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European bonds: For and against

Stephanie Flanders | 12:37 UK time, Monday, 6 December 2010

A Heathrow departure lounge is not the best place to consider the pros and cons of common European bond issue. But when I get to Brussels, there will be plenty of officials debating the subject in the lead-up to the eurozone finance ministers' meeting this evening.

Jean-Claude Juncker and Giulio Tremonti

 

The chairman of the Euro group, Jean-Claude Juncker and the Italian finance minister, Giulio Tremonti, talk up the merits of common European sovereign bonds - or E-bonds - in today's FT.

There are some positives, which were widely discussed when the rules for the euro were being drawn up.

One is to provide deeper markets for European sovereign bonds. Another is to express the irreversibility of the euro and the strength of the countries' common commitment to make the single currency work. Another advantage - not discussed at that time but sorely missed by the ECB - would be to give the central bank a way to ease monetary policy by buying bonds, without appearing to prop up individual governments or underwrite their borrowing.

The authors keep returning to another motivation for the proposal - that it would "halt the disruption of sovereign bond markets" and "ensure that private bondholders bore the risk and responsibility for their investment decisions". That is not so clear. Or at least, not until we know the precise terms under which such a market would operate - or the obligations that it would impose on governments.

There is the suggestion that investors would be offered the option of converting national bonds into E-bonds, at a discount reflecting current market differentials.

This would provide welcome liquidity to institutional investors who are stuck holding peripheral bonds they can't get rid of. But the conversion would also crystallise their losses. It's not obvious that they would be any keener to buy more Spanish or Greek debt in the future than they are today.

This gets us to the big unanswered questions in the article, which explain why Germany remains opposed to the idea (it was German opposition that scuppered E-bonds at the start of the euro.)

The first is how you could possibly create a bond market for which all European Union member countries were responsible, without changing the treaties on which the single currency is based. Apparently, the E-bonds would have a different credit rating to national bonds (and enjoy "a higher status as collateral for the ECB".) But that suggests they would be collectively guaranteed by the members (and we're talking the entire EU here, not just the eurozone).

If so, that would surely demand a much greater degree of fiscal and political cohesion than is being contemplated formally in any of the taskforces now beavering away in Brussels.

There would be "discipline" to the extent that the cost of issuing the bonds for any individual country would depend on their current standing in the markets. In this variant of the proposal, governments would only be able to issue around half of their debt in the form of Eurobonds - so they might continue to pay higher rates on the rest. There would thus be less moral hazard than moving to common Eurobonds across the board. But the 50 per cent limit could be raised to 100 per cent in "extraordinary circumstances" - ie a crisis. More generally, the authors surely hope that the bonds will make it easier for European governments to borrow - otherwise there wouldn't be much point in doing it.

In the absence of true centralised control of budgets (which Germany clearly favours), someone will have to explain to me how a proposal that "insulates countries from speculation" will also "foster fiscal discipline". A common European bond could do either of these things. I cannot see how it could achieve both.

We know which option Germany favours - more discipline by markets, and more discipline from the euro system itself. Possibly, Messrs Juncker and Tremonti would prefer their market discipline to be more of a one-way street. Investors must take responsibility for their decisions - but governments should be "insulated" from the consequences.

Update 1356: A colleague reminds me that the Bruegel think tank has a different version of the E-bond proposal. It would overcome some but not all of the moral hazard concerns, but it would definitely involve important treaty changes. One attraction over today's proposal is that it would explicitly classify the Eurobonds as senior to the national ones. Countries would only be able to issue the common bonds up to an agreed ceiling - say 60 per cent of GDP. This would add some market discipline, by increasing the marginal cost of funds above that limit. But you would still be 'insulating' countries from their poor credit ratings, to the extent that their average cost of borrowing is likely to fall.>

Comments

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  • Comment number 1.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 2.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 3.

    Making it easier to borrow should definitely help the govs out of debt and introduce a load of discipline. What ratio of GDP does Tremorti's gov already have as debt?

    I hope you're in the BA lounge in T5.

  • Comment number 4.

    Europe is ready for joint euro-bond.
    I know there's been disagreement, but a joint launch would boost the bailout fund and send a clear messdage that all EU countries are in this for the long haul - come what may.
    The ministers seem convinced that Portugal will be next to need a bailout after Ireland. Ireland has 67.5B euros of overseas loans and guarantees (yet to be signed off).
    While bond yields for Portugal and other challenged eurozone economies like Spain fell or are falling, that is the result of a vast buying spree launched by the European Central Bank. Jean-Claude Juncker, head of the Eurogroup of finance ministers, and Giulio Tremonti, Italy's finance minister, want a quick introduction of "E-bonds".
    Why?
    To send a message to markets and European citizens about "the irreversibility of the euro".
    Also, the plan will lead to a "liquid global market for European bonds," which would help protect countries from SPECULATION and attract new capital flows. The first step will likely occur when European Union leaders come to Brussels for a summit on December 16 and 17. I'm expecting steps to be at least initiated at that time.
    But Germany, Europe's biggest economy, is reluctant.
    Why?
    Divisions in the eurozone over how to deal with the crises gripping single currencies (not sure what this means). However, German Finance Minister Wolfgang Schaeuble said that bsuch changes would not be possible "without fundamental changes" to EU treaties.
    Germany seems opposed to a joint European-wide bond because it fears that it would
    1. raise its own borrowing costs and
    2. force it to permanently subsidise the rest of Europe.
    Belgium currently holds the EU presidency, and Belgium wants the long-term and even short-term emergency funds topped up. A 500-billion-euro temporary fund, topped by another 250 billion euros from the International Monetary Fund, looks to be what Belgian Finance Minister Didier Reynders is after.
    Finance Minister Didier Reynders: "I'm in favour of an increase in the permanent mechanism but if it's possible to do that earlier, why not?"
    The fund should be endowed with "a huge amount of money, because if we don't do that you WILL ALWAYS HAVE SPECULATION." Further, he said Strauss-Kahn's IMF is "ready to follow the process if we decide in Europe". Guess who's throwing a hissy-fut?
    No, not Germany!
    The United States...So something about the E-bond, and the shutting out of SPECULATION must be hitting the Americans the wrong way. That alone makes me want to shout: Go for it!

  • Comment number 5.

    Cant get round the need for more integration of fiscal and monetary policy.
    Cant see UK signing up to a Euro bond as the above applies. Eurozone countries (particularly Germany)have to accept an untidy hybrid solution and hope for the best.
    Private investors are not a charity and as with all companies they wish to minimise risk and its impact and if they are free run away at the first sign of trouble they will.

  • Comment number 6.

    Euro bonds!

    Excellent, the prudent are just going to love that one.
    I hope the Euro Politicians have some excellent discursive discourse to sell it to them.

    But more to the point, even if the prudent swallow the discursive discourse, can they actually afford the consequences of it?

    From individual insolvency, to bank insolvency, to national insolvency, to………
    European insolvency?

  • Comment number 7.

    Hello Earthlings

    Maybe I don't understand what is being proposed there on planet earth, but if hiding the name of the debtor by calling the bonds 'e-bonds' instead of Irish or Greek bonds denominated in Euros, then this will reduce transparency much like the bundling of the Credit default swaps for sub prime mortgages did prior to 2007.

    This completely froze the markets in 2008 when the fear of the quality of the 'assets' caused a buyers strike and crippled the banks.

    I cannot believe that this is really what they want to happen again so soon after the last fiasco.

    Can't you get some superior 'out of this world' philosophers to come up with a better idea than this?

    Doesn't anyone learn anything?

  • Comment number 8.

