Dear Dr. Krugman, It's About Sovereignty, Not The Liquidity Trap [View article]
Mr Roche, I love to criticize Krugman like the next man but I believe you both have the same argument. Krugman did not say countries "borrow their currency" , he said they borrow "in" their currency. So he may be actually making the same sovereignty argument as you.
Basically implying that Europe's woes are almost entirely the product of the political uncertainty of trying to manage a loose political confederation within tight monetary rigidity. With the ability to issue debt in their own currency (and run monetary policy in balance with this), the yields on these sovereigns individually would not be nearly so high. Unfortunately the EU crisis may show that there are occasions where the sum of the parts may actually be GREATER than the whole?
3 Key European Developments To Consider [View article]
I share some of your views but not others Marc... Any leader would have done the same thing ultimately (asked for veto) but none would have gone about it the way Cameron did...
This was a diplomatic disaster for the UK. Cameron thought he could walk into a room filled with highly seasoned politicians all trying to "save the Euro" and bring new ultimatums to the table while they appeared in a diplomatically vulnerable position on the proviso that he held an all powerful veto to their efforts - he was trying to hold them over a barrel. What he did not anticipate was that they could move the goal posts quite as expediently as they did. He walked into a (pretty obvious) trap in my opinion. I'll tell you two people that anticipated this possibility (although they may not have predicted it)...
1. A Mekel 2. N Sarkozy
It was not the ends (veto) but the means (negotiation tactics) that left Cameron looking like a political novice.
3 Key European Developments To Consider [View article]
Marc I think the article is good but I think you have underestimated Merkel's political astuteness. I reckon she and others in the room knew exactly what Cameron would do before he'd even uttered a word. They 'd already lined up their legislative ducks to simply cut the Brits out and move on with remarkable speed - makes one think that it was almost pre-meditated if not expected.
Cameron was a mug not because he exercised his veto (I believe any UK leader would have done the same) but the way he went about it. It was the means not the end which determined Britain's isolation. By instigating his conversations first and primarily with a threat of veto it was easy for the other 26 nations (led by France and Germany) to spin the table on Cameron as an unconstructive participant who did not have the success of the EU at heart. As a result he did not even get to put all his bargaining chips on the table for all (especially non-German/French members) to appreciate and digest. This was a bad outcome for Britain... but not for France and Germany.
Europe Hasn't Been Saved And The Can They're Kicking Just Gets Heavier [View article]
I guess this opens an interesting debate.
Given that there is no such thing as a flawless political or economic construction. When does a hefty "can kick" deserve the right to be considered an "effective solution"?
The Folly Of Underestimating Germany And The ECB [View article]
Strike I actually agree with much of what you say... but as to whether German fiscal discipline is either a panacea or benchmark of political morality within the context of a European confederation... well after reading this "http://bit.ly/uO0ZGd" let's just say that's a matter of opinion...
That said I agree with the sentiment of what you are saying. If the Euro is to survive it needs the stoic, strict, fair and transparent political structure, with automatic punitive measures for fiscal mismanagement.
And, yes, Cameron is an muppet for the way he played his hand and has left the British economy in a very vulnerable place with respect to Europe. I feel he has done the British public a disservice by offering only political criticism without ever seemingly expressing any creative input of his own. I thought that was what we employed politicians for? Perhaps I'm too old fashioned.
You're right about the time/speed issue. European politics is glacial on a national level. On a supranational level it's practically stationary. It may surprise non-Europeans that the current pace of political change is the fastest we've seen in decades.
Some comfort can be drawn from the fact that EU leaders are at least negotiating on the right axis now though.
You can imagine Sarkozy saying: OK Angela I've conceded on the structural issues/long term solvency (Treaty Change), now you give me (my banking sector) some leeway on shorter term liquidity measures (Eurobonds/ECB-printin... financing etc)... this is a much better place than Europe was at 2 weeks ago. A comprehensive "solution" is actually possible now - whether it is likely or not is another matter.
No central bank is perfect. A lot of the problems concerning the Fed have arisen out of it's significantly more politicized mandate. Giving "decision-makers" on the board significantly more flexibility (power).
Europeans have been berated for their inflexible, stoic, Germanic central bank, but there is a plus side. In terms of addressing the root cause of mega asset bubbles, there is something to be said for a central bank with a simpler, less politically convoluted mandate.
