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Sunday a.m: Reading the Eurozone crisis

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Paul Mason | 11:17 UK time, Sunday, 23 May 2010

You go away, come back a week later and the Germans have banned short-selling, and, globally, everybody is now short selling the Euro. Meanwhile the Sunday papers are full of everything from analysis to diatribe about the future of the Euro. Here's my take, which went to press Tuesday night in the New Statesman.

Of all the column centimetres devoted to the Euro this morning, if I had to read only one article it would be Peter Boone and Simon Johnson's take in the Telegraph. It goes to the heart of the social and strategic implications and is pretty pessimistic.

Normal service resumes tomorrow, with coverage of the 6bn in-year cuts programme, which for all the sound and fury pre-election is now described by the plain-tie Coalition leaders as "modest".

Comments

  • Comment number 1.

    Paul,

    You should be enjoying the good weather while we still have it rather than posting here.

    So whats my excuse?

    Well, just breezing by to pick up some trunks and then head for the pool with the kids so I have aspare 10 mins.

    Good solid article as usual, I guess non of this will really come as much of a surprise to regular contributers here, there does however seem to be a slightly more acceptance in the mainstream now I sense of the ineviatability of the comming year or two. Having said that the lack of coverage on the Euro crisis in the making in the economist this week is puzzling to say the least.

    Just as a thought I wonder if this crises would have played out differently if Tony Blair ( as was tipped) had one the EU presidency instead of the invisible stooge Herman?

    Just an interesting pointless question I guess.


    Who will be first to break ranks?

    Who will be the first to admit that some countires can not continue in the Euro?

    Or will they, as ever wait for the markets to make the hard decisions for them.

    Like you say, it all comes down to leadership. The lawyer / banker, professional eurozone beurocrats we have are not leaders, they consistently fail to show any genuine vision or moral courage in the face of radically changed circumstances.

    Like the civil service minions holding onto their gold plated pensions, they only seem capable of making decisions which seek to preserve the status quo when a radical re-invetion is what is needed.


    Enough.. the pool is waiting.

  • Comment number 2.

    #1 afterthought as i am on my way out the door.

    I wonder what the results of apoll would be now amongst the affected nations if they asked their people if they wanted a return to the once proud soveregn emblem the D mark or the French Franc or even the drachma, lira, punt and peso?

    Does any news organisation dare commision such apoll?

    newsnight maybe?

  • Comment number 3.

