Olli explains why everything will be alright.

Euroband group fails to destabilise German leader

A strongly pro-eurobond EU faction, helped by some key banking figures, has been working overtime – via diplomacy and in the media – to isolate Angela Merkel, The Slog has been told. The strategy is to dilute her intransigence on the question of eurobonds – without which, the plotters feel, the eurozone will fail. But the eurozone Establishment has moved swiftly to crush the rebellion.

Immediately after the last Sarkozy-Merkel summit (says a reliable Brussels source) senior members of a pro-eurobond elite met, in the afternoon of 18th August, to discuss what they regard as the implacable opposition of German Chancellor Angela Merkel to the concept of a eurobond to create several responsibility for eurozone debt. Over the following weekend they outlined a strategy to persuade Frau Merkel to soften her attitude. During last week, an outline of the programme was shown to at least two European leaders. European sources hint that Jose Manuel Durao Barroso, the Portuguese EU President, was aware of the moves against the German leader, and actively supported their aim. The position (if any) of Herman Van Rompuy is unclear.

In the brief period since, a wave of articles has appeared in the press, focusing on Merkel’s weak domestic position and arguing that she is putting German considerations before the EU. In turn, several pieces – in titles as various as the Financial Times and the Wall Street Journal – have reiterated the case for a eurobond, in every case suggesting that without such an approach, the markets will never regain confidence in the common currency. This was in marked contrast to the previous majority view that now is the wrong time to introduce such bonds.

Like most things EU, however, the plan is half-baked, and has been executed in a kack-handed manner.

“Merkel is only in a weak German position if she goes completely native on EU bailouts,” said one German source yesterday. “She will play to the gallery with German voters and, if anything, the hardening of voter attitudes will act directly against any eurobond. I find it fascinating, if it is true, that there are people in Brussels, and banking, so desperate for a eurobond. It will come, but not now”.

Parisian contacts also suggested last night that Nicolas Sarkozy will continue to support Frau Merkel come what may. “It’s not in his interests to do otherwise,” claimed one well-placed source, “he is desperate to isolate French banks from the contagion. Having been appraised now of how bad the situation is here, Sarkozy would not back a eurobond at the moment. Attaching himself to Merkel’s apron strings is his only hope”.

Meanwhile, the Establishment has already hit back powerfully. Yesterday, Commissioner Olli Rehn made the official position clear to a senior gathering in Brussels:

“…..there are currently rather high expectations on how eurobonds could help solve the debt crisis by pooling the debt issuance of euro-area member states. However, it is clear that eurobonds, in whatever form they were to be introduced, would have to be accompanied by a substantially reinforced fiscal surveillance and policy coordination as an essential counterpart, so as to avoid moral hazard and ensure sustainable public finances. This would have unavoidable implications for fiscal sovereignty, which calls for a substantive debate in euro area member states to see if they would be ready to accept it.”

ECB President Jean-Claude Trichet was also quick to rubbish the eurobond as a short-term solution, continuing to maintain – despite a mountain of evidence to the contrary – that the euro is strong, the banks are well-capitalised, and so a eurobond will not be needed.


Once again, of course, this very clear EU elite denial – unique in that it denies not just the solution but also the existence of a problem in the first place – demonstrates the complete isolation of UK Chancellor George Osborne – a man who has hitched his wagon to eurobonds in recent weeks. But above all, the situation in the EU as of right now demonstrates what The Slog has always felt: when push comes to shove, the individual member States do not love the euro enough to give huge dollops of welfare to those who have overspent unwisely….overspent, lest we forget, the cheap money they were given equally unwisely by private lenders and the ECB in the first place.

National selfishness will prevail. An excellent example of this at present is the sudden demand for collateral in return for Greek bailout 2. The Finns are effectively demanding the next stage of help be a loan secured against assets. As these are the same assets Greece has to sell just to survive, it’s hard to see how that one is going to work.