    Just like the Fed, Europe must issue bonds. But just as the US states issue bonds (CDOs), so should the states of Europe. However, as has already been proved in reality, Europe stands behind the European states - much to the annoyance of the banks!

    The Euro Fed shall however be rightly and properly concerned with the economic conduct of European states, just as the Fed is in the USA.

    But look out for the rants from the right!

  • Comment number 9.

    Stephanie - isn't this desperation to hold the eurozone together - and will end up as another 'fudge' - with no 'Plan B'..??

  • Comment number 10.

    I was in Naples a few years ago,The place was a tip. when we ask the tour guide if they get any help from the European parliament, he told us they do, but it never reaches the people of Naples because of corruption and organised crime. I think they have had problems there recently with the same causes.

    A Euro bond, it seems, will be a bundle of all the bonds from the Eurozone into one bond that would be guaranteed by all European states, including Italy... Can you not see Germany's reluctance to be a part of this ? We all saw what happened when banks bundled up and packaged mortgage debts, These toxic time bombs nearly sent us all to the workhouse.

    The Euro bond will be to big to keep an eye on, I would trust the Germans with my hard earned, but I remember our tour guide wading through the rubbish in Naples, I would , like investors, be a bit dubious about some European countries.

  • Comment number 11.

    Euro junk bonds

    Pile 'em high and sell 'em cheap!

  • Comment number 12.


    Hope you had a good flight Ms Flanders.

    Read the mentioned FT article just an hour ago. I was much amused.

    Germany says NEIN und Wieder NEIN....pretty safe bet.

    Italy and Luxembourg and the notion of the EDA. Not today, or even tomorrow, thank you.

    Not until a 'mountain range' of reforms happen first.

    Purleeees.

  • Comment number 13.

    "The first is how you could possibly create a bond market for which all European Union member countries were responsible, without changing the treaties on which the single currency is based. Apparently, the E-bonds would have a different credit rating to national bonds ( and enjoy "a higher status as collateral for the ECB".) But that suggests they would be collectively guaranteed by the members (and we're talking the entire EU here, not just the eurozone)."

    This paragraph confuses me and therefore concerns me greatly.

    It appears to suggest that it would require all members of the EU to support the issuance of an E-Bond even if they are not members of the Eurozone. On face value that is sheer stupidity as it means that non-Euro members must weaken their own sovereign bond position in favour of a central bank function that they are in competition with.

    Now, we can debate the merits and demerits of joining the Euro but if or until we actually do, there is no advantage for the UK (or other non-Euro EU members) in strengthening the ECB in this way. From an EU perspective this proposal is fundamentally flawed.

  • Comment number 14.

    # Are EU seeking to consolidate your debts and credit cards into one affordable monthly payment?

    # Are EU struggling to obtain a debt management solution elsewhere to clear debt?

    # Are EU looking for information on a debt management plan or seeking other debt help?

    # Are EU considering bankruptcy or are EU worried EU have bad credit or a growing debt problem?

    # Do EU just want general debt management advice if EU have been refused a loan?

    # Have EU been refused loans to clear debt?

    We can advise EU on the best debt management solution for EU.

  • Comment number 15.

    Ms Flanders, you really should not call the 'EU' Europe. They are NOT one and the same.

    The EU is a paper super-state that does not exist in fact. Europe is motley collection of disparate nation-states each with economic autonomy and widely varying strategic goals. The two are not mutually compatible and the sooner EU ministers are forced to accept this this the sooner this sorry economic charade will come to a justified end.

    I am of the view that the great post-cold-war tragedy in Europe is that the country that started the second world war came to control Europe anyway by other means.

    GC

  • Comment number 16.

    First there was the big debate about whether to bail Greece out, with the Germans making clear their opposition.

    Then there was the bail-out fund, once it became clear to everybody that Greece was just the start of the bail-outs.

    Then there was the Irish "we don't need a bail-out", swiftly followed by a bail-out.

    Then we have Portugal insisting they don't need a bail-out. What's the betting on how long before they get bailed out?

    Now we have some last throw-of-the-dice-idea, being pushed by the finance minister of one of the most indebted, most backward and most corrupt countries in Europe.

    If I were a sadist I'd be having the time of my life watching the last wriggles of the dying maggot that is the Euro.

  • Comment number 17.

    I note that the FT have just voted Schauble finance minister of the year.
    I suppose there wasn't much competition but I laughed my head off just the same. The farce continues.

  • Comment number 18.

    8 John_from_Hendon

    The Euro Fed shall however be rightly and properly concerned with the economic conduct of European states, just as the Fed is in the USA.

    But look out for the rants from the right!

    >>>>>>>>>>>>>>>>>>>>>>

    So we should slavishly adopt any ideas eminating from Brussels, regardless of how stupid they are?

    As foredeckdave shows in 13, it makes no sense for non-Eurozone members to be involved in this.

  • Comment number 19.

    This should be a method of raising money for ECB and the EU governments and an invisible, face saving and carefully rationed means of giving Euros to Greece, Ireland etc.

    It shouldn't be a get out of debt for free card for any careless or extravagant EU gov or institution.

    The difference bewtween the first case, which would be very good, and the second, which would be a huge disaster, would be in the very small print. Are the genius finance ministers et al who set up the Euro and consequent crisis also going to set this up?

  • Comment number 20.

    CANADAGOOSE!! NAUGHTY NAUGHTY! This is the type of blog the BBC want.. Europe, new labour and the BBC are fantastic. Why cant the world just accept that?

  • Comment number 21.

    #8 and #18

    general like most of your posts but not #8.

    The USA can do it because its a country, I do not want a USE and firstly I have not been asked either.

    This is more papering over the cracks of the euro-project in an attempt to save it.

    Some countries like Germany work hard others do not have the same work ethic, untill that is addressed BUT not via socialism like GB tried in the UK with around 9,000,0000 living of the state. You can see why germany wants no part of it and niether should the UK.

  • Comment number 22.

    The yanks don't want this. Their banks have shorted the euro bonds and the euro with leveraged positions (yes, they're still gambling) and this would see them take heavy losses.
    So long as we support the criminals, they will continually kill us.

  • Comment number 23.

    Would someone who (objectively) knows about these things kindly explain how much of Germany's current prosperity is due to hard work and innovation, and how much is due to the Marshall Plan?

  • Comment number 24.

    «In the absence of true centralised control of budgets (which Germany clearly favours), someone will have to explain to me how a proposal that "insulates countries from speculation" will also "foster fiscal discipline". A common European bond could do either of these things. I cannot see how it could achieve both.»

    Simon Johnson has already answered this. There would be different kinds of bonds:

    Type A Bonds - Low interests and no risk undertaken by investors (each state would be allowed to have a percentage of debt issued in type A bonds and such debt would benefit from a 100% EU guarantee);

    Type B Bonds - Higher interests and higher risk undertaken by investors (each state would know that benefiting from type B bonds would involve extra interests, which would create an incentive not to issue debt beyond type A bonds; investors would know that they were lending without a 100% EU guarantee).

    PS: When I registered here on BBC, I commited myself not to use racist language. Does that rule apply to Ms. Flanders? And if yes, is it not racist to describe southern Europe as a "porcine" environment, something Ms. Flanders did, not in this column, but on another?

  • Comment number 25.

    #23 Derb,

    Objectively, or otherwise, I doubt that there is an answer to your question as you would need to be able to calculate what level of 'prosperity' they may have achieved without the Marshall Plan and then subtract things like the cost or reperations and policing their own borders. Even if you could do all that what good would the answer do you?

    My guess is 42

  • Comment number 26.

