Is a Eurofix Around the Corner?

After telling readers that the Eurozone leader look to be suffering from “dulled reaction times…so out of line with market events that even if they were to snap our of their stupor now, it would be too late,” news reports suggest that they have finally roused themselves.

Or have they?

Ed Harrison has translated a report in Die Welt that describes what on the surface looks like a meaningful change in the Bundesbank’s position (and make no bones about it, the Bundesbank has been and presumably will continue to determine ECB behavior). Less than two weeks ago, a Der Spiegel article that clearly reflected conversations with the new leader of the Bundesbank, Jens Weidmann, depicted him as firmly opposed to monetizing periphery country debt:

One man is bracing himself against the storm. In the battle to save the euro, Europe’s monetary watchdogs are under growing pressure from around the world to buy up unlimited quantities of the sovereign bonds of ailing member states. But the head of the Bundesbank is saying no, and he is making his message loud and clear, not only in Berlin, but also in Brussels, Paris and Washington. If the ECB gave in to the pressure, Weidmann argues, it would not only be violating European treaties and the German constitution. Such a move would also be “synonymous with the issuance of euro bonds.”

It looks as if the market perturbations of last week have either led to a religious conversion, or someone with the 5×7 glossies on Weidmann has had a heart to hear talk with him. Suddenly, Eurobonds are not longer verboten. Per Die Welt:

The Bundesbank no longer rules out emission of common European bonds – so-called Eurobonds. Prerequisite, however, is closer financial integration for the euro countries. “This means joint control over the budgets of the member countries, including intervention rights if individual countries should violate the agreed rules,” said Bundesbank President Jens Weidmann to the “Berliner Zeitung”.

Whether Eurobonds would be introduced, would be a political decision. “You’d be well advised, however, to think about it only at the end of an integration process,” said the Bundesbank chief.

In Brussels fear or hope is rife, depending on whom you ask, Merkel’s people driving policy or those who accuse Germany of blocking solutions. By the next European Council meeting, the Summit of Heads of State and Government at the end of the first week of December, the Chancellor could have negotiated a deal…

What makes it no easier for Merkel: she is increasingly alone. Yes, Sarkozy refrained from making a direct attack on ECB monetary policy while in Strasbourg, but he stressed the “different histories of both countries” in this question.

And the most loyal allies of Merkel are leaving the post. Dutch Finance Minister Jan Kees de Jager, also master of a healthy budget and a proud member of the club of Triple-A countries, wanted, before a meeting with Finnish Ministry colleague Jutta Urpilainen and German Finance Minister Wolfgang Schaeuble on Friday, not to rule out a more “active role” for the ECB.

“Where the ECB is concerned, our position is very close to the German or nearly the same,” he said. But: “In a crisis nothing should be ruled out. In the end, something must happen.” And Urpilainen stated in a newspaper interview: a bigger role for the ECB is still preferable to joint Eurobonds.

As Ed and reader Swedish Lex point out, the Wall Street Journal is making similar noises:

Euro-zone countries are weighing a new plan to accelerate the integration of their fiscal policies, people familiar with the matter said, as Europe’s leaders race to convince investors they can resolve the region’s debt crisis and keep the currency area from fracturing.

Under the proposed plan, national governments would seal bilateral agreements that wouldn’t take as long as a cumbersome change to European Union treaties, according to people familiar with the matter. Some German and French officials fear that an EU treaty change could take far too long. That has prompted the search for a faster option.

The plan, which hasn’t been finalized, would allow the euro zone to announce a speedy change to its governance. European authorities would gain tough new powers to enforce fiscal discipline in the 17 countries that make up the euro zone, the people said. EU treaty changes could then follow at a later stage.

Perhaps I am too much of a constitutional pessimist (pessimists score as more realistic in their assessments than optimists), but I don’t see high odds that this deal will come together in time. I keep thinking of two events: the start of World War I and Lehman.

Most of the European leadership did not want a war, but the combination of treaty obligations and physical distance making it impossible to confer quickly enough. That produced classic “tight coupling” behavior: the declarations of war had to be made on a timetable that prevented intervention.