The Folly Of Underestimating Germany And The ECB [View article]
Yes. Would be interesting to see just how that would go down with a German electorate in the long run! I think it was Kit Juckes who said, the Euro is a "brittle" currency in the sense that it's either "Strong or Gone" ... if Merkel gets her way it may be too strong for her comfort.
The Folly Of Underestimating Germany And The ECB [View article]
Agree CP that has indeed been the case historically and that was a miscommunication on my part. However what I meant to say was that I think the German industrial base understand that the FUTURE of German export growth is more dependent on countries like China than peripherals and countries like Belgium - which have some serious economic problems of their own.
My general point is, if this was all about German's protecting their precious manufacturing base I'm not sure they'd be embracing measures which would support a EUR exchange rate. I cannot help feeling that, looking forward, it's in Germany exporter's interest to see a suppressed EUR exchange rate.
The Folly Of Underestimating Germany And The ECB [View article]
Great post. At last somebody is writing objectively on the political dynamics in Europe.
This is not all about Germany trying to bully the rest of Europe. So much is made about how much the powerful South German industrial elite has benefited from a weaker Euro and yet the same representation do not favour ECB money-printing which would be negative to the Euro - boosting export returns.
The fact that we are talking about Treaty Change means that the Germans recognize the EU as a poorly engineered machine which needs re-design. http://bit.ly/w3dmFU ... written months ago. The debate is moving in the right direction (finally) which means so too are the knock-on political negotiations. The question is, given the momentum of political nationalism within Europe over the last 2 years... is this all too late? March 2012 seems like a long way away.
Convention would suggest that inflation hits only the middle class. But in this global slump where wage inflation has effectively stagnated in developed countries, so I can't help thinking it is hitting the poor too.
Yes... another way of putting it is that there are long term solutions which need to be addressed (Treaty Change or "German control" if you like) before the short term "solutions" will provide any traction (ECB printing/EFSF collateralization). In my opinion, putting liquidity quick fixes before structural design no longer even serves the purpose of kicking the can - it now only exacerbates the fractures of a divided Europe.
I think the Germans realize that Europeans must first admit that the very substance of the EU (e.g. original Maastricht Treaty, Stability and Growth Pact etc) was a poorly engineered machine. My main fear that this is too little too late, we should have been having conversations centered around treaty change (and the knock-one political negotiations which come with this) a long time ago when the open nationalistic wounds were less painful.
Euro's Demise Has Been Greatly Exaggerated [View article]
In my opinion this is as much a chart of the dollar's demise as it is the Euro's ascendance. Over a similar time period against the Yen or Swissie the chart does not look quite so impressive. In the relative race to annihilation the USD is debasing faster than the Euro - that could change of course, but it's the way things have been for over a decade now.
There are genuine signs of hope with talk of Treaty Change, but this is only one leg of a three-legged solution stool, I think. So I don't think the Euro's demise is over-hyped, when you leave any solution in the hands of European politicians it's not illogical to predict the worst.
Dear Dr. Krugman, It's About Sovereignty, Not The Liquidity Trap [View article]
I love to criticize Krugman like the next man but I believe you both have the same argument. Krugman did not say countries "borrow their currency" , he said they borrow "in" their currency. So he may be actually making the same sovereignty argument as you.
Basically implying that Europe's woes are almost entirely the product of the political uncertainty of trying to manage a loose political confederation within tight monetary rigidity. With the ability to issue debt in their own currency (and run monetary policy in balance with this), the yields on these sovereigns individually would not be nearly so high. Unfortunately the EU crisis may show that there are occasions where the sum of the parts may actually be GREATER than the whole?
3 Key European Developments To Consider [View article]
This was a diplomatic disaster for the UK. Cameron thought he could walk into a room filled with highly seasoned politicians all trying to "save the Euro" and bring new ultimatums to the table while they appeared in a diplomatically vulnerable position on the proviso that he held an all powerful veto to their efforts - he was trying to hold them over a barrel. What he did not anticipate was that they could move the goal posts quite as expediently as they did. He walked into a (pretty obvious) trap in my opinion. I'll tell you two people that anticipated this possibility (although they may not have predicted it)...
1. A Mekel
2. N Sarkozy
It was not the ends (veto) but the means (negotiation tactics) that left Cameron looking like a political novice.