    24. At 4:51pm on 06 Dec 2010, Rodrigo de Posa wrote:
    PS: When I registered here on BBC, I commited myself not to use racist language. Does that rule apply to Ms. Flanders? And if yes, is it not racist to describe southern Europe as a "porcine" environment, something Ms. Flanders did, not in this column, but on another?
    ------------------------------------------------

    This is based on the acronym PIIGS, which I am sure you know about. Ireland is of course not Southern European.

    I expect we can agree that the porcine comment is British humour, in which Flanders should be well versed. If you do not understand this I suggest you look it up on Wikipedia or similar.

    It has nothing to do with race and all to do with states.

  • Comment number 27.

    No one can know what will happen to the EU and the Euro over the coming months. With the best will in the world, we speculate (bad word that!) on the basis of limited and dubious information. I hope both constructs will survive - if only to offer an alternative to the historical US hegemony.

    Unfortunately, my instincts tell me that Germany will take the initial economic hit and go it alone. A case of a known cost now, or potentially unlimited future costs. The Euro strikes me as being a bold initiative that has been undone by sheer, unstoppable greed.

    I hope I am wrong. The old world order certainly demanded change. Maybe the current troubles are the price that must be paid to achieve that.

    Would a two-zone EU necessarily be bad? I don't think so.

  • Comment number 28.

    The US was formed from a number of states which, at the time, had comparatively small populations. They were then joined by a large number of emigres, many from Europe. Europe now, has populous states and will, I believe find it difficult in the light of our history to come together quickly or easily. Trust has to be built and since its expansion is really only in the last 20 years, it is very, very young.

    Our politicians and commentators have concentrated on the perceived advantages of stopping European wars, a laudible objective. I suggest this could have been done within a trading grouping rather than trying to go so quickly towards a more political union. Trade is one thing that can be accepted where countries can be allowed to play to their strengths. But politically .......... there, I believe history comes into play in a very significant way as, political union needs us, the people, to accept too many compromises and change in which we see no point.

    The idea of Euro-bonds is, for me, a representation of the politicians continuing belief in a political union. 'Let's surround ourselves with the trappings of a state and then we will be a state won't we?' Actually, no; it doesn't work like that. Look at the USSR and how many states fragmented away post 1990. They were held together by force. Europe is held together by the political will of a few and I believe many are starting to understand the true costs of what is and has been foisted on us all. Europe is not a natural State at the moment (give it a few generations, then maybe), but it can be a natural and powerful trading block. That would be cheap to adminster too in comparison with the monstrosity we have now.

    So I see the Eurobond as a fig leaf, that hides very little.

  • Comment number 29.

    PaulattheRocks wrote:

    "Hello Earthlings

    Maybe I don't understand what is being proposed there on planet earth, but if hiding the name of the debtor by calling the bonds 'e-bonds' instead of Irish or Greek bonds denominated in Euros, then this will reduce transparency much like the bundling of the Credit default swaps for sub prime mortgages did prior to 2007.

    This completely froze the markets in 2008 when the fear of the quality of the 'assets' caused a buyers strike and crippled the banks".

    Therein lies the problem! A bond buyer would no longer know where they were if they bought an E bond and they would discount the bond accordingly.

    If E Bonds are going to supercede Govt bonds, it would certainly raise the interest rate Germany has to pay on their bonds. Why would Germany want that? If on the other hand Germany was still to issue their own bonds, E Bonds will be regarded as a second class bond compared to German Bonds and the market would discount them accordingly as being as junk bonds and as risky as the weakest Eurozone member.

    Imagine that all the joint stock banks of a country clubbed together to issue bank bonds to investors? What would the markets make of that? I think they would be extremely wary and only be willing to subscribe if the interest rate offered was significanlty higher. Why should E bonds be any different?

  • Comment number 30.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 31.

    23. At 4:49pm on 06 Dec 2010, Derb wrote:

    Would someone who (objectively) knows about these things kindly explain how much of Germany's current prosperity is due to hard work and innovation, and how much is due to the Marshall Plan?
    -----------------------------------

    I cannot answer directly, but consider Germany's history; war, rampant inflation, more war. This united them in a way no other set of experience could have done. Their collective will was to have the economy they have now and they have been pretty single minded about it. They also understood, I believe, that economic strength gave a country strength in a way which the military never ever will. Hence you can see what they have achieved.

    Other countries have had economic policies that haven't been so directed over so many years and you can see what the rest of us have achieved.

    The Marshall Plan gave a good kickstart and the US understood the need for Germany to re-build after WWII. But it was the German people's attitude that was key, IMHO.

  • Comment number 32.

    I am sure that after he gets out of prison, the ECB could hire the "Fab" to market the stuff to gullible suckers.

    Germany is gonna get fed up with footing the bill.

  • Comment number 33.

    #23 you open up a can of worms there , yeap we flattened there cities so they then rebuilt with the marshall plan money.

    The UK was bankrupt and the Yanks make us pay the loans of too yet Germany got the marshall plan and the UK has been paying the price for saving europe ever since. Think their should have been some payback but not like after WWI that was too harsh.

    Only in 1960 could you import a guitar from the USA to the UK because
    of rules to do with trade and earning visa-ve the national debt.

  • Comment number 34.

    Buy physical silver and bust them.

  • Comment number 35.

    "It has nothing to do with race and all to do with states."

    I'm aware it has to do with states and it is not "racist" stricto sensu.

    Still, it is negative exclusionary language and consequently improper as far as I know.

    As father of two Portuguese daughters, I do not wish them to face the alegation that they are growing up on a "porcine environment". Do you know what I mean?

    Not to mention that Ms. Flanders, as a journalist, should be aware that her portrayal of a "porcine environment" means a deceptive simplification of reality.

    There are little similarities between the realities of Greece and Portugal, as there are little similarities between the realities of Ireland and Portugal.

    But in order to figure that out one would have to make actual journalism instead of a bad taste exercise of "British humour" (if there is such a thing, since the all time master was actually Irish, i.e., Bernard Shaw).

  • Comment number 36.

    No 24 Rodrigo de Posa:

    Ms Stephanie Flanders a racist?

    With respect, I think you completely wrong. Myself, I value her informative, lucid and NEUTRAL reports very highly.

    OK - I'm a fan!

  • Comment number 37.

    fdd at #13 -
    You make a good point. In addition, 'the markets' will tend to decide the value of the eBonds, will they not? Isn't that what a lot of the current fuss is about? [Perhaps these eBonds wil be sold on another eSite? No names, no pack drill!] Unless, of course, the top bod at the ECB says 'so much can be sold now' or 'so much is to be bought by me now' and therefore 'rigs' the market through limiting supply.

    Another thought occurs. Suppose the world at large decides these eBonds are not to be touched with a barge-pole. It could be that the only countries trading them are ... well ... the PIIGS plus Germany and, perhaps, France if someone strongarms them into it.

    What good would that do?

  • Comment number 38.

    @Bluesberry - "...The fund should be endowed with "a huge amount of money, because if we don't do that you WILL ALWAYS HAVE SPECULATION." Further, he said Strauss-Kahn's IMF is "ready to follow the process if we decide in Europe". Guess who's throwing a hissy-fut?
    No, not Germany!
    The United States...So something about the E-bond, and the shutting out of SPECULATION must be hitting the Americans the wrong way. That alone makes me want to shout: Go for it!"

    The reason the USA is 'throwing a hissy-fit' is because the IMF was NEVER intended to bailout 'first world' countries. It was a fund created and funded by the richest countries to provide a 'relief valve' for the poorest countries so that an economic crash in say... Zimbabwe for example doesn't end up in a war. Now the Eurozone countries want the IMF to bail THEM out? Using money from countries not only not in the EU but NOT in Europe at all! Of course we're pissed off about that. How would you feel if you and your fellow tax payers were 'on the hook' to provide a financial backstop for America? Exactly. Now do you understand? Not to mention the US Congress voted unanimously to use our IMF veto rights for any loan vehicle to the EU as a whole. Ergo... how do they plan to use IMF funds for this again?