The Finns and the Greeks started off by working out a side deal, under which Athens would deposit a chunk of cash in an escrow account for Finland to ensure Helsinki’s support for the bailout. That quickly fell apart, because it was an insane idea,  Germany opposed it, and other eurozone nations, including Austria and the Netherlands, understandably demanded the same privilege as Finland. The best part of a dozen EU finance ministries are still squabbling over what to do.

Those of us in regular touch with the markets know exactly how this is playing: very, very badly. When Trichet says the Euro is “a sound currency” because its value is holding up, he is being invidious: his own bank (with US and Chinese help) is buying euros to hold that position. It’s not the price of the euro that’s at issue here: it’s the behaviour of the clowns reputed to be in charge of eurozone finances. From the outside, they look to be exactly what they are – a continent of hagglers, loafers, bureaucrats and self-interested politicians who are not only incapable of concerted action: they are hopelessly vague on what the action should be.
We should all keep a close watch on how the German electorate behaves in the coming days: a week tomorrow, there is the crucial vote to support Greek bailout 2. This (see above) is already unravelling: if the German Parliament rejects it, the euro is dead in the water.



  1. ““Merkel is only in a weak German position if she goes completely native on EU bailouts,” ”
    I cant imagine her being called Merkel The Mighty when the iPigs turn round and tell German (and French) banks they are going to be repaid in Neo Drachma/Lira/Peseta.

    I dont get German strategy here.
    iPig collapse ruins Germany, because its Germany to whom they owe.


  2. “We should all keep a close watch on how the German electorate behaves in the coming days: a week tomorrow, there is the crucial vote to support Greek bailout 2. This (see above) is already unravelling: if the German Parliament rejects it, the euro is dead in the water.”

    Has the German electorate got any more say than the British electorate with regard to what their elected representatives do once they are in power?


  3. “European sources hint that Jose Manuel Durao Barroso, the Portuguese EU President, was aware of the moves against the German leader, and actively supported their aim.”

    This is not surprising since Portugal is bankrupt and living on EU Welfare.
    Ditto its state-funded industries including the state-owned airline TAP.


  4. Depends. One option for the euro is to leave it as-is for the PIIGS and create a new Euro for Germany and other northern EU members to join.
    Apart from that, Merkel is looking hard at her public opinion which is sick of Germany being the payer of last resort.


  5. BT
    German banks are owed vast amounts of money by the iPigs, be it through government bonds, subsidary banks, or direct loans to business.

    When the iPigs buckle, the first thing they are likely to do, is declare those debts either, simply null and void or redenominate them into local currency.
    A German bank owed E1000, will either be told to go away, or be handed 1000 Lira.
    When the German depositer comes and asks for his E1000, he will either be told tough luck the moneys gone, or receive 1000 Lira instead of his 1000 Euros, and by this point, 1000 Lira will noly buy 500 Euros, or even considerably less.

    Merkels damned either way.
    I just dont understand why she seems hell bent on being damned next week instead of next year.


  6. Seems like for Germany (and by extension France) it’s lose/lose. If the periphery defaults, contagion will send German banks with pension funds et al right down the rat hole. If they capitulate to eurobonds or any other form of moral hazard, they will effectively be underwriting the Medders and will slowly bleed to death. Either way Merky’s careers is finished but I suspect she already knows this.


  7. If the Euro is dead (which is unlikely in the near term, but for the sake of argument let us assume it is), how exactly is that going to assist the UK/£?

    As an aide memoir the UK has, according to the CIA Factbook nigh on £6.3 Trillion in exteral debt (ie foreigners are owed that).

    That figure if you net out the £4.67 Trillion of UK foreign asset and money owed by foreigners a £1.6 Trillion shortfall.

    If there is a real panic on the Euro is it not reasonable to believe the some portion of those most liquid foreign asset will either be repatriated or go to safer havens?

    The UK is particularly vulnerable to external events as it is the second most indebted nation in the world to foreigners in absolute terms, only the USA being more indebted.

    But the USA debt is only one times their GDP the UK’s is an unsustainable four times.

    The UK is, in my opinion unlikely to be a winner if the Euro catches a cold or anything worse.

    Be careful of what you wish for.