    I couldn't disagree more with Peter Boone and Simon Johnson's take in the Telegraph.
    Unregulated finance is what ended up undermining democracy both in North America and Europe. All industrialized countries are at risk, but it's because of the unregulated trading, tangled derivative bundles (toxic), negative betting against sovereign states (like Greece) that the Eurozone is faltering (but will land on steady feet). I say thank goodnes, the Eurozone has Brussels to guide her through.
    In the coming years, the ECB and the European Union might very well dictate financial policy – for the health and sake of the entire Eurozone – but this is hardly a "takeover of new overlords".
    An overwhelming debt burden is currently hurting the European People, and whose fault is that? Who injected the poisonous, toxic debt that is threatening the very existence of the Eurozone?
    The ECB-EU approach will not return countries to reasonable levels of growth – the debt overhang is simply too large, but the ECB-EU approach will include a bank levy (I hope on each and every foreign transaction.). This will not only raise revenue, but it will provide an undeniable audit trail, which will be uncontestable.
    The Eurozone wants no part of the IMF; it’s too American. Europe is fed up with the United States financial markets, including the IMF.
    It’s my contention that the American financial position is not sustainable; the American financial situation will (must) collapse under its own weight. The American financial elite want badly to take the Euro and Europe down with them, or use the Euro and Europe to help them survive.
    The messy trading of the American derivative traders left Europe at risk, but also left the United States at risk, and what’s more the American Bill for financial reform is not worth the paper that it is written on.
    It was inappropriate and probably illegal for the Americans to subject the rest of the world to these large, chronic risks. The SEC and the Courts will eventually clarify what companies like Goldman-Sacks, Morgan-Stanley and J.P. Chase have done to world-wide economies.
    Unfortunately, there is no leadership in the United States of America – no regulation for anything from financial trading to oil drilling. The United States cannot possibly be the world's "safe haven". The last I read they are trillions and trillions in debt a debt which is not sustainable…and like a wounded predator the United States is seeking victims to bleed financially onto death.
    Last week, people were comparing Greece to Lehman Brothers, suggesting that a Greek default could have ripple effects around Europe, similar to the effects that nearly crashed the financial system after Lehman went bust in '08. Those worries prompted investors to sell bonds of EU nations (perceived as weaker), as well as European banks and other companies that could be hurt by sovereign defaults. If there was not toxicity on the sovereign ledgers, which has been clearly identified by the EU, Greece would not now be in a position to sue Goldman-Sachs, which it is considering doing.
    Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to (inadvertently?) hide their mounting debts. Gary D. Cohn, president of Goldman Sachs, went to Athens to pitch complex products to “defer” debt. Such deals let Greece continue deficit spending, like a consumer with a second mortgage.
    One single deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels.
    Even as the crisis was developing, Goldman was not done. In early November, a team from Goldman Sachs arrived in Athens with a very modern proposition for a government struggling to pay its bills: The bankers, led by Goldman’s president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece’s health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards. Is this beginning to sound a little like "sub-prime" lending?
    Athens rejected this Goldman proposal, but with Greece struggling under the weight of its debts, its richer neighbors vowed to come to its aid; the deals over the last decade are raising questions about Wall Street’s role in the world’s latest financial duress.
    As in the American subprime crisis and the implosion of the American International Group, financial derivatives played a role in the run-up of Greek debt. Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly in all the so-called STUPID PIIGS.
    In dozens of deals across the Continent, banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books. Greece, for example, traded away the rights to airport fees and lottery proceeds in years to come.
    While Wall Street’s “work” in Europe has received little attention on the west side of the Atlantic, it has been sharply criticized in Greece and in magazines like Der Spiegel in Germany.
    Wall Street did not create Europe’s debt problem. But bankers enabled Greece and others to borrow beyond their means, hide their debts. Few rules govern how nations can borrow the money they need for expenses like the military and health care. The market for sovereign debt — the Wall Street term for loans to governments is unregulated and vast.
    While Greece drew the line on Goldman’s proposal in November 2009, it had paid the bank about $300M in fees for arranging the 2001 transaction.
    I suspect you will see far tighter regulations in Europe and much more discussions about trading with the US with its fancy, tangled, derivative bundles and toxicity.

  • Comment number 4.

    one cut no one talks about is the 4 billion a year that is handed to millionaire landowners for merely owing land. why are they protected? should millionaire landowners be claiming benefits to enjoy the ownership of an asset? it is as bizarre as paying people government money to own porches. it is because a huge chunk of the money goes to the hereditary titled?

    why is the uk one of the few countries not to have a land tax? billions could be raised and it would free land from hoarding for speculation purposes.

    the idea millionaire landowners should be getting a wealth transfer from poor to rich is obscene. where does that fit in their supposed 'fairness model' they wish to inflict upon the uk?

  • Comment number 5.

    as it is rooted in the marxist class analysis welfare state is always bounds to 'fail' because it assumes class is the highest idea of the mind. which is a fallacy.

    so we have unreformed market fundamentalists using the crisis to make 'cuts' and the marxists using the crisis to bring in more 'class' based policies.

    both deny the existence of the good. what is good policy for the uk? everyone says germany has a strong industrial base. if so should we not adopt the model that has led to a strong industrial base? should the uk not copy that model and so create its own strong industrial base? The reason it couldn't happen in the past is the market fundamentalists said the 'market will sort it out' and marxists think capitalism is a class oppression and so would never follow a model that led to the uk having a strong industrial base.

    so the uk is dominated by two models of failure- market fundamentalism and marxism. rational people who had a nation building science would see these as demonstrated failures and adopt successful models? but people are in love with their own self image of who they think they are. market fundamentalist love being market fundamentalists and marxists love being marxists. so for the uk political class its not about reason. or a science of nation building that would adopt good models that will benefit the people. its about identity self indulgence.

