Thread: As The Euro Falls, Brussels Tries To Save Self

The euro crisis is a judgment on the great lie of 'Europe'

The EU is paying the price for its pursuit of 'integration' at any cost, says Christopher Booker

By Christopher Booker
Published: 7:00PM BST 22 May 2010
Comments 141


Nicolas Sarkozy and Angela Merkel, grim-faced, emerge from an EU leaders' summit on the eurozone crisis Photo: AP

Easily the most telling statement by any politician last week was that from an anguished Angela Merkel, in pronouncing that "the current crisis facing the euro is the biggest test Europe has faced for decades, even since the Treaty of Rome was signed in 1957". "If the euro fails," she went on, "Europe fails," warning that the consequences for the whole of Europe would be "incalculable".

We have still scarcely begun to wake up to the gravity of the crisis now upon us, not just for the eurozone but also for us here in Britain and for the entire global economy. The measures so far taken to prop up the collapsing euro, such as that famous "$1 trillion package", are no more than gestures.

Greece was just the antipasto: Italy, Spain, Portugal and others are now hanging over an abyss of debt which scarcely all the money in Europe could fill – created by countries living way beyond their means, thanks not least to the euro's low interest rates. The only possible consequence of the collapse of one of the world's leading currencies, leaving Europe with no money to trade in, would be utter chaos.

What we are witnessing here is a judgment on the entire deceitful and self-deceiving way in which the "European project" has been assembled over the past 53 years. One of the most important things to understand about that project is that it has only ever had one real agenda. Everything it has done has been directed to one ultimate goal, full political and economic integration. The headline labels put on the various stages of that process may have changed over the years, such as building first a "common market", then a "single market", finally a "constitution". But by far the most important project of all was locking the member states into a single currency.

This was always above all a political not an economic project, to be driven through at any cost, which was why all those "Maastricht criteria" laid down to bring it about were repeatedly breached. But as expert voices were warning as long ago as the 1970s, when it was first put on the agenda, there was no way economic and monetary union could work unless it was run by a single all-powerful economic government, with the power to raise taxes.

As was advised by Sir Donald MacDougall's report to Brussels in 1978, it could only work if, following the US model, between 20 and 25 per cent of Europe's GDP was available to such a government, to enable a huge transfer of wealth from richer countries such as Germany to the poorer, more backward countries of southern Europe – and how ironically has that come about!

When the 10-year-long construction of the euro began in the 1990s, all these warnings were ignored. The cart was put before the horse. So fixated were the Eurocrats on the need to get their grand project in place that the "rules" were treated as mere window dressing. The member states were locked together willy-nilly in a one-size-fits-all system, with a single low interest rate, enabling countries such as Italy, Spain, Portugal and Greece to live on a seemingly limitless sea of borrowed money. And now, entirely predictably, judgment day has come.

If the euro does disintegrate, as Mrs Merkel warns, the consequences would be incalculable. Replacing all the national currencies was a gargantuan task, by far the most ambitious ever attempted in the name of European integration, and there is no Plan B. Without a currency, trade would collapse – leaving Britain, dependent on Europe for 50 per cent of its trade, just as seriously affected as everyone else. A system failure on this scale would make the 1930s pale into insignficance.

Inevitably, cries went up last week for the EU to be transformed into a proper economic government with control over national budgets and
the power to raise taxes – exactly what MacDougall and others were talking about in the 1970s. But it is too late, and all that remains are desperate gestures.

As reported by the think tank Open Europe, Mrs Merkel was even calling last week for a "global" tax on financial transactions to raise 321 billion euros a year Europe-wide – 204 billion euros of which would come from Britain, still the world's leading financial centre, with 43 billion euros from Germany and just 17 billion euros from France.

As alarming as anything, with this tsunami roaring down on us, has been the sight of our new leaders preening themselves with their list of irrelevant little "coalition policies" and babyish boasts about the "greatest democratic shake-up since the 1832 Reform Act", as if none of this was happening. As one analyst put it: "They are like children let loose in the sweet shop, seemingly oblivious to the horrendous reality unfolding before us."