  8. Altergoman
    If you owe the bank £10,000, you have a problem
    If you owe the bank £10,000,000,000, the bank has a problem.

    The UK wont be the first nation to default.
    Its also the case that the UK owes people pounds.
    These we have in infinate supply once inflation is ignorable.

    An orderly breakup of the Euro is in the UK’s best interests, because its the quickest route back to normality.


  9. That’s a scenario which assumes the PIIGS seperated from northern european states and instead of them retaining the old euro to minimise their visible failure, they reintroduce their old local currencies AND valued them at 1-to-1 with the existing _or_ new northern european euro.

    That’s most unlikely IMV as it would put them on the list of rogue nations for many decades for reneging on their debts and it’d destroy their economies for years to come. It would presage a break up of the EU.


  10. Have you ever seen a politician so uncomfortable in her ill-fitting Soviet suit looking like a deer frozen in the headlights, clueless as to what to do? Barry Obama, aka the Teleprompter, the other affirmative action candidate looks positively suave and debonair by comparison.


  11. BT
    Experience teaches us that lenders have conveniently short memories – witness the rise and rise again of subprime in US auto loans.
    Mexico, Argentina, Russia et al have all reneged within living memory. It didn’t do them any harm.
    The debts will be forgiven, because short of nuclear war, there’s no alternative….yet.
    But next time, things might be different from a Beijing standpoint.


  12. A collapse in the Euro will be good for Britain (sorry, England) in the long run because it will bring people like UKIP and Daniel Hannan to the fore.


  13. Antegoman or whatever
    Curiously enough, I’ve been impressed by the good odour in which GB now sits among the markets: “At least they made an honest effort/you can at least trust the Brits” are commonplace remarks.
    With too much money belting towards T-Bills and SFs, the UK might become not so much a safe haven as a sensible risk.
    We could see the bizarre situation in which investment floods into gilts, and the Ponzi approach applies – viz, we keep on using the borrowings to pay off the more pressing debt…of which there’s not much anyway.
    You’d be surprised: it’d be some time before some of these dorks noticed.
    The gigantic hairy mammoth in 3 years or so will be the Yuan as and when it floats. That will change everything.


  14. BT
    If the iPigs kept the “old” Euro, and the Germans a “new” Euro, the same divide would appear, the new Euro would shoot up, and the old Euro down, except this time it would be the fault of the Germans for revalueing, rather than the iPigs.

    For some, the money has already ran out.
    When the pensions stop being paid, and the hospitals are out of bandages, and the power stations are out of fuel, who will care about being branded a rogue nation?


  15. John…Mexico/Argentina/Russia are not Portugal/Greece/Spain/Italy.

    I find it extremely difficult to think that any of these countries will be allowed to get away with reneging on their debts by the currency method TRT suggests (reverting to their old worthless currencies).
    OTOH, I can see a scenario whereby their euro debts are officially forgiven (which in practical terms is something quite similar but it saves a lot of egg on euro political faces).

    My money is still on the current euro being retained for the PIIGS and for Germany et al to introduce a new euro, but that assumes the eurozone breaks up in the first place which is not at all certain…yet!


  16. The solution is either default or debt forgiveness or rampantly inflate away the problem. There can be no other options. There is not enough real money in the world to pay off all of the ponzi money which has been created. Not based on anything other than space borne hydrogen atoms anyway.
    The way out for the UK (and any other country for that matter) is to print £Gazillions and inflate away the debt before adopting a £1 = 1/10th Ton AU (having bought up loads in the first place and told those countries for whom we hold stocks that they can’t have it back ever). Yes – it will kill the wealth holders and the pensions and pretty much everything else which is based on ponzi money but it will cure the debt crisis and upset (especially) the Chinese just a bit.
    The other way is to tell the creditors that we will give them £1 on the £1000 and to like it or lump it.
    The other option is to tell the creditors – we can’t pay – will you please forget about it or option 1 or 2 will be forced upon us. If you forgive this we will try to re-establish some semblance of an economy and when completed we will renegotiate the debt to start paying off what we can afford.

