By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.
It’s another week and another summit for Europe. The latest EU summit will be held in Brussels on Thursday and Friday and once again it is a ‘summit to end all summits’. Last Friday saw the leaders of the four largest Eurozone economies meet in Rome and the outcome was relatively positive:
The countries with the four-largest euro-zone economies agreed on Friday to an economic growth program with a total value of €130 billion ($163 billion). The sum represents 1 percent of the European Union’s gross domestic product, Italian Prime Minister Mario Monti said in Rome after a meeting with German Chancellor Angela Merkel, French President François Hollande and Spanish Prime Minister Mariano Rajoy.
Germany, France, Italy and Spain all agreed that growth measures undertaken so far have not been enough to pull Europe out of a debt crisis that is threatening to unravel the continent’s common currency, the euro. They also agreed that budget discipline alone will not be enough to fuel economic growth and create jobs for the mass of unemployed Europeans.
Chancellor Merkel said the plan was the “message we need.” She also admonished Europe to venture even closer political integration.
Although much of this wasn’t new money I think it is an important step forward because of the acknowledgement that the current ‘austerity only’ plan is failing to fix the Eurozone’s problems. I’ve always thought that ‘austerity alone’ would be a total disaster for Europe and that the idea would eventually be abandoned but that it would probably take the effects of the policy to start effecting one of the largest economies before we saw some reversal of policy. Now that contagion is lapping at Italy’s shores and the latest PMI data suggests that Germany is getting dragged down as well there is a chance we will finally see the beginnings of a co-ordinated response at this week’s summit. Emphasis on ‘beginnings’.
Obviously, given the myriad of previous failed attempts, I could well be premature in my optimism as there is a history of disagreement followed by half-baked resolutions that fall flat on their face. There was little sign in Friday’s post-meeting press conference that Angela Merkel had moved from her position of political/fiscal union first everything else second. There was no discussion of Euro-bonds and she made it very clear that “liabilities and controls go together”, meaning that there will be no shared issuances of any kind until nations have given up their fiscal controls to a central authority. This is all years away.
In the meantime Mario Monti is still pushing for a banking union, including a European supervisor and a deposit guarantee fund. A banking union would certainly relieve the stress on periphery banks as there would be no reason for a Greek or Spanish citizen to shift their deposits to Germany if all banks of significants were seen as ‘Euro’ banks. But in order for a banking union to work it would require a cross-border banking resolution and insurance funding which brings us back, once again, to liabilities and control.
On Wednesday Francois Hollande and Angela Merkel will meet again in an attempt to get the Franco-German game plan worked out before the summit. Obviously there are large differences in their positions so we are unlikely to see anything more than what has already been agreed to. That is , some more detail on the growth pact.
In the meantime the crisis rumbles on…
Greece’s new government has begun asking for changes to its bailout and German finance minister, Wolfgang Schaeuble, has replied:
The most important task facing new prime minister Samaras is to enact the programme agreed upon quickly and without further delay instead of asking how much more others can do for Greece.
The banking problems move to Italy:
Italy’s Banca Monte dei Paschi di Siena is in talks with the Treasury and the Bank of Italy about issuing at least 1 billion euros of government-backed bonds to plug a capital shortfall, two sources close to the matter said on Saturday.
If the Treasury and the Bank of Italy give the go-ahead, Italy’s third biggest lender would become the country’s first bank to resort to state help as the euro zone debt crisis deepens.
“There are very close contacts with the Bank of Italy and the Treasury, although there is no final go-ahead,” one of the sources said.
A second source said: “They are negotiating actively, but the Bank of Italy has to give the final approval.”
Monte dei Paschi has been struggling to fill a 3.3 billion euros capital deficit by end-June to meet tougher requirements set by the European Banking Authority (EBA).
And the Bundesbank is taking swipes at the ECB over Spanish collateral:
As Spanish banks scramble for collateral to use in the refinancing operations that are keeping them afloat, the Frankfurt-based ECB said it will cut the rating thresholds and amend eligibility requirements for some asset-backed securities. While the move will give stressed banks greater access to ECB liquidity, it may also increase the amount of risk on the central bank’s balance sheet.
“We’re critical of this,” Bundesbank spokesman Michael Best said yesterday. In terms of collateral, “we won’t accept what we don’t have to accept,” he said.
Just another week in Europe then.
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umm…one step forward, two back:
Greek PM, Finance Minister Will Miss Summit Due to Illness – Illness means both Greece’s new prime minister and finance minister will miss an anxiously awaited summit of European leaders later this week and delayed a visit by the country’s international lenders.
http://finance.yahoo.com/news/greek-pm-miss-eu-summit-021228411.html?l=1
If austerity versus stimulus are two ideological responses from within the same paradigm –the paradigm of growth- then the policy changes outlined in this post, if enacted, will have no lasting effect. If the fundamental issue is that the modern world is in ecological overshoot/at the limits to growth –primarily but not only due to its reliance on cheap oil to run its economies- then as stimulus fails to deliver growth we MAY TAKE one agonizing step closer to this watershed realization.