  • Comment number 6.

    Great assessment, Paul, in the New Statesman article. I would shift the ripping up of the rule book back to the 2008 European Recovery Plan initaited by Baroso. He/Commission brought specific counter-cyclical fiscal stimulii measures to the E Council intended to cost member states 200 bn euros. The Stability and Growth Pact was redefined as a flexible tool capable of adjusting to allow deficits to inflate. It was more in hope than expectation that the Commission expected member states to return to fiscal balance after growth had been renewed.

    So, Baroso and the elite took members toward a fiscal union and now find that they must pick up the pieces and follow through without it beng certain they will get there.I wonder how the EU project will handle a debt-restructuring.

    As far as the latest anti-German rhetoric in economic journals is concerned - you know, the line that evil Germans kept interest rates low and indebted Club Med to buy their BMWs and now want to inflict misery - I think this is dangerous clap-trap disguising the Wall St / City role in the 2008 debacle and its aftermath and making a virtue of fecklessness.

  • Comment number 7.

    'YOU GO AWAY'?

    How do you 'go away' on an e-globe?

  • Comment number 8.

    no.3 blueberry

    A refreshing and passionate take on things I thought lest we forget where all this pain coming down the pipe originated from.

    Thanks for that.

    There has indeed been a 'white collar crime against humanity' perpetratded by the likes of the loathsome Richard F. fuld Jnr and the various as yet largely unpunished blood sucker squids of wall street and the City of london.

    I dont see the eurozone as a white knight appearing on the horizon to punish them and re-set the imbalance by regulation and levies on thier activities.

    Personally I am beginning to see the EU as simply the most inefficiently run free trade agreement between sovereign nations in history, a gravy train for a new model army of Brussels buerocrats, whom would otherwise have nothing 'useful' to do in society to justify and maintain their privelidged position in euro society. Just another form of bloodsucker squid I'm afraid.

    I dont see the people of europe uniting under the hermans european flag to release us from the bondage of wall street and USA geopolitical power under a new vision of an egalitarian society.

    I wish i did see that!

    But all I see is a bunch of career eurocrats and politicians desperate to secure their own power base in their own countries while paying lip service to Europe, as shown all too clearly by germanies actions this week.

    Why elect herman von Rumpoy as president otherwise? If you are really an organisation on amission as you suggets why not elect a firebrand with a real vision for an egalitarian europe to break USA hedgemoney and set europe free using technology to create something totally new?

    I reckon you may get afew Greeks and others interested in that actually.

    But nobody in Brussels is interested in that..too risque to their pension pots I am afraid.

    looks like it will just all have to be done the old fashioned european way....again.



  • Comment number 9.

    Hayek vs. Keynes Rap Anthem

    Changing tac a tad, back in 2003 the then government seemed to have wanted to expand long-term fixed rate mortgages in the UK (third paragraph above column 412), but how was the Bank of England interest rate changes suppose to constrain peoples spending power if they were on a long-term fixed rate mortgage ?

    The more I read what was going on , the more confused I seem to get.

  • Comment number 10.

    7. At 8:21pm on 23 May 2010, barriesingleton wrote:
    'YOU GO AWAY'?

    How do you 'go away' on an e-globe?


    :)

    It can happen, I've noticed, often over Easter, Summer, Xmas and other BBC hols when no news takes place.

  • Comment number 11.

    Paul,

    Re: "the Germans have banned short-selling"

    Please don't exacerbate the confusion. The Germans banned "Naked" short selling.