    The big problem with this is that nobody wants to be first in the queue to carry out any of these actions. But sooner or later they will be forced.

    It may be that the UK has never defaulted in its history (I beleive that the king once refused to pay his debts) but the situation is different now. Never before have we had uncontrolled ponzi money created via the ether in unmeasureable quantities.

    The biggest problem will be to prevent the people who have generated their own wealth in this way to moving their ‘assets’ off target to ensure that their ill gotten gains have the same impact on them as on the person whose pension and savings are going to become non existant. Amending ‘repossession laws’ to protect homeowners who purchased in good faith (and prevent mass homelessness) would be a good start.


  17. BT
    I doubt a Neo Drachma is Greeces first choice, but its well above mass starvation and revolution / massacre of the apparatchiks.
    And thats the sort of thing we are approaching.

    The masses are starting to get angry, they dont yet know what they are angry about, but bouts of random lawlessness, like the car burning in Berlin, arent going away.

    How long until Crete decides it would be better off alone and declares independance from Greece and its debt?

    Black Swans, flocks of em I tell ya!


  18. Can’t help but agree (I’m sure BT will be along soon to disagree as it will affect global trade).

    How about the New Pound or “Engo” :) You know how the English would do it (in the style of the major in Fawlty Towers)…
    “Eh? Pounds you say, billions of them? Where? What? Ahh, Yes! Terribly affair, most unfortunate, had to do away with them, got to be too much trouble old chum, yes I miss them you know. yes, hmm, money? What? ah its the Engo now you know, new fangled things, yes new ones, billions of them all brand new. What? Worth? ahh, well what you chaps make it worth of course, it’s just the same as old Pounds, just what ever you chaps decide, Eh. Now what’s for lunch”


  19. Hi Timbo614. Well, in terms of the options open to the debtors I agree with Morningstar and I posted here some while back wondering when debt forgiveness would happen. I can see other sane solution (even though I think it would be very very wrong).

    Insofar as global trade is concerned. Anyone who dislikes it and would like to end it should go around their own home and throw away every item that is imported. In many cases that will be over 50% of their possessions. Yes, really.
    Can you manage without them? Probably not w/o severe pain/inconvenience. That’s the harsh truth about ending globalisation.

    In any event, even if we in Britain ended it, the Middle East would still export its oil and Brazil would still export its minerals to China and its bananas because global trade would never stop. The world needs it. What we need to do is reduce the abuses.

    As I’ve posited before, when people whinge about globalisation they’re often really whinging about consumerism which has expanded beyond belief. Not sure how to reduce that because we have a society which believes it has the right to one of everything.

    Finally, thanks for reminding me of what a great series Falwty Towers was. Definitely one of my all time favourites :-)


  20. BT, (you can call me Timbo) :)
    Apologies for the taunt.

    I am well aware of how much comes from the far east. I sell IT kit and I use it all day. I can scan my desk and see: LG, Samsung, Sony, Casio, Logitek, Asus, GigaByte. It’s all here. But if I swing may chair around I can see what my wife calls my “dusty old s**t”: Sinclair, Acorn, Amstrad, CBM, Atari, Rodime, Seagate and various other tech names from the US, The UK and Europe and of course the far east is represented. Now I know that a lot of the components in these old machines will have far east names stamped on them but the labour, packaging, reference books and the like that led to a complete product would have been mostly local, or at least sourced nationally. As a small manufacturer in those days you did not “skype” or email China/Korea/Taiwan to get a price on a casing ( and get asked how many thousand do you want?), you did a drawing (on paper!) and phoned, or often went, around the local metal bashers to see what it would cost for some samples and then few 100s, 1000s if really went well.

    To the point. I (and possibly MorningStar) want to restore that ability – the ability to get started REALLY SMALL. To be able to find skilled local people who can actually make you, “manufacture!” what you want! It’s just not possible in today’s markets at today’s prices, at the volumes & prices demanded by “Globalism” (and you know how it’s being achieved). In the 80’s I did this twice, starting literally from a garage the first time (corny but true). And you won’t want to believe me, but most of our output in the second year (in both companies) went to Europe (Germany, France, Portugal & Eire primarily). The majority of electronic components I admit, even then, came from the far east. but all the other parts came locally, and I (or people I paid) designed, assembled, tested, packed, dispatched etc.