A well-known economist said wryly to me last week: "Bring back the days of Alistair Darling and Gordon Brown. At least they had some grasp of what is going on. This lot are just totally out of their depth."

http://www.telegraph.co.uk/comment/colu ... urope.html

As The Euro Falls, Brussels Tries To Save Self

As the euro fails, Brussels turns on us to save itself

The eurozone crisis and the ambitions of the European Commission will cost us dear, says Daniel Hannan.

By Daniel Hannan
Published: 9:00PM BST 22 May 2010
Comments 90


Angela Merkel: 'If the euro fails, then Europe fails.' Photo: Bloomberg
Politicians sometimes use the word "crisis" vaguely. Crisis is, appropriately, a Greek word. It means a moment of decision, a crossroads.

The EU faces now a crisis in the most exact sense. There are two ways in which it can treat the economic cancer that has taken hold in Greece, and which now threatens to metastasise across the Mediterranean. One is through amputation. Greece could be allowed to leave the euro and devalue, thereby pricing itself into the market and winning time to carry through economic reforms.

Another version of amputation, runs the rumour in Brussels, would be for Germany and its neighbours to create a new, hard currency among themselves, bequeathing the legal carcase of EMU to southern Europe. The effect would be the same: Greece and the other Club Med states would benefit from an immediate economic stimulus, and northern taxpayers would be excused having to fund a bail-out.

Most Eurocrats, however, regard amputation as a final resort. Instead, they prescribe a lengthy, debilitating and uncertain course of chemotherapy. The 16 members of the eurozone are putting up vast sums in what are euphemistically called loans, though few expect them to be repaid. German taxpayers, who were assured when the euro was launched that such aid would be illegal, are understandably furious.

Even angrier are the people of Ireland. Unlike Greece, Ireland has tightened its collective belt, with everyone from the Taoiseach to welfare recipients taking cuts. Irish voters now learn that, had they been less self-denying, they might have qualified for a bail-out of their own. Worse, they find themselves, as eurozone members, having to join the rescue consortium. At a time when their public-sector workers face pay reductions of between 5 and 20 per cent, the Irish must borrow an extra 800 million euros to send to Greece.

EU leaders know that they won't get away with this again. It will be politically impossible to ask the voters of Germany, Ireland or anywhere else to fork out for a second rescue package. So they are devising a mechanism where such fiscal transfers will happen automatically. On Friday, the European President, Herman Van Rompuy, will chair a meeting of EU finance ministers aimed at establishing what he calls "European economic governance".

Part of this governance involves creating a reserve account: a European Debt Agency, or European Monetary Fund. Part involves the harmonisation of financial supervision: a process especially damaging to Britain, and one which began last week with the almost unanimous approval of a new scheme to regulate investment funds, which are overwhelmingly based here.

Above all, though, Eurocrats want more moolah. Although Brussels has considerable executive, legislative and judicial power, it lacks fiscal clout. The EU budget accounts for 1.24 per cent of Europe's GDP, the US federal government for around 35 per cent of America's. The key ambition of most Euro-enthusiasts is to make themselves financially independent of the national governments through what they call "own resources": that is, money levied directly by Brussels. Own resources already exist, in that the EU automatically receives a component of VAT revenue from its member states, but almost every Euro-integrationist regards the amount as insufficient.

How to get the money? Some federalists dream of a pan-European income tax, to be levied by MEPs: the policy of, for example, the European People's Party. Other ideas include a levy on emails and a duty on international phone calls. Several member states like the idea of carbon taxes, or other green imposts.

In the present mood, there is especially strong support for a tax on financial transactions. Most EU financial transactions, of course, take place in London, which makes the scheme attractive on the Continent. Rather as happened with the Common Fisheries Policy, Britain would find itself disproportionately filling a pot from which others could draw.