Similarly, Dick Fuld’s paranoid beliefs to the contrary, the officialdom did not want Lehman to fail. Government officials spent considerable time and effort trying to cobble together a private sector rescue. But their perceived political constraint of no bailouts in the wake of the unpopular Bear Stearns rescue, Fuld’s unrealistic price demands and deal-scuttling conduct (he blew up negotiations with the Koreans), the firm’s deteriorating condition, and JP Morgan’s seizing of collateral meant a deal that was theoretically possible could not in fact get done.

And the undertone of the new Bundesbank position is ugly. “Joint control over the budgets of the member countries, including intervention rights” is an effective end of democracy. You have considerable restrictions on the sovereignity of nations, with no democratic processes or greater accountability being put in place at the Eurozone level, which is where real power will lie. Doubters need only to look at what happened to Ireland and Greece to see what is in store for transgressors. This isn’t a rescue plan, it’s a Eurocoup.

Will enough member states willingly put their necks into this noose? Notice that there is still no willingness on the part of Germany to deal with the contradiction of its stance. It wants to run trade surpluses with its neighbors but is not willing to keep lending to finance their trade deficits.

So the way to square this circle, it appears, will be to turn Germany’s customers into subject nations in a Germany-dominated Europe. This move would be diabolical except I sincerely doubt that many in the elite in Germany would see the debt crisis as a Trojan horse for German ambitions. And I suspect they are right. This is merely the end game of neoliberal policies.

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63 comments

  1. disgruntled observer

    @ Yves,

    “Joint control over the budgets of the member countries, including intervention rights” is an effective end of democracy.”

    With that statement you’ve nailed it. This isn’t going to fly with any electorate anywhere, least of all Germany’s. And from my perspective in Ireland, I can tell you it won’t fly here either. People will tolerate something that’s temporary, albeit a hell of a lot more so than I’m comfortable with, but a permanent loss of sovereignty is a completely different matter.

    I also think you’re correct that “This is merely the end game of neoliberal policies.” And about time too.

    1. john bougearel

      “This is merely the end game of neoliberal policies.”

      Been thinking bout the end game of neoliberal policies. My best guess is that the endgame is going to take 20-30 yrs to accomplish or longer, if at all. These policies have evolved over the past 40-50 yrs, Killing/sacrificing the neoliberal beast may take that many to unwind if Stiglitz biblical hypothesis of 7 yrs of feast to be followed by 7 yrs of famine is more or less accurate.

      When I read Germany and the ECB entertaining neoliberal fantasies “joint control over the budgets of the member countries, including intervention rights if individual countries should violate the agreed rules,” I find the rule of the neo-liberal beast and its values is anything but dead.

      Especially if it accomplishes its financial coup d’etats over most of Europe. Then we can safely say that its neo-liberal agendas and values are still spreading.

      And since this latest round of neo-liberal expression for a financial coup d’etat is emanating from Germany, wouldn’t this be a back-door way to further 80 yr old neo-nazi agenda to dominate the world and give Hitler some sort of post-mortem victory?

      Oh, the political and human values that neo-liberalism’s nihilistic tendencies seek to destroy…

      God willing and the creek don’t rise, this neoliberal beast will one day be slayed, but right now, I see him rearing his head to take aim at his next set of targets.

      1. Alex

        It does not need “Joint control over the budgets of the member countries, including intervention rights.” It needs better financial regulation.

        I see a non-Imperialistic solution as looking something like this:

        1.) All current national debts get monetized.

        2.) A European version of Glass Steagall gets passed, both in order to keep banks from behaving badly, and to make sure that banking regulations are the same throughout Europe.

        3.) Member countries do not accept “supervision” but they do accept a hard limit on how much debt they can accrue.

        4.) An Europe-wide progressive income tax is imposed, not to exceed a very small percentage of income. (5 percent?)

    2. ormond otvos

      Derivatives are contracts, which SO FAR are being held sacrosanct.