  • Comment number 39.

    @ 14 - Well said, Sandy.

    The same thought occurred to me about halfway through Steph's piece.

    Trying to consolidate your own debts is bad enough. Imagine going to all your neighbours and getting them to join in too - except that one of your neighbours doesn't have a debt problem and can't understand why they should support everyone else....

  • Comment number 40.

    1. At 1:06pm on 06 Dec 2010, canadagoose wrote:
    This comment was removed because the moderators found it broke the House Rules.

    2. At 1:07pm on 06 Dec 2010, canadagoose wrote:
    This comment was removed because the moderators found it broke the House Rules.


    First two out the block, felled by the moderators.

    Is this a record ?

  • Comment number 41.

    Mr Schauble just confirmed: Nein to E-bonds, Nein to expanding the porcine safety net. He argued that E-bonds would be an excuse for countries of the porcine variety not to consolidate their budgets and reform their economies. Unless Mr Juncker and the Italian Debt Minister come up with something more clever to lure Mrs Merkel and her finance henchman into the big euro abyss, the henchman will stick to his Nein.

  • Comment number 42.

    The only way the Euro can survive with all it's current members is for German taxpayers to pass over billions of their hard earned Euros to prop up the inefficient, basket case economies in the South.
    Alternatively, said countries will have to adopt severe German-style economic constraints and improve the efficiency of their manufacturing sectors by more than 50% to compete.
    As it seems highly unlikely that either will happen, something will have to give. Eventually.
    Of course the European Commission will first waste countless billions trying to prop up the system but this will only increase borrowing to even more unsustainable levels. It will have to be the Germany Government supplying the funds, in the full and cetain knowldge that they will never get them back.
    In the end, the Germany taxpayer will smell a rat and force their government to pull the plug.
    There is a precedent : Despite pleading from John Major, the German government would not do anything to keep the UK in the exchange rate mechanism with inevitable results. The weaker countries of the Eurozone will fair no better.
    It's just a question of how long the present situation can be fudged.

  • Comment number 43.

    There are some very good comments on this blog and also some from the loony fringe that see a USA conspiracy behind everything. I'm with the Germans on this one. The fundamentals have to be addressed and it is no good hiding behind Euro bonds. Greece, Ireland and Portugal ( maybe Spain - but to a lesser degree ) have lived well beyond their means and need the fiscal discipline that is currently being imposed upon them. It is a harsh fact but their standard of living / government spend is too high for their economic performance and it has to drop. An E bond would be a fudge that would take the pressure off and allow them to resume their bad old ways - paid for by Germany of course who would be the ultimate guarantor of the bonds. I can see why they are not too enthusiastic! Either the Eurozone moves to a state of much greater political and financial unity or this idea is dead in the water.

    As an aside - you would think in these tough times that the EU commission would lead by example. Slash their salaries, cut expenses, do away with unnecessary waste such as their new headquarters, scrap the annual migration to Strasburg, insist on receipts for expenses etc etc But no - instead they propose increasing their budget. Do they really represent our best interests?

  • Comment number 44.

    Eurobonds ? ... Ha! Ha! Ha!
    Just postponing the inevitable 'crash'. Meanwhile the Germans pay and pay and pay ... Ha! Ha! Ha!
    Crash Euro Crash ... Crash! Crash! Crash!
    Sorry 'Euro-nuts' ... but the end is nigh! The Euro is propped and over-valued in exchange rate terms and will fall significantly without German backing ... Ha! Ha! Ha!
    Can the EU stop interfering with every aspect of our lives please?

  • Comment number 45.

    I quote Wikipedia " E Savings Bonds were marketed by the United States government as war bonds from 1941 to 1980. When Americans refer to war bonds, they are usually referring to Series E bonds..... by 2008 several billion dollars of these Bonds were still unclaimed!"

    It begs the question is the Eurozone at war with the markets? Are they hoping that European E Bonds will largely be unclaimed over time? Are they so really desperate that they have to issue these Bonds as supra national? And, what happens, heaven forbid, if the Eurozone splits asunder, who will honour these Bonds?

    The Lunatics are really runnung the asylum, does no one in the Eurozone try to anticipate problems?

  • Comment number 46.

    EUrobonds....

    Sheer madness (unless you are reckless and/or feckless, in which case it's a free meal-ticket to scoff at the expense of the German taxpayer).

  • Comment number 47.

    Dear Ms Flanders
    Your piece was very clear but, I think, the real issue is that the ECB is not a European Central Bank. It does not have the capabilities that the Bank of England or the Federal Reserve have. France and Germany never wanted a functioning European central bank. There are economists, like Professor Alain Parguez in France who have been studying the ECB since its foundation and came up with the views about its rather hollow nature.

  • Comment number 48.

    #18. AS71 and #21. IR35_SURVIVOR

    Europe is us and Brussels/Strasbourg is our Washington DC and the Euro is ours too. Just because we haven't yet joined does not permit us the luxury of standing on the sidelines. What happens to our trading partners happens to us. We are inextricable bound up with the Euro. Our fate is their fate (but not the other way round!).

    Being against Europe or the Euro make absolutely no economic sense at all for the UK - it is just shooting ourselves in the head.

  • Comment number 49.

    23. At 4:49pm on 06 Dec 2010, Derb wrote:
    Would someone who (objectively) knows about these things kindly explain how much of Germany's current prosperity is due to hard work and innovation, and how much is due to the Marshall Plan?


    The Marshall Plan was a long time ago. It was an early, and successful, form of QE. Germany got the money and spent it on British and American capital goods.

    The current position is due to several factors, investment, education (free), R&D, innovation and attitude.

    Another factor is that Germmany's only serious economic rival in this quarter of the globe, the UK, have developed a national pastime of shooting themselves in the foot.

  • Comment number 50.

    17. At 4:05pm on 06 Dec 2010, EconomicsStudent wrote:
    I note that the FT have just voted Schauble finance minister of the year.
    I suppose there wasn't much competition but I laughed my head off just the same. The farce continues.


    And your reasons are .....



  • Comment number 51.

    Why would you consider the pros and cons in the airport instead of on the train?

  • Comment number 52.

    So, the ECB seeks to find and implement mechanisms by which it can bail out member States on the semi-QT.

    It wants to put in place the-mother-of-all-fiscal-buffers that will withstand attacks by speculators in the market, whilst simultaneously, imposing some much needed fiscal discipline on those infamous PIIGS.

    These EU policymakers are absolutely determined to defend the Euro, and by implication, Europe itself, from selfish interests.

    Reports of the Euros demise are greatly exaggerated.

  • Comment number 53.

    '...common bonds up to an agreed ceiling..'
    And when countries start cheating..??

  • Comment number 54.

    Since 1855 no comments have been moderated. Why??

  • Comment number 55.

    All this user's posts have been removed.Why?

  • Comment number 56.

    DEAR MODERATORS

    Given the delays that we have been experiencing this evening which has stiffled what could have been a very interesting debate it would be very nice of you to apologise or explain exactly what the problem was.

    I would also like a response regarding my #25 which I fail to see broke any House Rules.

  • Comment number 57.

    Let me be the only honest one on this planet:
    Eurozone is dead. Euro is dead. Everything is a mess.
    The longer the status quo is prolonged - the worse.
    We have to go back to DM,pesetas, escudos and drahmas
    That's it - like it or not.

  • Comment number 58.