    The "Naked" aspect refers to no underlying asset changing hands. It is merely ficticious leverage, which can actually be used to manipulate prices rather than "predict" future prices (i.e. where the originator either has no involvement in the underlying asset, such as a CDS with no insurable interest, or is unable to fulfil actual delivery of the asset, such as bank manipulation of gold prices via naked shorts beyond intent or ability to deliver):

    https://www.bbc.co.uk/blogs/newsnight/fromthewebteam/2010/05/wednesday_19_may_2010.html

    Excerpt from the decree:

    "An naked short sale exists if at the time of the conclusion of the respective transaction the seller of the debt securities

    a) is not the owner of the same,

    b) does not have any absolutely enforceable claim under the law of obligations or under property law to be transferred title in a corresponding number of securities of the same class."

    https://www.bafin.de/cln_179/nn_720784/SharedDocs/Aufsichtsrecht/EN/Verfuegungen/vf__100518__leerverkauf__schuldtitel__en.html

    Although if you read the small print it has more holes than a leaky bucket. Clause 2 appears to condone trading on "own account", i.e. proprietary trading, as well as enabling exemptions on appeal. All this may end up doing is just making the major banks jump through a few more hoops, before returning to their pernicious ways.

    Germany took a bold and essential step in trying to reign in spurious financial gerrymandering.

    However, the bark might be worse than the bite.

  • Comment number 12.

    Fascinating article in the New Statesman. Really illuminates the causes of the current problems in the Eurozone, and maps out the stress lines for future events.

  • Comment number 13.

    Johnson and Boone article struck a chord for me, John Arthurs' analysis interesting here:

    https://www.ft.com/cms/s/2/6d6ad426-63ac-11df-a32b-00144feab49a.html

  • Comment number 14.

    Do we focus on the politics of our predicament or try to write the history without the time for objective analysis?

    All that I can see is that the illusion which has progressively absorbed the political elites across Britain and Europe for the last forty years has finally been exposed as just an illusion. The illusion was that there was such a thing as free money to be bestowed liberally on a supine proletariat seemingly anxious for embourgeoisement.

    This view was encouraged by a sense that American culture was superior and that the Soviet Union was a tyranny. So in order to oppose the tyrants we had to become like the Americans only we didn't have the resources. So in order to become more American we borrowed, so we borrowed other peoples' money. Then when that ran out we raided the savings of our own people. Then when that ran out we expropriated from the future.

    Now that the future is broke we are left with an illusion which we are now begining to realise has been bankrupt for decades. We are truly on the road to nowhere. Unless we try to get off it we will find ourselves taking some side turning in the mad belief that another illusion will sustain us.

    The immediate political issue is that a significant proportion of the population remain deeply dependent upon the economics of the illusion. They need the doles, they need the sinecures and they need the status endowed upon them by the illusion. For them this is no other option but for continuity of the illusion. This is where the reaction will set in. Hilariously the reactionaries will endeavour to tell us that they are proposing progressive ideas. Absurd: as the only way forward is to put the past behind you.

    There is a new begining someway down the road. It will come with and through austerity. Old puritans such as I never left really left austerity. We have just used the technology of the illusion to get by. We have something to offer but it will not be welcome just yet.

    The moral of the story so far to my mind is that reality bites.

  • Comment number 15.

    Paul you should take a break more often...and I've cracked it for you...lets become like Greece...spend like there's no tomorrow, nobody pay tax and the Germans bail you out.....they don't seem to mind as they are still paying off the bill for the East coming over to 'our' side sort of thing...now that for me would be the biggest salutary lesson in what NOT to do but they obviously don't mind picking up the tab for everyone in Europe so what's a few blighty types on the payroll to squibble about...welfare state? State farewell more like

  • Comment number 16.

    #5 jauntycyclist

    Let's leave to one side a minute that I think you confuse social democracy (welfare state) with Marxism.

    You make the point, "both [market fundamentalists & Marxists] deny the existence of the good".

    So you argue the concept of 'good' determines policy/action?
    Who determines the 'good' society?

    Do we turn to a priori philosophy?
    Maybe Rawls?

    Please expand on your concept of 'good'.

  • Comment number 17.

    3. At 2:26pm on 23 May 2010, BluesBerry

    Good post.

    I'm disturbed by current attempts to use a banking failure to justify a reduction in the size of the State. I've noticed that no one seems to question the ability of a reduced State to not only create the regulations businesses must abide, but how will a reduced State enforce those regulations?

    Ordinary people will pay the price while bankers make off with the loot.

 

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