      There will come a time when an arbitreur will decide, post facto, which of the debts, CDo’s, will be honored, and net out the whole mess with vast damage to entrepreneurial dreams of final victory in the greed game.

      I care not a whit about national sovereignty, since it’s largely being used to violate personal sovereignty, which is what you’d better mean when you say “democracy”.

      Yet, democracy is really the tyranny of some majority, however defined. It forces all to submit to the votes of others, and there seems no limit on the idiocy of the herd. This idiocy is then transformed into law, and constitutions. For an example, contemplate what’s coming in Egypt in terms of individual religious and civil rights versus religionism.

      Not much thinking going on here.

  2. Cathryn Mataga

    It’s a good thing we have $700 Trillion in derivatives, that’s all I can say. Sigh. Honestly, the possibility is mind blowing. It’s a Science Fiction scenario. What happens when these derivatives start paying? It’s impossible to imagine.

    I think, in the long run the system is simply doomed. How is it that we have a financial system where nothing can default without causing a worldwide crisis? I mean, the system couldn’t handle a default by a smaller country like Greece? If that’s the case, it’s just hopeless. In order for independent entities to have the freedom and independence to spend money we need the possibility of default because part of that freedom is the possibility of bad consequences and wrong decisions.

    We’re already seeing anti-democratic changes as a result of this crisis, and any solution that saves the bondholders at the expense of democracy is going to lead to political chaos, as the people feel more and more disenfranchised.

    1. rafael bolero

      The 700 T fictive debt is the neo-feudal equivalent to hell, and semi-original sin : we are just supposed to believe (in) it, fear, bow down, serve. Bankers should wear clerical collars now. Will there follow a German Inquisition?

      1. Cathryn Mataga

        Yeah, I see what you mean. Is this this the Financial equivalent of the ‘Iranian Nuclear Program?’ The good ole’ ‘Dr. Evil business plan’ — more money to the financial sector or they destroy (dramatic pause) the world.

        Really, if Greece defaults and triggers the ‘credit event’, this is kind of the best option for Greece and European banks, seems to me. Greece gets out from the debt and the insurance pays off to European banks. Hopefully the system can just handle it, because at some point it is going to have to.

        1. pws4

          No, Mr. Powers, I expect them to die. Even after they pay me the money, I’m still going to melt all the cities of the world with hot magma.

    2. Kevin Smith

      700T$ is quite a lot of money.

      What is the total value of everything on the Earth?
      [Land, buildings, EVERYTHING EVERYTHING?]

      Has that number ever been calculated?

      Could the 700T$ exceed the value of the Earth??

      We should be told!

      1. spacecabooie

        Think of the Sun’s volume as the $700T, and Earth’s as … well … the real economy.

        How the heckshir do you deleverage that ? You don’t … you instead confiscate what you can along the path toward %80 pouplation reduction.

        restore Glass Steagall now – get the citizens’ $17T national and international bailouts and backstops back, place them into circulation, through a Second National Bank a la Hamilton, for significant development projects and science drivers, and then, while guaranteeing pesnions and 401Ks etc., assist the insolvent investment banks to unwind the mess, ummm, gift of shinola, that has been returned to them, unless they should choose to finally recognize that, umm, bankruptcy thingy.

  3. psychohistorian

    I read fiscal discipline in this situation as the EU Shock Doctrine event to undermine their social safety net.

    Will America export its military might to help enforce this austerity?

    1. scraping_by

      During The Banana Wars, back in the 1920’s when US banks and corporations used military assets to enforce lopsided and corrupt economic arrangements, the corporations often used US soldiers and Marines to shoot up local troublemakers. This was rarely at the direction of the US government. More often, the services would allow the men to keep their enlistments and commissions while fighting under the pay of the local puppet regime. Read the biography of Chesty Puller for a quick look at how this worked.

      There are puppet regimes currently in Greece and Italy, and Ireland’s doesn’t look too good, either. I don’t know the internal arrangements for NATO or the other treaty organizations, but it doesn’t look like there are too many barriers to foreign support against outraged populations.