3 Key European Developments To Consider [View article]
Cameron was a mug not because he exercised his veto (I believe any UK leader would have done the same) but the way he went about it. It was the means not the end which determined Britain's isolation. By instigating his conversations first and primarily with a threat of veto it was easy for the other 26 nations (led by France and Germany) to spin the table on Cameron as an unconstructive participant who did not have the success of the EU at heart. As a result he did not even get to put all his bargaining chips on the table for all (especially non-German/French members) to appreciate and digest. This was a bad outcome for Britain... but not for France and Germany.
Europe Hasn't Been Saved And The Can They're Kicking Just Gets Heavier [View article]
Given that there is no such thing as a flawless political or economic construction. When does a hefty "can kick" deserve the right to be considered an "effective solution"?
The Folly Of Underestimating Germany And The ECB [View article]
That said I agree with the sentiment of what you are saying. If the Euro is to survive it needs the stoic, strict, fair and transparent political structure, with automatic punitive measures for fiscal mismanagement.
And, yes, Cameron is an muppet for the way he played his hand and has left the British economy in a very vulnerable place with respect to Europe. I feel he has done the British public a disservice by offering only political criticism without ever seemingly expressing any creative input of his own. I thought that was what we employed politicians for? Perhaps I'm too old fashioned.
The Great Western Crackup [View article]
Perhaps trying to choose between Western Central Banks is much like choosing between pieces of dog muck on the bottom of one's shoe.
Europe - Fiscal Union Or Bust? [View article]
Some comfort can be drawn from the fact that EU leaders are at least negotiating on the right axis now though.
You can imagine Sarkozy saying: OK Angela I've conceded on the structural issues/long term solvency (Treaty Change), now you give me (my banking sector) some leeway on shorter term liquidity measures (Eurobonds/ECB-printin... financing etc)... this is a much better place than Europe was at 2 weeks ago. A comprehensive "solution" is actually possible now - whether it is likely or not is another matter.
The Great Western Crackup [View article]
Europeans have been berated for their inflexible, stoic, Germanic central bank, but there is a plus side. In terms of addressing the root cause of mega asset bubbles, there is something to be said for a central bank with a simpler, less politically convoluted mandate.
The Folly Of Underestimating Germany And The ECB [View article]
I think it was Kit Juckes who said, the Euro is a "brittle" currency in the sense that it's either "Strong or Gone" ... if Merkel gets her way it may be too strong for her comfort.
The Folly Of Underestimating Germany And The ECB [View article]
However what I meant to say was that I think the German industrial base understand that the FUTURE of German export growth is more dependent on countries like China than peripherals and countries like Belgium - which have some serious economic problems of their own.
My general point is, if this was all about German's protecting their precious manufacturing base I'm not sure they'd be embracing measures which would support a EUR exchange rate. I cannot help feeling that, looking forward, it's in Germany exporter's interest to see a suppressed EUR exchange rate.
The Folly Of Underestimating Germany And The ECB [View article]
This is not all about Germany trying to bully the rest of Europe. So much is made about how much the powerful South German industrial elite has benefited from a weaker Euro and yet the same representation do not favour ECB money-printing which would be negative to the Euro - boosting export returns.
The fact that we are talking about Treaty Change means that the Germans recognize the EU as a poorly engineered machine which needs re-design. http://bit.ly/w3dmFU ... written months ago. The debate is moving in the right direction (finally) which means so too are the knock-on political negotiations. The question is, given the momentum of political nationalism within Europe over the last 2 years... is this all too late? March 2012 seems like a long way away.
Europe - Fiscal Union Or Bust? [View article]
Europe - Fiscal Union Or Bust? [View article]
I think the Germans realize that Europeans must first admit that the very substance of the EU (e.g. original Maastricht Treaty, Stability and Growth Pact etc) was a poorly engineered machine. My main fear that this is too little too late, we should have been having conversations centered around treaty change (and the knock-one political negotiations which come with this) a long time ago when the open nationalistic wounds were less painful.
Europe - Fiscal Union Or Bust? [View article]
Euro's Demise Has Been Greatly Exaggerated [View article]
There are genuine signs of hope with talk of Treaty Change, but this is only one leg of a three-legged solution stool, I think. So I don't think the Euro's demise is over-hyped, when you leave any solution in the hands of European politicians it's not illogical to predict the worst.