    If only the British public had listened to The BBC/New labour tie in programme on joining the Euro, when the financial genius Eddie Izzard said we should join as it would be fun having different coloured money to spend. How was such profound, brilliant, genius argument ignores?
    With the hyper inflation likely, we'd have had the enjoyment of spending no end of this fun colourful money.
    Like the BBC moderator here, the BBC itself and New Labour (and Ted Izzard) I'm disgusted we never joined,

  • Comment number 59.

    Misguided desire to have "market discipline" at the public finances is at the heart of our problems. Quite contrary states should be free to issue any amounts of new money to the economy that is necessary for the orderly operation of the economy. This they do by the deficit spending, and any proper currency arrangement do not have problems on this regard.

    It is this MAD desire to have market discipline at public finances what is the problem. They wanna have anonymous market speculators rule over democratically elected governments. We don't need to foster market discipline we need to get rid of it!

  • Comment number 60.

    Chocolates and flowers to Angela Merkel for blowing this nonsense out of the water. I do not know if there is a strictly come dancing in Germany ( knowing the Germans they would have 'strictly come marching !) but if she enters it in her twilight years ( Anne Widdecombe style) I hope her country votes for her, just to say thank you for putting sensible economics first.

  • Comment number 61.

    Rules for "business" blogs on the BBC:

    - National finances are exactly like personal finances; the debt of a nation is exactly comparable to having a maxed-out credit card.
    - The Euro WILL fail based on only one single concept - that different nations have different economies. There is no way whatsoever this can be nullified by national fiscal policy
    - It's fine to call other countries PIGS, STUPID PIGS, porcine or similar - it's all a bit of a joke, honestly.
    - When the Euro goes down vs the Dollar - it's a crisis for the Euro that displays how weak it really is
    - When the Euro goes up vs the Dollar, it's a canny bit of thinking from the US to improve exports
    - Devaluation is a perfectly fine way of sorting out a national balance book. In fact the majority of European countries would devalue in a flash if it wasn't for the dastardly Germans, and everything would be fine.
    - If you want to sound like you're a global-player with inside knowledge, start a completely spurious rumour with "The word is in XXXXX", e.g. "The word is in Brussels that Merkel is a five headed alien from Planet Tharg"
    - If you want to plug a different blog give a small pre-amble before you post your plug, thus "Isn't it true that x,y,z? Indeed http://otherblog is the best thing since sliced bread, I always read it and my children do too. It's great"
    - If you can't sound like a global player, you can also appear "smarter than the average bear" by stringing together a few buzzwords (sample: haircut, junk-xxxx, position) and joining to the viewpoint you had before you read the article. eg. "It's clear that the investors receiving differential bond returns from the STUPID PIGS should expect a haircut - advantaging those with a short position. The house of cards will come tumbling down, the tablet is broken, Sodom and Gomorrah, the Euro is dead (STUPID SAGZZ)"
    - The alternative to capitalism is full-blown marxism, where we all live in yurts and eat vegan sausages.
    - The wild and exciting speculation being displayed is completely different from that of City Slickers and the dot.com bubble; and certainly not related to the speculation and sudden explosion of property-investment experts in the housing boom.

  • Comment number 62.

    It sounds like the next sub prime investment to me. Mixing AAA debt (Germany) with junk (Greece and Ireland. You can count me out.

  • Comment number 63.

    #40 put your pension pot in the Evasion-bonds then , but I will not be.

    It a nice idea BUT until to make the PIIGS run their countries like mature adult rather than rampant teenagers with the parents credit cards there is no hope.

    The Euro has to be disbanded along with the EU as soon as possible in a corrodinated fashion. What we do not want is more money going after bad like RBS,BOS,NR from Brown and co leaving my childrens children to pick up the tab

  • Comment number 64.

    50. At 10:34pm on 06 Dec 2010, Richard Dingle wrote:
    And your reasons are .....

    His and the Germans' ill advised comments during the Eurozone crisis and a seeming determination to let the peripheral states fail. That may be good for Germany in the short run as they eliminate competition and maintain a low exchange rate but its obvious to me that wont last long.

    Also his comment about the US economic policy being clueless. Even the FT who gave him the award are starting to change their opinion on QE2.

    Germany is the not the good guy in this mess. They are blocking any kind of solution to this currency crisis.


  • Comment number 65.

    @Guy Croft
    After the Soviet Union collapse European Nations,
    mainly the Franco-German axis strived for sovereignty from
    US hegemony and as a result the European Union and all
    the common policies where founded (by the way, the EU Laws
    are just a frame work, it is up to nation states to implement those).
    What is wrong with a German lead? It is the largest economy
    and the most populous country. Also a country that
    has learned from its past and is highly respected according to the
    BBC world news perception poll 2010:
    (http://dhartionline.com/blog/wp-content/uploads/2010/05/graph.jpg%29
    I am sure the non rivaled British imperialism had enough positive
    effect (at least confidence wise) on the UK.

    @EconomicsStudent, I would be surprised if your arguments
    against the decision would be better than the FT's :)

    @Derb, I think the reparation payments and the unification with
    the east after the soviet collapse level the money received from
    the Marshall plan. Understand, that the Marshall plan was a
    US invention to keep the Soviets at bay. I do think the
    German attitude towards non-capitalistic adventurisms is more
    sustainable and their success is due to working smart (not necessarily hard)
    and saving a lot of money rather than buying junk.

    @zorba, I agree totally. The debt has to stop rather than being carried
    to someone else.

    @AudenGrey, would it in the UK than not be 'strictly rule the
    man of third world nations'? What makes you think that the Germans
    would call it 'strictly come marching' ? I dont think they like
    marching more than anyone from the UK and have the feeling the Germans
    are better dancers too (looking at competition medals :)

  • Comment number 66.

    64. At 08:54am on 07 Dec 2010, EconomicsStudent wrote:
    ‘Germany is the not the good guy in this mess. They are blocking any kind of solution to this currency crisis’

    Germany is not a ‘bad guy’ either.
    As regards the solution to the crisis, I reckon:

    The ‘crisis’ is about one thing only:
    Too much money has been created against too many promises to pay that were no good.
    Or put another way, the debt created is in excess of that which is payable by the debtors.

    There are only three possible fixes (albeit short term ones) to the crisis.
    1) Print money to pay it off
    2) Pass the debt over to those who can pay it.
    3) Write the debt off.

    The U.S. and U.K. have opted for (1) & (2).
    The E.U. has yet to make a decision.

    And the reason why it hasn’t yet decided is because:
    1) It’s made up of several countries.
    2) Writing off debt hammers banks and investors and they’re a big lobby group.
    3) Those who didn’t borrow too much, don’t want to pay for those who did, and likely won’t vote for politicians that make them pay.

    And there’s only one possible way of preventing it all happening again:
    1) Get off the debt based monetary system.

  • Comment number 67.

    Ever noticed Stephanie loves to start her blog with a description of where she is? It a little like one of those American tv series which always show the outside of a building before moving inside to where the action is taking place. All Stephanie needs is the sound of some slap bass playing and we would be in heaven.

    Anyway, Germany great season on BBC4 which helps to understand their history, culture and strenghts. Europe is now in the pocket of Germany and we need to understand they hold all the aces. Now where dis I leave my boots?

  • Comment number 68.

    I am a little confused here (doesn’t take much)?

    The ECB is owned by and funded by all the state members
    Ebonds can be sold to the ECB by member states to raise money (closed shop)
    The ECB can then sell Wbonds (world bonds) on the open market

    So it is a redistribution of wealth system within the EU partly funded by the EU and partly by the world.

    Simplistically I cannot see a problem. It is strength in numbers and avoids the debacle of the bail outs. I can see were some are concerned that if there is not enough control then the likes of Ireland could be free to abuse the system.