      So, The Olive Wars?

  4. SteveA

    “Intervention rights”? Hilarious. Finland requiring collateral from Greece was a “crisis” to which EU leaders had to devote significant diplomatic effort.

    There are 17 countries in the eurozone. That’s 136 bilateral agreements. Good luck. And watch out for the voters at home.

  5. Hans Suter

    The interview is in the “Berliner Zeitung”.http://www.berliner-zeitung.de/wirtschaft/bundesbankpraesident-weidmann–wir-wollen-die-d-mark-nicht-zurueck–das-ist-absurd-,10808230,11219184.html
    On eurobonds Weidmann says that they could be issued but not before having a tighter fiscal union, adding that then eurobonds won’t be necessary any longer. About Italy’s 7% he says that for some time Italy can very well make it and in the mean time Italy should bring her house in order. I think he’s right.

    1. Hubert

      Impressed by Weidmann´s interview. He is either smarter than I guessed or the interview was just well staged. Still, he is playing for the home crowd and he is bluffing (HIs answers look intelligent, so I hope he knows that). The markets will force the whole issue before the Parliaments and High Courts of Europe will have agreed on it. WIthout the ECB really going in, the system will not survive until year-end.

  6. swedish lex

    Not having a depression next year would be nice.

    A new clause in a new treaty allowing an exit from the euro but not the EU would allow create the most basic right for democracies at the national level to retain a degree of control.

    1. Diego Méndez

      That’s a good one: “Not having a depression next year would be nice.”

      I am afraid we’ll have it. Spiegel reports fiscal union is basically a matter for the 6 triple-A euro countries. Basically, France, Germany plus the Netherlands.

      Most of the other 11 euro countries will have to leave.

      While not having a depression next year would be really nice, it seems very unlikely by now.

      1. Foppe

        I do not believe France will want to stay in the Euro with only those countries as partners. France was the country that wanted Italy in to push the Euro down. So Sarko will have to weigh his neoliberal beliefs against his desire to remain president.

        1. Diego Méndez

          A quick analysis lets you know France is AAA, at least for the rest of the decade.

          The analysis goes like this: Germany wants a hard-money, non-devaluing area where it is hegemonic and leads in all policy areas (taxes, market liberalization, etc.). It cannot have that just with the Netherland and Finland. However, if France is kept inside the euro, Germany rules and the French elite have its desired (and much needed) reforms.

          So, in the end, Germany will bail out France.

          In short form: it’s 1992 all over again, but with a depression.

          1. Foppe

            Sorry, but I don’t follow. Why does Germany need france to stay, and why do you think France will want to stay? Certainly there are elites near Sarko that want this, but even in Germany some industrialists are becoming disenchanted with the project.

          2. Diego Méndez

            Foppe, they’d make the rules and the others would follow. “They” are the German industrialists, but these rules (austerity, market liberalization, united economic government) is the matter of dreams for the French elites.

            German industrialists are disenchanted with the euro as it is working now. They are disenchanted with the euro periphery being a part of it (they were against the periphery’s membership, in fact, even before the euro was created).

            A real political union would also give leverage to the German voice against e.g. the US or China, when necessary. As of now, there is no real union. As of now, 17 countries dilute the German voice to irrelevance. A Franco-German union (with a couple of neighbours added in for taste) would basically put the Germans in control of a unified core Europe.

