Group items tagged

The philosopher Isaiah Berlin famously distinguished between two styles of thinking, which he identified with the hedgehog and the fox. The hedgehog is captivated by a single big idea, which he applies unremittingly. The fox, by contrast, lacks a grand vision and holds many different views about the world – some of them even contradictory.

Draghi

a break from the era of missed targets and loose implementation towards a new paradigm of steadfast reform momentum,

Greece, where the euro zone’s debt crisis erupted in late 2009, is the currency area’s most heavily indebted country, despite a big “haircut” this year on privately held bonds.

The key question remains whether Greek debt can become sustainable without euro-zone governments having to write off some of the loans they have made to Athens.

The International Monetary Fund will not disburse Greece's next bailout tranche until the country completes a voluntary buy back of its debt, an IMF spokesman said

Who will actually sell the debt at a 70% discount?

Two thirds of the private holders of Greek debt are Greek banks (22 billion euro). These are certainly not going to sell because doing so forces them to realize losses on the debt,

There is a simple and obvious solution, which will then force itself. The official creditors should take really substantial losses on Greek debt.

The only real alternative is Greece leaving the euro

This situation is basically a slow asphyxiation.

That is the lowest level since 1972.

Its trade deficit has been shrinking — down 28 percent for the first 10 months of this year,

“From 2008, we suddenly realized that we had lost a lot of competitiveness and needed to work very hard to improve things, particularly in terms of labor issues and logistics,

Over all, Spain’s unit labor costs — a measure of productivity — are down 4 percent since 2008, according to Eurostat, the European statistics agency.

In a related measurement, the most recent Eurostat data put Spain’s average hourly labor cost at 20.60 euros which was well below Germany’s 30.10 euros and France’s 34.20 euros.

The car sector employs 280,000 people in Spain, including parts suppliers, and accounts for a tenth of the country’s economic output. About 85 percent of the industry’s workers are on long-term contracts.

Even if driven much farther, 150,000 kilometers, an electric car’s CO2 emissions will be only 28% less than those of a gasoline-powered car. During the car’s lifetime, this will prevent 11 tons of CO2 emissions, or about €44 of climate damage.CommentsView/Create comment on this paragraphGiven the size of the subsidies on offer, this is extremely poor value. Denmark’s subsidies, for example, pay almost €6,000 to avoid one ton of CO2 emissions. Purchasing a similar amount in the European Emissions Trading System would cost about €5. For the same money, Denmark could have reduced CO2 emissions more than a thousand-fold.

I regarded the European Union as the embodiment of an open society – a voluntary association of equal states who surrendered part of their sovereignty for the common good.

The process of integration was spearheaded by a small group of far sighted statesmen who recognised that perfection was unattainable and practiced what Karl Popper called piecemeal social engineering. They set themselves limited objectives and firm timelines and then mobilised the political will for a small step forward, knowing full well that when they achieved it, its inadequacy would become apparent and require a further step.

Unfortunately, the Maastricht treaty was fundamentally flawed. The architects of the euro recognised that it was an incomplete construct: a currency union without a political union. The architects had reason to believe, however, that when the need arose, the political will to take the next step forward could be mobilized. After all, that was how the process of integration had worked until then.

When the Soviet empire started to disintegrate, Germany's leaders realized that reunification was possible only in the context of a more united Europe and they were prepared to make considerable sacrifices to achieve it. When it came to bargaining, they were willing to contribute a little more and take a little less than the others, thereby facilitating agreement.

The financial crisis also revealed a near fatal defect in the construction of the euro: by creating an independent central bank, member countries became indebted in a currency they did not control. This exposed them to the risk of default.

Developed countries have no reason to default; they can always print money. Their currency may depreciate in value, but the risk of default is practically nonexistent. By contrast, less developed countries that have to borrow in a foreign currency run the risk of default. To make matters worse, financial markets can actually drive such countries into default through bear raids. The risk of default relegated some member countries to the status of a third world country that became over-indebted in a foreign currency. 

The emphasis placed on sovereign credit revealed the hitherto ignored feature of the euro, namely that by creating an independent central bank the euro member countries signed away part of their sovereign status.

In retrospect, that was the root cause of the euro crisis.

What happened in Cyprus undermined the business model of European banks, which relies heavily on deposits. Until now the authorities went out of their way to protect depositors

Banks will have to pay risk premiums that will fall more heavily on weaker banks and the banks of weaker countries. The insidious link between the cost of sovereign debt and bank debt will be reinforced.

In this context the German word "Schuld" plays a key role. As you know it means both debt and responsibility or guilt.

If countries that abide by the fiscal compact were allowed to convert their entire existing stock of government debt into eurobonds, the positive impact would be little short of the miraculous.

Only the divergences in competitiveness would remain unresolved.

Germany is opposed to eurobonds on the grounds that once they are introduced there can be no assurance that the so-called periphery countries would not break the rules once again. I believe these fears are misplaced.

It is up to Germany to decide whether it is willing to authorise eurobonds or not. But it has no right to prevent the heavily indebted countries from escaping their misery by banding together and issuing eurobonds. In other words, if Germany is opposed to eurobonds it should consider leaving the euro and letting the others introduce them.

Individual countries would still need to undertake structural reforms. Those that fail to do so would turn into permanent pockets of poverty and dependency similar to the ones that persist in many rich countries.

Second, the European Union also needs a banking union and eventually a political union.

If Germany left, the euro would depreciate. The debtor countries would regain their competitiveness. Their debt would diminish in real terms and, if they issued eurobonds, the threat of default would disappear. 

But such a pact would be circumscribed to helping countries help themselves.

But government debt is still growing considerably. Doesn't this also increase the risk of inflation? Starbatty: That's what I assume. Inflation would be an elegant means of reducing debt, and many academics are discussing this scenario. But it becomes truly problematic when government bonds eventually lose their status as a safe haven. If China or Japan arrive at this conclusion and sell their bonds, a bubble could burst that is far more dangerous than any other bubble. If that happens, markets will plunge, and interest rates will shoot up.

Likewise, when it comes to assistance, I think we have a clear legal framework, according to which neither any member state nor the entire Union can be held liable for the debt of another member state.

the powers to “resolve” failed banks

these powers also require a pot of money (or at least a promise to pay) to clean up the mess l

The third leg is a credible euro-wide guarantee on deposits to reassure savers that a euro in an Italian or Spanish bank is just as safe as one in a German or Dutch bank.

The second element of the decision taken by heads of states was to instruct the EBA to do a so- called capital exercise that marked to market sovereign debt and effectively raised abruptly capital requirements. The exercise required banks to have a core tier-1 ratio of 9%, and on top of that a buffer to make up for differences in market and book value of government debt. That famous capital exercise created the capital crunch in the euro area which is the cause of the recession we've had in the euro area for the last 2 years.

By creating a labour glut, new technologies have trapped rich economies in a cycle of self-limiting productivity growth.