    Unless I have it A about T

  • Comment number 69.


    No 61 D_I wrote an amazingly amusing entry.

    But on one thing D_I one must take issue.

    Your use of the expression STUPID PIG

    Is this tautological ? Or oxymoronic ?

    My grandfather, himself a pig, taught me this little ditty:

    Pigs are smart
    Pigs are clever
    Pigs live on
    The never-never

    It has taken me a good few years to understand the fine philosophy behind his words.

    Yours

    A.Swine Major


  • Comment number 70.

    On the day the Irish Govt are going to announce the most drastic cuts in their budget, the Irish Times today reported

    "The European Central Bank confirmed a drastic escalation in its purchase of sovereign bonds last week as the euro lost ground again as Portuguese, Spanish and Italian borrowing costs rose.

    In a routine market update yesterday, the ECB said it settled €1.965 billion of sovereign purchases, its biggest intervention for 22 weeks. At the same time the bank extended its provision of unlimited crisis financing for euro zone banks".

    So there we have it. The major buyer of sovereign banks is the ECB and the ECB are providing UNLIMITED financing for euro zone banks, a sure sign of deepening crisis in the euro zone.

    The euro zone is on life support and is only supported by the ECB engaged in QE on an unlimited scale to avert a soveriegn and banking collapse whilst it forces member countries seeking help to implement the most drastic cuts on Govt expenditure that will deflate demand and reduce living standards for a generation or more. The effort to save the euro is unsustainable and the ECB's efforts are only delaying the inevitable and causing much more harm in the meantime.

    It should be obvious that E bonds won't improve the prospects for the euro zone because the main or only buyer of them will be the ECB itself.

    It is time to call it a day on the euro before it drags down even more of the economies of the euro zone.

  • Comment number 71.

    57. At 01:28am on 07 Dec 2010, Svet wrote:

    Let me be the only honest one on this planet:
    Eurozone is dead. Euro is dead. Everything is a mess.
    The longer the status quo is prolonged - the worse.
    We have to go back to DM,pesetas, escudos and drahmas
    That's it - like it or not.
    -----------------------------------------------

    This seems the logical answer to you and many who contribute here. Largely I agree, but do wonder about the transition back to separate currencies. Could our current crop of leaders cope with this and get it right?

    Could the fall-out be handled sensibly so that the people didn't suffer in the short or long term?

    I doubt it very much.

    Please also consider the sheer inertia of the euro system and the dogged persistence of many in Brussels to have their eyes closed to the inevitable. Prolonging it is likely to cause a worse mess in the end; but it will be the Germans who will decide this - probably after Spain and Portugal need a bailout. Then it will be 'don't panic, Don't Panic, DON'T PANIC!'

  • Comment number 72.

    Bronwen Maddox, writing in yesterdays Times was right on the euro, in my opinion, when she suggested that various classes of Eurobond holders will have to partly share the pain with taxpayers of debtor countries.

    Haircuts all round, it would seem.

    Plus the Euro itself must be going south for some time to come but hopefully not the deep South.

  • Comment number 73.

    61. At 08:17am on 07 Dec 2010, D_I wrote:

    =====================================================================

    Well said, D_I, you have summed these blogs up perfectly!

  • Comment number 74.

    70. At 10:06am on 07 Dec 2010, busby2 wrote:

    The euro zone is on life support and is only supported by the ECB

    Isn’t that what it was set up to do (in part)


    70. At 10:06am on 07 Dec 2010, busby2 wrote:

    engaged in QE on an unlimited scale to avert a soveriegn and banking collapse

    If it wasn’t under attack then it wouldn’t have to!


    70. At 10:06am on 07 Dec 2010, busby2 wrote:

    whilst it forces member countries seeking help to implement the most drastic cuts on Govt expenditure that will deflate demand and reduce living standards for a generation or more.

    Quite right, System abusers like Ireland and Spain need to be pegged back. My understanding was/is that every member state puts money in. Then in order to bring an individual part of an individual country up to the average standard of the other countries, that country can draw down money for improvements. Sorry to tell you this but the Spanish infrastructure is better than the UK’s (and on the whole so is their NHS) and Ireland Brags that they had the best standard of living in the world! GREED!


    70. At 10:06am on 07 Dec 2010, busby2 wrote:

    The effort to save the euro is unsustainable and the ECB's efforts are only delaying the inevitable and causing much more harm in the meantime.

    I’ll Wager 1000/1 that the euro will be around longer than the pound. We have no choice unless you want to become American

  • Comment number 75.

    DEAR MODERATORS

    Thank you for clearing the backlog of posts and for clearing my #25

  • Comment number 76.

    The success of the Germans is partly due to the fact that they have a large number of privately owned engineering companies who kept their independence and didn't get swallowed up by large conglomerates. The Germans are also a nation of engineers, whilst they have one of Europe’s lowest number of students going to university they produce the largest number of engineers. And as it is easier to stay at the top than to get there I can't see the situation changing any time soon.

  • Comment number 77.

    #74 common_man_123,

    "Quite right, System abusers like Ireland and Spain need to be pegged back. My understanding was/is that every member state puts money in. Then in order to bring an individual part of an individual country up to the average standard of the other countries, that country can draw down money for improvements. Sorry to tell you this but the Spanish infrastructure is better than the UK’s (and on the whole so is their NHS) and Ireland Brags that they had the best standard of living in the world! GREED"

    It appears to me that you are mixing several things here. The majority of the development monies granted to both Spain and Ireland comes from the EU Development Fund. You are now trying to mix that with with the Euro situation.

  • Comment number 78.

    77. At 11:23am on 07 Dec 2010, foredeckdave wrote:

    It appears to me that you are mixing several things here. The majority of the development monies granted to both Spain and Ireland comes from the EU Development Fund. You are now trying to mix that with with the Euro situation.
    ----------
    Yes I concur but It annoys me when some because of their blinkers cannot see reality. I have empathy with the common Joe of Ireland and Spain because they are having to pay for others greed but they have also benefited along the way. And besides it is still a common pot over all and drawing too much from one pot effects the other.


  • Comment number 79.

    #74 At 10:58am on 07 Dec 2010, common_man_123 wrote:

    Thank you for your reply.

    A Central Bank's job is to regulate the banking system and to smooth out currency movements by offering support and selling their currency when appropriate. My post pointed out however that the ECB was not simply doing good housekeeping but was keeping the euro alive by lending to some member countries who cannot borrow on the open market at affordable rates and by providing unlimited crisis financing for euro zone banks. That is not good house keeping: it is crisis management in the midst of an ever deepening financial crisis for which no end is in sight.

    I find it interesting that you should agree that "system abusers like Spain and Ireland should be pegged back". It is however the system that is at fault - in other words the concept that a common currency and exchange rate with the outside world and a "one size fits all" interest rate could possibly be in the interests of the Spanish and Irish economies or their citizens. It was after all this system that allowed the property and construction bubbles to grow so large for so long and with such devastating results when the bubble burst.

    The boom days of the euro in Spain and Ireland before the credit cruch were nothing more than an illusion that hid the massive inequalities and differences between the economies of the Euro zone. The credit crunch brought these differences to light but sadly those in authority are still in denial that it is the system itself that is at fault and no amount of budget cuts by Ireland, Spain and the other euro zone countries in difficulties will bring their economies into line with Germany and the other leading economies of the euro zone.

    Falling demand and falling investment will not make the economies of the PIIGS more competitive. It will increase social unrest and contempt for the political elite that took them onto the path to ruin. Sinn Fein won a byelection in Donegal - they came from nowhere to beat the Govt candidate in what had been a safe seat for them. Spain already has 20% unemployment, how much more unemployment can they stand before that threatens the fabric of the state? The Greek economy is not recovering and will need more loans - nothing was solved by their bail out except delaying the inevitable.