  7. Hubert

    Disagree on several counts:
    1) I read the Hussman piece about what the ECB is allowed to do or not allowed to do. I remember similar pieces about the Fed in 2008. The TPTB decide what will be legal and what not.
    When the chips are down the Bundesbank will be outvoted 6:1. As this will not be allowed to surface there will be a deal before that happens. As there is no way back to the Mark here and now, the Germans are bluffing to get a “binding promise” (but there is no such thing and they are or / be bankrupt too ….)
    2) To save face there will be a crisis à la Lehman, just smaller. The ECB will use this pretext and come in. They may fix long rates à la Soros or do s.th. els. When something bigger breaks before year-end 2011, the ECB will be there …. I know that sounds complacent but I cannot fathom it any other way.
    3) Souvereignity is not a binary thing. It will be stretched more towards Brussels where French technocrats will have more of a say than Germans. The acceptance of Brussels budget power is not more than a promise from the Greeks, Spanish, Portuguese and Italian side. It can and will be broken as all promises. The EU will not inforce it militarily and, in the end, there are no other ways to do that. So in the end, it is SHOW. The EU technocrats will want to kill democracy as much as the bunch in Washington – but they will be less sucessful – Europe is too diverse and we will blame each other again and split up (but not yet!).
    4) Lehman was not a “mistake” for from the perspective of those in power. There was a big looting party. And it gave the prextex for “rescuing” AIG. The rest of Wall Street mightily profited from the chaos and the Fed enlarged its mandate. A lot of money was distributed in Wall Street.
    5) This crisis will be papered over in Euros as the one in 2008/2009 was papered over in dollars. Why go bankrupt now when you do not have to?
    6) Expect the real crisis in 2013-2015 when one or more country no longer will play along.

    1. kaan

      Hubert
      I totally agree. If ECB was being controlled by Bundesbank why Axel resigned?If push comes to shove Germans will be outvoted.
      Also dont forget behind the scenes pressure from US China etc
      The ultimate endgame is few years away in my view.

    2. wbgonne

      Very interesting analysis. Correct me if I am paraphrasing incorrectly but you are suggesting that the ECB will act as a lender of last resort, there will be superficial political deals and Europe will kick the can down the road like the U.S. did in 2008.

      How much buy-in will that require from the People of the European nations?

    3. Pete

      Wow, great points! Especially about Brussels, that’s brilliant thinking, don’t get that perspective in the States.

      Especially agree about a mini-crisis to get it going. Fill a bank up with underwater sovereign bonds. Take its stock down 70% in a week, have the ECB lend it emergency rescue funds, have it use this money to buy more EU sovereign bonds, then take its stock down some more and nationalize it. After a year or two, privatize it back to your banker buddies for real cheap. All the insiders win! ECB pays.

    4. Bruno

      Great comments.

      Not sure I fully agree with #3 though. If the purse strings are further controled by the banking elite’s technocrats in Brussels, then Greece, Italy, Spain’s…Bond markets will reflect thier more closely scrutinized budgets, which if not held in check will see upward interest rate pressure in order to force fiscal reform. They will be made to honor their promises via the dicipline of the new EU constrained bond markets.

    5. Yves Smith Post author

      I don’t agree at all re #4. Never attribute to malice that which can be explained by incompetence. Lehman was not orchestrated. You would never in a million years do a short form BK for a firm of that size. Lehman had retained the best bankruptcy lawyer in the US and NO ONE spoke to him as to what a BK would mean prior to the day of the filing. This is NOT what you’d see with a competent bunch in charge, let alone with a planned tanking of Lehman.

      Fuld very clearly undid real deal opportunities by overplaying his hand (the buyer would have been stuck with a turkey, but that is not germane to this conversation). I’m going on memory but I think the AIG CEO was Willumstad. He came to the Fed kinda desperate and VERY VERY late in the game, with no real handle on how big his cash needs were, which freaked everyone out. There WAS a private sector deal cobbled together for $40-$50 billion, but that wasn’t enough. The numbers out of AIG kept getting worse by the day. JP Morgan (the leader in syndicated lending) was out getting commitments.

      You can’t orchestrate a small scale financial panic, which is the scenario you posit. That isn’t how it works in tightly coupled systems. If one big bank goes, who knows how big the chain reaction will be. Banks have to be backstopped on a national level.

      1. Hubert

        “If one big bank goes, who knows how big the chain reaction will be. Banks have to be backstopped on a national level”
        But Yves, that IS my point. Something BIG had to happen for the FED/Treasury to get away with putting in those gazillions in loans, money and guarantees.
        Now stupidity might have been involved but why rule out malice especially with a former Goldman CEO as Secretary of Treasury. I stay with “cui bono”.
        I think we should not be glued to the details showing up in such PR pieces as Sorkin´s “Too big to fail”. We will never find out the whole truth. Why not submitting some malice? They got the money in the end …..

