum, in the form of elite muscle desirous of further centralization.
Of course, runaway trains are not so easy to control. And the final result is not always what is desired.
Posted by Maritzanita on 02/24/11 06:54 AM
@ Elias Alias The link does not function.
Posted by Elias Alias on 02/24/11 05:42 AM
Uhm, that link again...
Click to view link
Posted by Elias Alias on 02/24/11 05:31 AM
I know at least one person who feels that Ambrose Evans-Pritchard may be a British Intelligence agent. As such, he might mirror our CIA's usage of journalists in their secret operations. CIA example:
Click to view link
I would appreciate any information which would negate that, or confirm. If confirmed, it would at least in part explain his "unique" perspective on things.