Until now, our decision to keep the pound has sheltered us from the worst of the storm. (Isn't it time, by the way, that those who supported euro membership in the 1990s apologise to William Hague? His determination to see the single currency working "in good times and in bad " suddenly seems eerily prescient.) Being outside the eurozone, however, won't shield us from the negative consequences of Mr Van Rompuy's economic governance. EU supervision of financial services, a larger Brussels budget, a Europe-wide tax on banking transactions: these things will fall more heavily on Britain than on the states that abandoned their currencies.

What we are seeing, 11 years after the launch of the euro, is a vindication of what opponents of the single currency – and, indeed, its more honest supporters – argued all along, namely that you can't have monetary union without political union. If a state can't accommodate an economic shock in its interest rate or exchange rate, it will need to be bailed out. Common taxes mean common government – or, as Romano Prodi, the former head of the European Commission, put it last week, "fiscal federalism".

The EU has a way of thrusting itself uninvited into our affairs. Most ministers would gladly do without the distraction, but the ambitions of Brussels directly threaten the coalition's newly agreed domestic programme. Last week, for example, Nick Clegg spoke about the need to diffuse and democratise power in Britain, starting with a Great Repeal Bill. I cheered him lustily, having proposed precisely these things two years ago. The trouble is that his agenda will run up against the brute fact of the supremacy of EU law.

You can't decentralise power in the UK while centralising it in the EU. You can't object to the quango state while submitting to the biggest quango of the lot, namely the unelected European Commission. You can't ask for across-the-board budget savings while increasing our net contributions to Brussels by 60 per cent. You can't strengthen parliamentary control over the executive when orders-in-council simply implement EU rulings. You can't, in conscience, give people a referendum on how to elect their MPs while denying them a referendum on whether those MPs are sovereign.

When the Lisbon Treaty was adopted, many thought that the EU would try to digest it before consuming additional powers. But the crisis in Greece has whetted its hunger anew. Satisfying that appetite will be expensive for all of us.

Daniel Hannan is a Conservative MEP and writes every day at blogs.telegraph.co.uk

http://www.telegraph.co.uk/comment/colu ... tself.html

The new feudal overlords of Europe will be the bankers of the ECB
According to the economist Friedrich von Hayek, the development of welfare socialism after the Second World War undermined freedom and would lead Western democracies inexorably to some form of state-run serfdom.

By Peter Boone and Simon Johnson
Published: 7:02PM BST 22 May 2010
Comments 13

The new feudal overlords of Europe will be the bankers of the ECB.
Hayek had the sign and the destination right, but was wrong about the mechanism. Unregulated finance, the ideology of unfettered free markets, and state capture by corporate interests are what ended up undermining democracy both in North America and in Europe. All industrialised countries are at risk, but it's the eurozone – with its vulnerable structures – that points most clearly to our potentially unpleasant collective futures.

As a result of the continuing euro crisis, the European Central Bank (ECB) now finds itself buying up the debt of all the weaker eurozone governments, making it the – perhaps unwittingly – feudal boss of Europe. In the coming years, the ECB and the European Union will dictate policy. The policy elite who run these structures – along with their allies in the private sector – are your new overlords

It is arguable who exactly are the peasants, the vassals and the lords under this model – and what services will end up being exchanged, but there is no question we are seeing a sea change in the post-war system of property, power and prosperity across Western Europe, just as Hayek feared. An overwhelming debt burden will bring down even the proudest people.

The ECB-EU approach will not return countries to reasonable levels of growth – the debt overhang is simply too large. The southern and western periphery of the eurozone cannot grow out of their debts under these arrangements and so will stumble from stabilisation programme to stabilisation programme – as did Latin America in the 1980s. This is bound to lead to hostile politics, social unrest and more economic crises.

The International Monetary Fund will do just what the EU and ECB asks to keep the charade in place. The old days when all member countries got presents from the eurozone are long gone; now it is all instructions and austere requirements. But enough resources will be provided to keep everything rolling over.