        1. Yves Smith Post author

          Hubert,

          There are way way too many facts that conflict with the notion that Lehman was tanked. For instance, why would Paulson and Geithner have gone as far as they did with Barclals? They really thought they had a deal.

          The game plan was different than you posit. They hoped to kick the can down the road to the next Administration. And there was serious antipathy to bailouts. It was ALSO clear prior to Lehman that Geithner and Paulson regarded a rescue as politically impossible.

  8. F. Beard

    It wants to run trade surpluses with its neighbors but is not willing to keep lending to finance their trade deficits. Yves Smith

    I like Steve Keen’s general bailout idea. Combined with a return to national currencies to run alongside the Euro (Marshal Auerback? Philip Pilkington?) that should fix everyone including German savers and prevent the problem from reoccurring IF Eurozone banks were forbidden to lend any further Euros to governments OR if they did so with the full expectation that all risks would be their own.

    1. craazyman

      This wasn’t you, Beard, I hope? ;)

      I guess not unless you’re posting comments from the holding cell.

      From New Zealand Herald:

      “Bay of Plenty farmer who set a car alight in a protest in central Wellington this afternoon has been arrested and charged with arson.

      He claimed that “fractional reserve lending is the root of all our problems” before walking to the boot of the car, which was filled with rubbish, with what appeared to be a lighter.”

      http://m.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10768881

      (orignally seen on Mish Shedlock’s web site http://globaleconomicanalysis.blogspot.com/)

      1. F. Beard

        No, not me. I don’t believe in endangering other people’s lives but he is correct that usury and “fractional reserves” is the root of very many problems.

        The problem is how to abolish it peacefully which I believe can easily be done.

        We need to be careful though.

        1. mansoor h. khan

          F. Beard,

          We don’t want a massive deflation when we end FRB. Your idea of replacing credit paid off or my idea of social credit will work to keep deflation check.

          Mansoor

          1. Linus Huber

            Sounds like an idealistic proposal, those social credit.

            We do not want massive deflation?

            Well, when we want to deflate the debt bubble, I suppose there must be some kind of deflation. Deflation of inflation will not really be the question as in both cases the purchasing power of people will decrease intensely. The more pertinent question should be how we do return to the spirit of the rule of law because that would ensure that those looters will be made accountable. Only that will allow the a certain degree of justice when the loss of purchasing power hits the average guy for an extended period of time. To allow the crooks to manipulate the system continuously in their favor will produce much more social unrest.

  9. RueTheDay

    The problem here is the same as the problem experienced with all of the previous iterations of eurofixes. The European authorities want to solve the problem by announcing they have a solution that they have no intent of actually implementing. It’s Paulson’s bazooka over and over again.

    Also I literally laughed out loud when I read “joint control over the budgets of the member countries, including intervention rights” and the notion that this is some quick and easy alternative to a formal treaty change. A small number of core EU countries can’t even agree on specific terms for the Greek bailout, but all of Europe is going to quickly agree to give up their individual national sovereignty quickly and with minimal fuss?

  10. craazyman

    If Europe goes into depression, Germany will lose its export markets.

    Like any good dope dealer, they need to keep their clientele healthy enough to keep the cash coming in, without indulging in the product themselves. And a weaker euro will benefit everybody over there.

    This is why I think Joymany will find a way to “bring some lovin'” to the Eurozone, like Marvin Gaye said, so many years ago. Money can’t buy you love because it is love. And love can’t buy itself, it can only spread itself.

    Just not sure whether EWI is a double from here, or a double from $8. But a double it will be.

  11. wbgonne

    Finally the choice is made stark: there will either be democracy or financial rescue. There will not be both. Capitalism wins, democracy loses. Not that anybody cares, but I vote no.