I think this all the time too. But I see the political mandate now as figuring out how to make life equitable here and around the world without deprivation. I believe it can be done. No one needs to be impoverished to achieve a sustainable world, except the lavish, selfish rich; that lavishness is also an impoverishment. If there was ever a time for the support of social and governmental institutions it is now.
I don’t see a break up…. NO….! A break up of the currency is a lose/lose situation, everybody gets hammered…..
The Europeans politicians in consultations and coordination with the global central bankers will monetize all of the debt to a sustainable levels over an extended period of time… We live in a global economy and “systemic” failure is not acceptable… The price of failure far outweighs the the price of collective sacrifice….. I am quite certain that all the participants are keenly aware of this…
You have no evidence to say this…
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The price of failure far outweighs the the price of collective sacrifice
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The German voter wants LESS Europe,not more. Why do so many “progressives” continue to believe that the German voter is too “ignorant” to realize what’s good for him?
As of today, only Monte dei Paschi is under the 9% core tier 1 level (it is 8,3%), but if we add the “Tremonti bonds” (bonds issued by the bank carrying the state’s guarantee), the ct1 jumps to 10,5% (see Corriere della Sera, Economy supplement of today).
So, only a handful of quoted mid-level banks are under the threshold, and by not so much.
Funniest comment of the day:
“They also agreed that budget discipline alone will not be enough to fuel economic growth and create jobs”
Wow! You mean cutting the citizens’ income, firing people and raising taxes doesn’t stimulate the economy?? Who’da thunk?
Next, they’ll discover that applying leeches doesn’t cure anemia.
Rodger Malcolm Mitchell
It’s time of reckoning for EU, including Germany: if something has become clear is that it’s not this or that country but a set of inter-connected and quite generalized problems, largely derived from bubble-Capitalism, easy-credit-Thatcheronomics, extend-and-pretend economic theory or a Ponzi-scheme financial reality.
There’s lots of cleanup to do, something that cannot be done in a Capitalist context, where the resources, human or otherwise, are only supposed to be there for private profit and not for general social gain, where planning and managing the economy with clear goals in mind is disdained and sabotaged.
Whatever the case it’s not possible to keep playing the blame game (although getting some bankers in jail would be a good idea, they should not go impune for the wreckage caused to society) nor put anymore all the weight on the weakest link (like Greece), unless your intention is to break the whole machine.
But it may be too late to fix anything by the usual burgeois means: socialism is needed, hardcore socialism.
Cyprus has just asked for a bailout.
Just curious, kids, how’s capitalism working our for ya?…lol
Europe has been running big austerity programs and now is proposing, maybe, a small stimulus program. The two don’t even offset, and where would this “stimulus” come from and how would it be distributed, and how would it be used?
To me, this looks like more European kabuki. European leaders announce a solution, that isn’t a solution and doesn’t have much substance to it anyway. What does it mean that the 4 largest European economies, Germany, France, Italy, and Spain announce a deal like this when two of them have probably can’t contribute at all to it, the third is dubious, and the fourth will only do so if it is loaded with poison pills?
How can you describe Germany’s terms as “poison pills”. If Germany is going to underwrite Greek debt, as a German voter, I would INSIST that Greece does things my way. I would insist that the military in Greece be under German command, and that all students must learn at least one hour of German language instruction per day.
There is going to be an official language of the US of Europe, and it’s going to be German.
Poison Pills? Hardly. The South in the USA had to give up many of their institutions after the Civil War cemented the bond between states. And if the US of E is to be successful, peripheral countries will need to do so as well.
Your comment shows precisely why Germany cannot rule. And your morality tales about this crisis are tiresome. It is clear to me (as an spaniard) that it is much better to break up this euro nonsense while you swim back to Bonn where you were as a country more comfortable with yourselves: the supposed european federal dream of the german politicians cannot work with german public opinion such as yours. BTW never Pennsylvania ruined Virginia deliberately. And of course they were not forced to speak german (unfortunate as I love the german language)
Jim is not German (no German is named “Jim”): he’s a Wall Street hitman, obviously. The worst of this is that the Anglo-Saxons (some of them, the banksters of the City and Wall Street essentially) are stirring the pot and manipulating Germany and France into this game of divide and win.
The obvious goal is to divide Europe, bloodily if need be. And they may succeed. I just hope that we are wise enough to keep the divide essentially a class one and not an ethnic one, what would be a disaster: the final destruction of Europe in a nuclear holocaust very possibly.
And you’d be called “imperialist Nazi” with good reason.
All this debt manipulation is nothing but imperialism and will be crushed!
Some 200 years ago France imposed a huge deby on Haiti as compensation for the freedom of the slaves and the expropriation of the land worked by those slaves. It was a clear case of hateful debt. Yet Haiti is still paying, 200 years later, now to the USA, which eventually bought the debt and the “right” of military intervention.
If you think that Greece or Europe in general will be “the German Haiti”, you are very wrong. There will be blood.
Poison pills indeed. Bitter poison that will be soon swallowed in the Frankfurt, London, Paris and Wall Street, where all this manipulation is being cooked. Yes, this time the cooks will eat their poison: the time of lies and colonialism has ended.
If Germany and France lay the groundwork for some sort of infusion of cash into the economy, it is purely so the owners on Wall St. have something other than austerity to blame for the collapse.