    It is wishful thinking on your part to believe that the euro will be around longer than sterling. The euro is a failing experiment that was undertaken for political reasons and in defiance of economic reality. That is why the euro cannot buck the market however much the ECB tries.

  • Comment number 80.

    #65
    "After the Soviet Union collapse European Nations,
    mainly the Franco-German axis strived for sovereignty from
    US hegemony and as a result the European Union and all
    the common policies where founded (by the way, the EU Laws
    are just a frame work, it is up to nation states to implement those).
    What is wrong with a German lead?"

    Absolutely. And I am Father Christmas.

    GC

  • Comment number 81.

    As usual, more uninformed and largely clueless debate about the Eurozone.

    What we have here is fiscal integration on the table. The Germans want a methodical and precise approach that avoids moral hazard and incentivises those with real debt problems to actually do something about it.

    Hold up the sign "E-bonds anyone?" and naturally some will come running with open mouths and some will say "hold on...let's do this properly"

    The "let's do this properly" part is decidely German and is part of their success. E-bond durch technik.

    So that's about where we're at. The market-fundamentalist, Europhobe crowd are witnessing an unstoppable inertia and are clamouring for failure like a band of demented dogs.

  • Comment number 82.

    common_man-123

    Agreed.

    People forget just how monumentally stuffed up the world economy is. They live in a bubble of media normality and status quo inertia. There are only 2 or 3 exits from this predicament and they are each radical.

    In radically different circumstances radical things happen. A return to the status quo is wishful thinking and hysterical nostalgia. It's game over and time these others woke up.

  • Comment number 83.

    Thank you for taking the time to post this in a Heathrow departure lounge Stephanie. following on from the location of your previous posts you have become quite a globetrotter!
    As to the article I agree with samanthav on post 55
    "This article fails to take account of the fact that there would be costs to Germany from allowing such a move to take place...."
    The Germans are realising more and more the financial implications of the promises being made by European ministers on their behalf.Their bond yields are rising again today and would rise further if this scheme was allowed to start. There is a cost to this sort of thing and this article misses that out.

  • Comment number 84.

    16. At 4:00pm on 06 Dec 2010, fourbetwo wrote:
    If I were a sadist I'd be having the time of my life watching the last wriggles of the dying maggot that is the Euro.


    Your rather pathetic invective unmasks you as one of the sadder Eurosceptics on this blog complete with a rather poor grasp of proportion and reality.

    The Euro is still alive and kicking and very much a Lion in the currency jungle.

    It is the currency of a block of 330 million, with low (1%) interest rates and low inflation. This block has a trading surplus with the rest of the world and its biggest component is the most successful economy on the planet bar none.

    The fact that it contains struggling economies is not disimilar from any currency block and presents challenges. It does not herald a demise.

    And Sterling ? Sad and all alone and not with us for much longer.

  • Comment number 85.

    Greece? California.

  • Comment number 86.

    79. At 11:59am on 07 Dec 2010, busby2

    I could not argue with you until:

    “The boom days of the euro in Spain and Ireland before the credit cruch were nothing more than an illusion that hid the massive inequalities and differences between the economies of the Euro zone.”

    I think it was known and this was part of the EU ethos to smooth out the differences.

    Spain as no idea what %age unemployment it as got because it as no idea of how many illegal immigrants it has?

    And for once (maybe twice LOBL) I agree with RD:

    “It is the currency of a block of 330 million, with low (1%) interest rates and low inflation. This block has a trading surplus with the rest of the world and its biggest component is the most successful economy on the planet bar none.

    The fact that it contains struggling economies is not disimilar from any currency block and presents challenges. It does not herald a demise.”

    (a bit OTT at the end of paragraph 1 above though)


  • Comment number 87.

    #84

    "The fact that it contains struggling economies is not disimilar from any currency block and presents challenges"

    Disingenuous to say the least. You talk of economies as if they were entities in their own right. There are working populations all over Europe being ground to dust by the relentless ratcheting of the EU notion in all its paper glory. In this country too, in such apparently 'rude economic health'. Because that is all the EU and Euro is, a barmy and unsustainable Franco German notion designed by lunatics who thought money grew on trees. I see neither humanity for nor understanding of the plight of ordinary working folk in this mess.

    You think the people trying to make a living in these 'struggling economies' (who present challenges..) would not want the chance to have once more sovereign and TOTAL control over their own economies, currencies and futures? Which they now do not. The word is, I am told by many in those countries - is that they want autonomy sooner rather than later and that the whole thing is being held together by no more than self-interest at 'state' level, far from the ideals and wishes of ordinary people.


    GC

  • Comment number 88.

    Oblivion it takes something personal to make people see a reality different from their norm.

    Mine was a combination, which started after I had a conversation with an East German just after the fall of the wall and realising that he worried about the same things as me and he laughed at the same jokes (well in his own way). Being the independent traveller and owning a property in Spain finished the job.

    But I am a royalist so they would have to accept the queen.

    So I am another who need not be in this country (sarcasm is the lowest form of wit but you need intelligence to get away with it and I couldn’t resist)

  • Comment number 89.

    There will be no answer to the Euro problem. At the same time there is no answer to the US$ problems. They are all facets of the same collapse of the global financial system. So that means there is no answer to the UK economic problems either.

    Until the world is prepared to accept that debt has grown to such an extent that it can never be repayed and that continuing and growing surpluses can not be sustained, we will merely stagger from one set of crisies to another. Apart from a little 'hot air' at the last G20 meeting, it appears that our leaders are not willing or unable to address the issue.

    What is becoming clear is that those of us who called this mess a depression back in 2008 have been proved right. By not addressing the fundemental issues we are ensuring that it will be both a longer and deeper depression than it needs to be. Therefore sadly I am begining to agree with JFH that it looks like the Long Depression in shape. The problem is that, if left alone to work itself out, many many people will be irreprably hurt and the climate for more than currency conflict is fed.

  • Comment number 90.

    common_man_123

    Queen? Why not. Put the Swedish royals and all the others in there too. It's not such a bad idea to be honest. A European monarchy.

  • Comment number 91.

    87. At 12:55pm on 07 Dec 2010, Guy Croft wrote:

    You think the people trying to make a living in these 'struggling economies' (who present challenges..) would not want the chance to have once more sovereign and TOTAL control over their own economies, currencies and futures? Which they now do not. The word is, I am told by many in those countries - is that they want autonomy sooner rather than later and that the whole thing is being held together by no more than self-interest at 'state' level, far from the ideals and wishes of ordinary people.


    Not in my experience of the Spanish! As I said in an earlier post I have a property in Spain, where my parents have retired. It is not in a resort but in a Spanish coastal town and by and large they do not agree with what you are putting forward?

  • Comment number 92.

    84. At 12:17pm on 07 Dec 2010, Richard Dingle wrote:

    "The Euro is still alive and kicking and very much a Lion in the currency jungle.

    It is the currency of a block of 330 million, with low (1%) interest rates and low inflation. This block has a trading surplus with the rest of the world and its biggest component is the most successful economy on the planet bar none.

    The fact that it contains struggling economies is not disimilar from any currency block and presents challenges. It does not herald a demise".

    If everything was as rosy as you say, there would be no sovereign debt and banking crisis in the eurozone!