    1. F. Beard

      there will either be democracy or financial rescue. wbgonne

      There could be both though. National money supplies and the taxation to support them could run alongside the Euro with whatever supports it.

      1. wbgonne

        That is how things are now. The proposal is to change things. Whatever remains of national sovereignty will be illusory.

  12. Lafayette

    THE “PLAN”

    The plan, which hasn’t been finalized, would allow the euro zone to announce a speedy change to its governance. European authorities would gain tough new powers to enforce fiscal discipline in the 17 countries that make up the euro zone, the people said. EU treaty changes could then follow at a later stage.

    This part of the “plan”, perhaps key to a non-repeat of the present EuroZone mess, is already in place. The Commission in Brussels has been given the power of National Budget Oversight – which, some will say (me included) – should have been undertaken at the inception of the EuroZone.

    It was obvious from the start that the 3% of GDP Debt Limit Rule would not be observed if there was no enforcement behind it. And thought the Maastricht Treaty did include fines for transgressing the limit, those fines were never applied. Which is, quite obviously, tantamount to gross negligence on the part of the oversight authority, that is, the Brussels EU Commission.

    The Germans were right to distrust the profligacy of the southern-belt EuroCountries – where politicians are notorious for spending their way into reelection after reelection after reelection, presuming always that more debt will be easy to obtain and sustain.

    One must wonder if the US has been similarly naive. But, most of the EuroZone Debt was not to maintain the world’s most potent Military Force (to the tune of $600B a year – or 20% of its budget.) The EuroZone debt performed its role of Social Safety Net when unemployment rates, since the early 1990s began to hover as high as 11% is some countries. And low historic growth rates in the countries concerned did not generate sufficient jobs to lower that high rate.

    So, Europe’s long-term challenge that will not go away, even after the EuroZone problem is put to rest, is that its long-term unemployment rate is far too high to be sustained by DebtSpending. How will the EU-Zone be able to obtain the growth rates of 2.5/3.0% that create jobs?

    And, of those jobs, how many of them will be as remunerative as those that have been lost? And, frankly, is this not the same challenge facing America?

    The answer, I submit, is that both America and Europe will be obliged to maintain a somewhat lower standard-of-living. The jobs that will be created will no longer be well-paying production work for which a modestly high level of skill was needed – and accordingly a higher pay scale as well.

    They will be Service Industry jobs where just the opposite applies. As regards manufacturing, indubitably the 25% of the American economy that produces employment can be maintained, but America must think of the single-most important component cost in Comp & Ben in terms of total manpower Comp&Ben.

    Meaning, the hallucinatory level of privatized health insurance. It is this very reason why the largest of the BigThree in the automotive industry tanked. And why average in the pocket wage levels remain constant whilst overall per-hour manpower costs are much higher.

    MY POINT

    The only answer to that remaining problem, which affects American productivity, is a National Health System that starts capping costs by mandating practitioner service pricing with the same cost controls to come for pharmaceuticals. The country must take control of its rocketing out-of-sight health care costs.

    1. Pete

      oh I hope you’re not talking about US health care. Such an embarassment:

      $spent : top in the world
      quality of care : average, unless you don’t have insurance. for those people, nearly zero
      cost-effectiveness of care : worst in the world
      profitability: best in the world

    2. Susan the other

      Amen. Health care is not a socialist giveaway. It is a human right. And to ignore the importance of it and continue to be extorted by (mostly) Big Pharma and the resistance of the health industry to true cost cutting (a la India! they are genius) is to whirlpool us all. We will be down the drain in no time. Our corporations will be scattered corpses. They (our corporations) should be behind single-payer like Occupiers.

  13. Otto

    Here is what Weidmann says in my opinion.

    In the early part of the interview he says that Eurobonds are possible after a process of political and fiscal integration that includes the right of European authorities to impose higher taxes on specific countries should they fail to live up to rules that they agreed upon. (He does not say how the Europeans would enforce this tax setting authority if they met state resistance.)

