News & Analysis
Nothing But a Full Union Will Do ...
Debt crisis: Bundesbank scuppers all talk of EU banking union ... Germany's central bank has shot down EU proposals for a European banking union, warning categorically that eurozone liabilities cannot be shared without a fundamental shift towards fiscal and political union. Andreas Dombret, a key board member of the Bundesbank, said the grand plan by Brussels is premature and unworkable as constructed. "It has to follow a deeper fiscal union as it would imply significantly increased risk sharing amongst countries," he told a Bank of America conference in London. Mr Dombret said a pan-EMU deposit-guarantee scheme and a debt resolution fund would require "a genuine, democratically legitimated fiscal union" and a new treaty. "A banking union is a sensible way forward as long as liability and control are aligned. What I mean is you don't give somebody your credit card if you don't know what he or she is going to do with it," he later told ITN. – UK Telegraph
Dominant Social Theme: We simply need to get on the same page!
Free-Market Analysis: Over at the Telegraph, Ambrose Evans-Pritchard has done us the favor once again of providing reports that show clearly the intractabilty of the Euro-crisis. He points out that while the Eurocrats in Brussels can come up with plan after plan, the Germans must fund the venture and they won't do so without a fuller and more powerful union.
The top officials in Germany, in other words, don't want to provide "bailout" funds if they don't have some control over how those funds are being spent. But this is not the only complication.
What is not often pointed out is that the Germans themselves are probably ahead of their leaders where the EU is concerned and even pulling in another direction entirely.
Ms. Angela Merkel and her administration may seek a fuller union but it is certainly possible that the German electorate seeks no such thing. A closer union surely involves a larger German investment.
Merkel has been losing regional elections steadily throughout the crisis. Her vision for Germany is not seemingly that of the average German. Here's some more from the article:
The Bundesbank's vice-president Sabine Lautenschlaeger hammered home the point in what is a clearly co-ordinated push to check the plan. "The result would be a pooling of the governments' liabilities through the back door," she said.
"Whoever is footing the bill must also have a right of control, particularly when it comes to the large sums that are seen in banking crises," she added, alluding to rulings by German courts that unquantifiable EU liabilities breach Germany's constitution.
Chancellor Angela Merkel endorsed the tough line at a party conference yesterday, insisting that Germany will not accept variants of debt pooling or eurobonds until Europe has created a machinery of joint government.
"We can't take part in things that lead us into an even deeper disaster," she said. "We want more Europe, but a Europe in which joint liability and joint control go hand in hand. What is not acceptable is shared liability and control remaining in national hands."
Mrs Merkel said the failure of the European Banking Authority to uncover festering losses in Spanish banks in a series of stress tests showed that national regulators − acting out of "misguided national pride" − cannot be trusted to do the job.
The idea that Greeks, Spanish, Italians and Portuguese would easily allow sovereignty over economic issues to pass into German hands is a questionable one at best. Additionally, Germans themselves don't seem enthused by the prospect, based on how they've been treating Merkel from an electoral standpoint.
Thus it would seem there are at least three factions tugging the EU in three separate directions. First, you have the Eurocrats who seek an economic resolution to a crisis that has extra-economic implications.
Second, you have the German elites (at least) that seek a closer union dominated by German banks and bankers.
Third, you have the German electorate that is at this point less enthused daily about either of the above options.
The "muddling through" of the past three years increasingly seems unworkable. The latest Spanish bailout has already been badly received by the markets.
It is certainly not a foregone conclusion that the European Union will break up, or even that one or several countries will cease to use the euro. But it is also true that the power elite behind the EU cannot be happy with the way the Union is evolving.
The elites constructed an ever-close EU with the idea that an eventual crisis would lead inevitably to a political as well as economic union. But what we call the Internet Reformation has made this a less predictable occurance.
As the crisis has deepened, many Europeans have educated themselves about the EU and decided that at a fundamental level the current situation is manipulative and may even have been a logical outcome of EU monetary policies.
The British increasingly want to disassociate themselves from the EU and it would seem many in Southern Europe do as well. Even in Germany there likely begins to be sentiment to secede from a monetary union that is causing problems rather than prosperity.
Europeans are being frightened by dire predictions of what will occur in the case of a significant EU bustup. But chances are this is yet more elite propaganda ... a dominant social theme designed to make dissolution more difficult to achieve from a psychological point of view.
We regularly pointed out that what we call the Internet Reformation would result in the foundering of numerous fear-based elite themes. The powers-that-be can continue to frighten people about EU secessionary tendencies, but if events continue to spin out of control it may not make any difference.
Conclusion: Simplify the Euro-dilemma and increasingly the solution would seem to be not a PIGS departure but a German one. A German leave-taking seems increasingly sensible, if not yet feasible.