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Tuesday, 11 September 2012

Sturm und Drang

So far only 3 of the 17 Eurozone nations haven't signed the ESM pact; Germany, Italy and Estonia. Germany's constitutional court is set to deliver it's ruling tomorrow on the legality of such a move. Will it block it?
Unlikely. It will probably make some minor restrictions that Merkel's government can overcome

Isn't the ESM just the ECB in another guise?
Yes. It's the evil Edward Hyde to the ECB's good Docter Jekyll, able to do stuff the ECB isn't allowed to under the treaties, like buy government bonds directly, lend to national governments without limit, and to bail out bust banks. When its 'own' €700bn runs out it can borrow more from, er, the ECB and other banks and capital markets

Where would the ECB get the money from? It's already holding an undisclosed liability of junk bonds (some say in contravention of article 123) and iffy Southern government securities against loans
Print it, silly. That's how the ECB's paying for the junk bonds anyway.

What if the ESM's national borrowers can't repay their loans? Who's liable?
All 17 members of the ESM are jointly and severally liable for losses. If some of the 17 are bankrupt, the others pick up the tab with additional contributions

Isn't this just a formula for moving wealth from Germany and the sound Northern nations to the bankrupt and improvident South?
Of course. German workers will be paying for Spanish social security payments; that's what economic union means, silly

Won't it be inflationary?
Yup. Particularly if the ECB prints more money. And the Euro will fall in value, making exports more competitive but making imports such as oil and gas much more expensive. So the poor Germans may end up shivering in Winter to keep the Algarve going.  

Don't the German voters have a say in this?
Now you're being really silly.


G. Tingey said...

If the German voters don't have a say now, they will have, at some future point.
Which could be messy for whoever got them into this mess.

Why do you think Merkel is hedging her bets, and being so publicly reluctant to endorse everything that comes from the ESM/ECB/Brussel these days?

cuffleyburgers said...

Well put, and put like that it really is clear just how unsustainable this show is, the trouble is that that when the wheels do finally come off it is hard to predict how bad it might be, either economically, or in terms of social upheaval.

Anonymous said...

What is the one thing built into German DNA, that "up with, they will not put"?


What was it that the UK did on the 16th September 1992..?

...Leave the forerunner of the Euro, the ERM, because the rules coupled with the actions of our daft chancellor, meant that the British economy would inflate so rapidly that the Zimbabwe experience would look like a tea party, had they not reluctantly "rtd ht.".

What followed was a period of low inflation, strong growth, so much so, that it took a whole thirteen years of Labour misgovernment, to destroy it, and even then it took the US banking crisis to finally topple it.

I wonder if Germans have any memory of this?

hatfield girl said...

But the Bank of England's being doing all this and worse for years. If it's bad for Europe why isn't it equally bad for the UK?

Ian Hills said...

The Greeks have decided to resume their demands for wartime reparations. Apparently it's worth a damn sight more than their debts.

Anonymous said...

@hatfield girl...

Agreed, but there is a difference, we have a government that is able to take whatever measures it and its financial advisors deem appropriate... (Whether that is good or bad, depends on opinion).

...Whereas, the countries that are bound together in the Eurozone, do not have that ability...

The result is that seventeen different nations, all with different ways of doing things are effectively paralysed, until something like Raedwald is commenting on happens, or until there is a single central government...presumably run by the Germans (and French in a very small way), to the exclusion of all of the rest.

Which is why the people in those countries are a little bit miffed with their respective "democratic" governments.

And why the European Commission, is jumping for joy at the manner in which this beneficial crisis is shaping up for them.

hatfield girl said...

I'm sure I saw Gordon Brown signing the Lisbon Treaty on the telly. The UK is supposed to have an independent central bank, and conform to the stability and growth pact requirements etc.

Are you telling me, Right, that the UK regards all that now as optional? Has it left the EU without mentioning it - the famous 'English goodbye", just slipped away?