    In a later part, he says that printing money to finance sovereign debt is unsuitable for a monetary policy that has price stability as a priority. He says that as far as the Eurobond is concerned, governments will have to make the political decisions. But, he adds, they will be well advised to think about this as only feasible at the end of an integration process (the process earlier referenced involving political and fiscal integration with real enforcement processes in place). And then he adds: “Actually, at that point we will not need Eurobonds at all because the improved structure of the European currency union will be convincing” – with the “will be convincing” phrase also translatable into: “will create market confidence.”

    So, in my book, this all sounds like Weidmann basically pushing the big decisions off to the politicians and to parliament, and creating a scenario for Eurobonds that is far in the future and somewhat unrealistic.

    1. Pete

      >>> So, in my book, this all sounds like Weidmann basically pushing the big decisions off to the politicians and to parliament, and creating a scenario for Eurobonds that is far in the future and somewhat unrealistic.

      Covering his ass. He knows exactly how it will end- printing and inflation. Eurobonds bring Germany’s credit down to the level of its neighbors, and then they really have no choice.

    2. Lafayette

      He does not say how the Europeans would enforce this tax setting authority if they met state resistance.

      Dead simple. For all that the EU-countries pay into the the common fund, they get as much out in terms of direct funding of various projects (agriculture, infrastructure).

      They would see those funds dwindle to nothing to compensate the fine imposed.

  14. nils

    There won’t be Eurobonds without a change to the German constitution, the argument being that the government can’t cede fiscal authority to a foreign entity. The same goes for the EU budget police… To be honest, this smells a lot like treason.

  15. rf

    The higher interest rates on european debt should entice German savers (and their government and banks) to lend money. If they refuse, the borrowers will not be able to buy more stuff from Germany. So why won’t they lend? Maybe they no longer expect to be paid back?

    Its interesting how markets work sometimes – a safe investment , in this case sovereign debt, is safe until its not. At that point the lender often becomes the bad guy and the dumb one for making the loans in the first place and the borrower taken advantage of. It always the same – the safer the loan the more it’s encouraged the larger the exposure at banks and it all ends badly (check out the history of housing mortgage defaults in the U.S – safe until not.)

    I guess creating eurobonds to buy up all this debt with no strings attached is fine, but does it really solve the situation above. Somehow I don’t think so. It will certainly relieve the pressure but it will not fix the fact that germany sells too much and Greece buys too much. Right?

  16. Ignacio

    I mostly agree with your analysis. Eurocrats are, supposedly, the first interested on achieving agreements that save the euro. They are used to it it is said. But one day you seat there anf find that there are no longer common points where you converge during negotiations. Red lines have been crossed this time. That’s what I perceive from public postures. I would like to be wrong.

  17. Fiver

    I’m confused: I posted a comment circa 5 am EST (Nov 27) and got a message “Your comment is awaiting moderation”. I’ve had that a handful of times. So why when I come back now do I still see that message with my comment, when there are a whack of comments posted after mine? I assume that means nobody else sees my comment? Why? Are there hours I should not post comments? Please explain. Thank you.

    1. Foppe

      There are a few trigger words that put comments in a moderation queue, but due to the fact that Yves is fairly busy, I think she’s having trouble getting around to checking the queue for (in)appropriate comments.

      1. Fiver

        Thanks much for your response. Wish I knew what the “trigger” words were, as I’ve had the same thing happen on the next story on the EZ crisis. There was nothing offensive in my post(s) (unless a differing opinion is somehow offensive). But I did have a link to ZeroHedge in both. I’ll try not using the link. Thanks again.

  18. DiSc

    As Italian emigre I was at first appalled by how the Germans are removing governments and installing Euro-puppets like Monti.

    Then I went back to Italy and remembered why I left it in the first place: our criminal political class. There was very little democracy even before Monti took over. So as I see it now, any constraint on our politicians is welcome.

    As long as the new government does not start confiscating properties and give them to German and French banks, I am OK with it, and I suspect many Greek, Portoguese and even Spanish feel the same. I do not mind a German-dominated Italy, as long as the Italian looters are not replaced by European ones.

    Italians were never good at democracy anyway.

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