The top three French musketeers – President Nicolas Sarkozy, Jean-Claude Trichet (ECB), and Dominique Strauss-Kahn (IMF) – presumably they think they will end up running things. More surprising is the reaction of other European leaders, who genuinely seem convinced that what they are doing makes sense – as opposed to being a series of crazed improvisations.

The market is telling them otherwise, and the market is probably right. Faced with the ugly reality of the loss of confidence in European finance and institutions, the Germans and even the normally sensible Swedish government are increasingly blaming "irrational" markets and speculators for homegrown problems.

The messy solution of the EU leaves the world at risk of the type of shocks we observed last week. This particular iteration may blow over, but another will arise when there is backlash in Athens, Dublin, Lisbon, or – heaven forbid – Madrid.

Meanwhile, rational market participants are selling debt of risky nations, and getting out of the euro. The whole fiasco is now leading to a shift away from risky assets all around the world, and the worldwide cost of such volatility is not small. Debt peonage looms for a range of countries that were recently thought immune to serious fiscal crisis, including the United States and UK.

It is inappropriate for the Europeans to subject the rest of the world to these large, chronic risks. Europe should recognize that insolvencies never end well. The crisis in Britain in the 1970s is the model for what can go wrong : ongoing strikes, populations disenchanted with authority and great economic disruption. When the assets are cheap, deep-pocketed investors from the US, China, India and, of course, Russia will swoop in for the crown jewels.

It is time to look in the mirror and recognize the problem. Several nations in Europe are bordering on insolvency, and it is now pretty clear that we shouldn't just "bandage" over that for a few years with aid packages.

To deal with this insolvency we need to restructure the debts of those nations, but in a way that does not destabilize Europe's fragile banking system. And it needs to be credible enough so that once restructured, the troubled nations will easily be able to finance themselves. Europe now has the €750bn package of assistance in place and they should use it to fix the problem once and for all. The ingredients for a solution include:

Announcing an orderly restructuring of the periphery countries' debt (Greece, Portugal and probably Ireland). This should start with a standstill budget.
Regulatory forbearance explicitly provided to all European banks, with a backstop of ECB liquidity and a €500bn support programme to provide capital injections – as happened in the United States in 2008-09.
The nations not restructured need to be supported via ECB liquidity lines that guarantee the rollover of their government debt.
The G20 needs to provide support to prevent chaotic foreign exchange markets, but also accept a further devaluation of the euro. At some point, the G20 will need to intervene to support the euro via central banks.
Such a comprehensive package of measures would be painful, but it is the only realistic solution to this chaos. It would also restore some credibility to Mr. Trichet and the ECB, who, at this stage, appear captives of the fiscal crises in the eurozone.

Unfortunately, there is no leadership today in Europe that could take such decisive actions, so Europe will only reform itself dragged kicking through successive crises until the current, and many ensuing, problems are resolved.

The UK and US need to prepare themselves for more storms. The United States will be in the pleasant position as the world's safe haven, but this will only encourage America's profligate politicians to spend more and build more debt.

The UK will bear much more pain from euro devaluation and financial dislocation, all exacerbated by its own large deficit and debts. We might well see one more invasion across the channel, this time by bond vigilantes who question Britain's ability to rein in inflation as it builds too large debts.

At the end of this great tumult, Europe and the UK will have sound fiscal regimes. Debt will be defaulted on or inflated away, and nations will have dramatically cut spending.

Hayek's predicted demise of western society as he knew it will prove correct, but welfare socialism will prove the victim, erased by a political and financial elite gone awry.

Peter Boone is chairman of the charity Effective Intervention, a research associate at the London School of Economics' Centre for Economic Performance and a principal in Salute Capital Management Ltd. Simon Johnson, former chief economist of the IMF, is a professor at MIT Sloan and senior fellow at the Peterson Institute.

http://www.telegraph.co.uk/finance/fina ... e-ECB.html

So where can you get a charge card denominated in Euros? I wonder if a US citizen could get a European bank loan based upon US income? Credit Union, maybe?

Dec 3, 2009 I Euro equals 1.51 US
May 21, 2010 1 Euro equals 1.25 US