    You may call this nostalgia, but I believe we need this ability back, almost at any price.

    Today all these talents, that I’m sure are still here in blighty, are squandered. Simply squandered so badly It’s a almost a crime, no strike that it is a crime.



  21. Yes, weak leadership, corruption, inflexible labour agreements, huge ‘black’ economies, dependence on crazy housing booms fed by ridiculously low interest rates all led to a serious mess. Neither country can get out of the mire, though at least the Portuguese admit their problems. The Spanish are still in denial and, at the government level, being extremely economical with the truth. Something will happen soon, you can’t have over 40% unemployment among the under 30’s (and 50% in Andalucia, the biggest autonomous region) without something nasty happening after a while. You can only squeeze the people so much before they start thinking about forcing a change.


  22. @Timbo: I agree with you …we need to get back into manufacturing to meet our own needs (reduce imports) and hopefully export too. I strongly support anyone who takes on this challenge.
    However, due to the plethora of regulations we have (the cost of regulatory compliance in the UK rose from £11.x billion in 1997 to £84.x billion in 2010) and high wages etc this is not easy and will probably require our manufacturing industries to be in niche products where we don’t have to compete with low-cost Asia or Germany. But Dyson did it (although I believe he’s now moved his manufacturing plants abroad for the reasons above). Still, it can be done with hard work and ingenuity.


  23. BT, Hooray! We agree on something :)
    We had a couple of world famous niche brands not too long ago Jaguar & Land Rover. Instead of just pumping in a measly few hundred grand to modernise them the Government let them be bought by foreign interests. Jaguar is powering up & up at the moment. The Land Rover is at last going to be modernised from a design that brits created in 1949!!
    Instead of that we pump 600 Billion in to banks. The short sightedness is unbelievable.
    P.S. One more thing: Most of those near 30 year old machines still work, will your ipod in 2040?


  24. @Carys:
    Indeed. It will only take someone to come along in Spain who vows to get the young peole back to work and the economy running again and that’ll be it. Let’s call him “Spanilini”.


  25. JW

    I am old and ugly enough to have had much finer insults than ‘Antegoman or whatever’ even you can do better than that!

    As even you say ‘not so much a safe haven as a sensible risk’ if and when, as so many predict, the Euro fails do you think that the speculators and those genuinely damaged by a Euro collapse will find comfort in the £ for very long?

    In a panic the good, bad and indifferent all suffer but those most likely to suffer most are the weakest.

    Speculators are never satisfied, if the Euro goes so goes the pound especially as the Government is unlikely to curb ‘short sellers’ in their mistaken belief the UK can not do without Casino Banking (well, until after the next general election anyway) and printing more pounds will continue to depress the pounds value vis a vis other currencies.


  26. I feel sure that civil unrest at current levels is entirely containable. It’s got a long way to go before the politicos get worried and I’m not at all sure it will happen. I may be wrong…


  27. I agree completely with The Slug here. What a flabbergasting show of incompetence of those politicians in Brussels. On top of that, one could ask himself:”is there any, I repeat, ANY democratic legitimation for an institute which has proven te be utterly bureaucratic, incompetent and dreaming about a federal state which in itself is an illusion” ?


  28. Hey There Hat4uk,
    Cool Post, The term ‘allied health’ is generally used to indicate a cluster of health care professions that covers more than 100 occupational titles, exclusive of physicians, nurses, and a handful of others. Generally, this profession is categorized into two broad categories, mainly – therapists/technologists and technicians (assistants). While technicians perform their duties under the direction of therapists and their education takes less than two years, the educational course of technologists on another hand is more strenuous and their responsibilities primarily revolve around technical skills. They are actually the key personnel who play a vital role in identifying the grounds behind different healing methods that can help them in evaluating the side effects of any therapeutic procedure.
    Keep up the good work
    ~ Paul from http://www.repossessed1.com


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