    The eurozone may have a trading surplus with the rest of the world, have interest rates of 1% (which is double ours) and low inflation but this masks vast inequailities. Some member states cannot even borrow money to fund their deficits at anything like affordable rates and the ECB has had to promise unlimited funding to euro zone banks. Despite this, rates continue to rise on Spanish and Portugese bonds

    The challenges which you say the euro zone faces cannot be resolved. Money can be thrown at the problem in an attempt to bail out countries but nothing, absolutley nothing will change the fundamental problem that the economies of the eurozone are so different and incompatible with one another. You yourself know this when you alluded to the economic strength of Germany within the euro zone. How can Greece and the other PIIGS possibly compete with such an economic giant within the same currency union? The idea of the euro zone is an economic nonsense born out out of an insane political desire for "an ever closer union".

    You went on to write:
    "And Sterling ? Sad and all alone and not with us for much longer".

    What utter nonsense! Sterling will survive because it meets our needs. We set our own interest rates and determine our own monetary and fiscal policy. That is a strength, not a weakness. We have had no problems funding Govt borrowing at low rates of interest and have a realistic plan to reduce the deficit without imposing the level of cuts seen in the euro zone. We have a competitive exchange rate and our economy is growing, unlike the PIIGS because we have control of our own monetary and fiscal policy. Furthermore, private sector employment is growing significantly and we don't have the high unemployment rates of some countries in the eurozone. And yet you continue to say Sterling won't be with us for much longer! As I said, that view is utter nonsense!

  • Comment number 93.

    23. At 4:49pm on 06 Dec 2010, Derb wrote:

    Would someone who (objectively) knows about these things kindly explain how much of Germany's current prosperity is due to hard work and innovation, and how much is due to the Marshall Plan?
    ==========================
    The same sort of thoughts had occurred to me, but it is not a popular topic.

    1. The Marshall Plan.

    As far as I can tell, the Marshall plan was a cunning device to keep America's GDP growing after 1945. The USA had tooled up to produce munitions during the conflict, and then switched production to civilian goods after the war. The US domestic market, however, wsa not large enough to sustain growth in GDP, and Europe, bankrupted by the Third Reich, could not afford to buy stuff.

    So the US agreed to lend Europe the money to buy stuff, on the condition that they bought American stuff.

    That, simplistic view may be challenged, in which case we might all learn something.

    2. The London Agreement

    However, Europe had a lot of rebuilding to do, which required Government funding. And it had a Cold War to fight, which required even more Government funding. So, bankrupt nations all over the continent went through a severe period of austerity, and very little development on civilian engineering and infrastructure took place. Currencies throughout europe devalued rapidly, the French had to take two zeros off theirs, and the Italian Lira went stupid, to the point of shoppers getting their change in small boiled sweets.

    The only European nations to avoid this double-hit on their national finances were those who had remained neutral during the conflict, and Germany, which, through a thing called the London Agreement (1952/52) was permitted a sovereign default with no penalty clauses or reparations required of them.

    Nato took over the role of military expenditure to keep the Germans (and therefore the "free world") safe from the "nasty Russians", which meant that Germany did not even have to pay its own defence budget.

    Freedom from having to watch their borders, freedom from the political consequences of their recent history and freedom from national debt created a "shangri-la for civilian economic development. Given that sort of competitive advantage, it is small wonder that the German economy grew.

    One can only wonder what we might have done with that money if Britain had been given the same sovereign default as Germany in 1952/3 we would not have spent the last 50 years paying the US for the munitions used defending ourselves against the Third Reich.

    "To the victor, the spoils"?
    ~~~~~~~~~~~~~~~~~~~~~~~~~

    If there are any incorrect facts in the above, I would be happy to be corrected.

  • Comment number 94.

    87. At 12:55pm on 07 Dec 2010, Guy Croft wrote:
    There are working populations all over Europe being ground to dust by the relentless ratcheting of the EU notion in all its paper glory. In this country too, in such apparently 'rude economic health'. Because that is all the EU and Euro is, a barmy and unsustainable Franco German notion designed by lunatics


    Euro sceptics always allude to there lack of argument and facts by use of colourfull invective 'ground to dust' , 'lunatics', etc.

    Do you notice such invective in my posts. No, why, I dont need to.

    In what way were these countries better off before the EU and Eurozone.

    Greece has always struggled, unless you go back 2500 years to the golden age, and a good many of those years were embraced tightly by the Turks.

  • Comment number 95.

    28. At 5:49pm on 06 Dec 2010, SleepyDormouse wrote:

    The US was formed from a number of states which, at the time, had comparatively small populations.

    ...

    But politically .......... there, I believe history comes into play in a very significant way as, political union needs us, the people, to accept too many compromises and change in which we see no point.

    The idea of Euro-bonds is, for me, a representation of the politicians continuing belief in a political union. 'Let's surround ourselves with the trappings of a state and then we will be a state won't we?' Actually, no; it doesn't work like that. Look at the USSR and how many states fragmented away post 1990.
    +++++++++++++++++++++++++++++++++
    I think the USE has a lot more chance once we have a generation of children who are taught from the age of 4 to "pledge allegiance to the European Flag and all that it stands for...."

    A couple of generations of that, and a nice theater war in which French, Germans, Brits and Italians can all get shot at by the same enemy should do it.

  • Comment number 96.

    # 86. At 12:50pm on 07 Dec 2010, common_man_123 wrote:

    "I could not argue with you until:

    “The boom days of the euro in Spain and Ireland before the credit cruch were nothing more than an illusion that hid the massive inequalities and differences between the economies of the Euro zone.”

    I think it was known and this was part of the EU ethos to smooth out the differences.

    Spain as no idea what %age unemployment it as got because it as no idea of how many illegal immigrants it has?"

    My point was that the boom days before the credit crunch hid massive inequalities and differences in the euro zone and was intended to explain why these differences have only come to light with a vengence since the credit crunch. It was membership of the single currency and low interest rates that enabled the construction boom to get out of hand and to cause so much more harm when the bubble burst, as it had to at some stage. If the economies of the euro zone had not had so many differencies, the boom would not have taken off to the extent it did because the interest rates set by the ECB would have been appropriate for the needs of every member of the euro zone.

    Spain was a net beneficiary of EU funds to fund infrastructure improvements etc prior to joining the euro zone to help their economy catch up with their richer neighbours. This in fact shows the nonsense of bringing them into the euro zone in the first place!

    Spain has 20% unemployment according to their own figures. If they do not know the number of illegal immigrants in their country, they are sadly no different from us in that respect!

  • Comment number 97.

    92. At 1:20pm on 07 Dec 2010, busby2 wrote:
    The eurozone may have a trading surplus with the rest of the world, have interest rates of 1% (which is double ours)


    'which is double ours' LOL

    You can almost hear the triumphalism there.

    Damit man, they might thrash us at football and make better cars but, but their interest rates are 'double ours'.

    What is wrong with consistent well managed interest rates of c. 1%.

    Of course Sterling rates have always been well managed haven't they. I seem to remember 8% as common, 11% as not unusual.

    0.5% are artificial and rather silly. Interest rates can be economically too low, a bit like very low blood pressure.

    Rates, in the UK, will go up. Do the maths 8% is 16 times more than current levels, think about mortgage payments.

    That is why my comment re Sterling is rather relevant. No consistency. It can't do the job.

  • Comment number 98.

    Surely the same thing as borrowing money based on the value of your neighbours property?

    More kludge and subterfuge from those versed in it.

  • Comment number 99.

    #97
    That is why my comment re Sterling is rather relevant. No consistency. It can't do the job.


    Further explanation.

    Interest rates are a tool used to contain inflation. Sterling and inflation have always been joined at the hip.

  • Comment number 100.

    #98, Lorentz wrote:
    "Surely the same thing as borrowing money based on the value of your neighbours property?"

    I would've thought it was more like a couple getting a mortgage based on their joint-income: even though one of them may earn several times more than the other one.

 

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