Sovereign debt bubble thread

[Sheilbh]

Germany of course considers its policy as rational too. That's the problem of the Euro crisis - the rational policy for various stakeholders is conflicting.

This is the issue.  I'm not really talking about countries but I think as you say at the moment all stakeholders' policies are rational, but cumulatively they're having a very destructive effect on individual economies and the Eurozone in general.  So for example I think the things that savers, investors, policy makers, unions are doing are all, in the current situation, rational.

Germany has commmitted to saving the Euro - just not unconditionally. Can you name any other example of a country committing more than 10% of its GDP to guarantee other countries' debt? And ending the Euro is not in Germany's interest, but then I don't see why the initiative for that would have to come from Germany. Every other country or a group of countries can both start that and even if they want to implement it with or without Germany.

I get that.  My point is that either Germany does commit or the markets will keep on testing right up until the point of collapse.

Other Eurozone countries are committing a lot to save the Euro - all of the Northern countries and France for example.  The reason the initiative has to come from Germany is because Germany is the leader of Europe, whether you like it or not. 

No non-Euro country is in a similar situation but that's because we're not in an imperfect currency union.  Internally there's a different situation, I believe studies have been done that show the contribution of, say, New York, to poorer states through the Federal government is huge.  I think Nevada is close to Ireland in situation and is receiving annual help from the Federal government of up to 6% of GDP.  We don't have these problems with other countries and nationality is still enough of a binder that we don't mind the money from London going to support Gateshead.  But my understanding is that all told the measures taken by the US and the UK (and Ireland) to save their banks were similarly large and similarly unpopular.  We just replaced lazy Greeks with coked up bankers.

The success of these extremist parties is at best slightly increased by German policies and nothing Germany can do will have enough influence on domestic policies in other countries to change that (which is good!). So frankly, if you say Europe is slowly growing more extremist, then that's an argument against binding ourselves closer to these countries.

If you think this you are naive in the extreme as to the effect Germany's policy choices are having in the rest of Europe, if you think it's slight at best. 

Will never happen. Germany is committed to European integration and will never lead an initiative to go back.

That seems to contradict what you were saying earlier.  But this is what the market's testing.  How strong is the German commitment to Europe?  If it's the choice between betting the house and watching the whole thing collapse, what will Germany do?

In the meantime though you are bailing them out, just in short term ways that keeps impending doom right around the corner.

And will in some ways lead to a worse conclusion if the Euro does fail.  There's no-one left for the Greeks or Portuguese to default on except Germany (and by extension the rest of the Eurozone) and the IMF.  Plus the TARGET 2 imbalances could be an issue for the Bundesbank if the Euro collapses.

No, we'll just continue doing anything in particular and wait what happens.

No you won't.  The markets will force your hand eventually.

[Iormlund]

It won't be long in any case. Spain has met most its financing needs for the year, but with the rates closing on 7%, a full bailout seems anything but unlikely. And now we're talking real money, especially with Italy right behind us (their contribution to a Spanish bailout alone would tip the scales). The German public has to come to a decision this summer.

[Iormlund]

How can the end of the euro as a currency be considered?

When you have eliminated the impossible, whatever remains, however improbable, must be the truth.

[Zanza]

If you think this you are naive in the extreme as to the effect Germany's policy choices are having in the rest of Europe, if you think it's slight at best. 

As far as I know, e.g. France had the FN and some left extremists for decades. A general disillusionment and disenchantment with politics is seen in all Western democracies to a degree. Blaming the particular upswing of that sentiment in the Eurozone on Germany is ignoring the underlying political currents in the various countries. Greece has long been corrupt, people there are right to blame their elites, and thus it is easy to understand that they turn to extremists. But decades of bad governance in Greece are the reason why people turn away from the established parties, which are thoroughly discredited. Yes, austerity is obviously strengthening that process and Germany as the champion of austerity has its share in that. But pretending that anything Germany could realistically do would somehow stop the Greeks from being rightfully pissed with their previous political elites is what I would call naive in the extreme. That's suggesting that the Greeks are completely remote controlled from Berlin, which is just not reality.

That seems to contradict what you were saying earlier.  But this is what the market's testing.  How strong is the German commitment to Europe?  If it's the choice between betting the house and watching the whole thing collapse, what will Germany do?

Betting the garage and the summer cottage.

Plus the TARGET 2 imbalances could be an issue for the Bundesbank if the Euro collapses.

That's controversial.

No you won't.  The markets will force your hand eventually.

That's what I mean with "wait what happens".

[Zanza]

The German public has to come to a decision this summer.

The German public won't decide anything this summer. It may be that our political elites decide something. If the German public would decide, Greece would leave the Euro in about one hour. 

[Iormlund]

Isn't Merkel a "weathervane" politician? I thought she would take the path of least resistance vis a vis public opinion.

[Zanza]

 

Isn't Merkel a "weathervane" politician? I thought she would take the path of least resistance vis a vis public opinion.

Yes, but mostly in domestic policy and then that's just one consideration. Her main motivation is to stay in power, so she'll do whatever is expedient towards that.

That said, foreign policy is not such a big topic in German policital discourse as the four big parties (conservatives, liberals, social democrats and greens) pretty much agree on the general guidelines and it is just the details where they differ. It's rare that the opposition openly criticises foreign policy.

[Sheilbh]

I'm not saying Germany's responsible for the rise of extremist parties.  But they're responsible for Eurozone policies. 

Those policies are causing long-term economic problems in a number of countries of frankly depression level extremity - especially in Greece.  In addition because they're Eurozone policies and all the mainstream parties want to stay in, and because there's no flexibility regardless of how well the government performs, if voters want to reject those policies the only way to do it is by voting for an extreme.  In addition I think the current policy is weakening democracy and democratic legitimacy in the EU in general.  But as I say I think this is a two-edged sword, so far we've seen it happen in debtor nations but I think we'll also see it happen in creditor nations - like Finland and the Netherlands - sick of their countries having to pay to be 'good Europeans'.

What's the significant difference between ND and PASOK, or Fine Gael and Fianna Fail, or the PSOE and PP?  Monti gets treated the same as Berlusconi, model pupils in Ireland get no more assistance or support than the recalcitrant dunces in Greece.  As I think I've said in Greece I'd be voting SYRIZA, in France I would've voted PdG.

But I don't think we've killed off a Europe of national borders and competitive trade policies with one another, or of nationalism and borders.  I think the risk we have is throwing out the baby with the bathwater which I think is more likely with the current policy path than with other options.

That's controversial.

It is.  I don't think it's a problem while the Euro survives.  I think it will be a problem if the Euro collapses messily.

That's what I mean with "wait what happens".

I can tell you.  The choices will be the same but the economic costs of either will be significantly higher

[mongers]

Isn't Merkel a "weathervane" politician? I thought she would take the path of least resistance vis a vis public opinion.

Yes, but mostly in domestic policy and then that's just one consideration. Her main motivation is to stay in power, so she'll do whatever is expedient towards that.

That said, foreign policy is not such a big topic in German policital discourse as the four big parties (conservatives, liberals, social democrats and greens) pretty much agree on the general guidelines and it is just the details where they differ. It's rare that the opposition openly criticises foreign policy.

Indeed, has that Ever happened ? 

[Sheilbh]

That said, foreign policy is not such a big topic in German policital discourse as the four big parties (conservatives, liberals, social democrats and greens) pretty much agree on the general guidelines and it is just the details where they differ. It's rare that the opposition openly criticises foreign policy.

How was Fischer's intervention about Germany accidentally destroying the European order for a third time in a century taken in Germany?  It seemed extraordinarily strong to me.  Sincere no doubt, but very strong indeed.

Yes, but mostly in domestic policy and then that's just one consideration. Her main motivation is to stay in power, so she'll do whatever is expedient towards that.

Sounds like Cameron.  With the crucial difference that she'll do it well

[Tamas]

I dunno - it sounds like you guys have a lot of reasons why you  can't do anything in particular.  You can't abandon the euro, you can't reward profligacy, you can't have inflation.

Somethings got to give.

As Zanza said, they will just sit and wait what happens, who collapses first, and then work from there. In panic.

[mongers]

That said, foreign policy is not such a big topic in German policital discourse as the four big parties (conservatives, liberals, social democrats and greens) pretty much agree on the general guidelines and it is just the details where they differ. It's rare that the opposition openly criticises foreign policy.

How was Fischer's intervention about Germany accidentally destroying the European order for a third time in a century taken in Germany?  It seemed extraordinarily strong to me.  Sincere no doubt, but very strong indeed.

Yes, but mostly in domestic policy and then that's just one consideration. Her main motivation is to stay in power, so she'll do whatever is expedient towards that.

Sounds like Cameron.  With the crucial difference that she'll do it well

Hang on, Shelf, I thought you praised Cameron the other day for his use of the 'veto' over the still born Euro-treaty ? 


edit:
Oops, I see his 'principles' coincide with playing to the Tory right and the wider swing middle classes. 

[Sheilbh]

edit:
Oops, I see his 'principles' coincide with playing to the Tory right and the wider swing middle classes.

Don't give him too much credit.  I don't think he'd recognise the wider swing middle classes if he fell over them in a Morrisons car park.

But I think he had to do that for survival.  If he'd okayed any treaty change he'd be gone.  The Tory right on Europe aren't rational - and I say that as someone who'll probably vote to withdraw when we get a referendum.

[mongers]

edit:
Oops, I see his 'principles' coincide with playing to the Tory right and the wider swing middle classes.

Don't give him too much credit.  I don't think he'd recognise the wider swing middle classes if he fell over them in a Morrisons car park.

But I think he had to do that for survival.  If he'd okayed any treaty change he'd be gone. The Tory right on Europe aren't rational - and I say that as someone who'll probably vote to withdraw when we get a referendum.

Oh we can agree on that.

But you'd still be prepared to vote alongside people who readily seem to bleed into and out of the UKIP camp ?

On an EU vote, the person's opinion I'd probably take the most notice of on the mater, would be Ken Clark's.

[Zanza]

In addition I think the current policy is weakening democracy and democratic legitimacy in the EU in general.

Definitely. As I wrote months or years ago either here or on Paradox, a messy exit from the Eurozone that gives countries back the ability to forge their own fortune might be a better choice. Staying in the Euro is not worth sacrificing democracy.

But as I say I think this is a two-edged sword, so far we've seen it happen in debtor nations but I think we'll also see it happen in creditor nations - like Finland and the Netherlands - sick of their countries having to pay to be 'good Europeans'.

Or as Rachman said - Germany. It's very fortunate that most of our parties are very mellow and the extremists lack charisma and are generally idiots. I hope it stays that way.

As I think I've said in Greece I'd be voting SYRIZA, in France I would've voted PdG.

Your point being? You like unpayable freebies and unrealistic policies?

It is.  I don't think it's a problem while the Euro survives.  I think it will be a problem if the Euro collapses messily.

Maybe. I don't understand central bank balance sheets enough to actually make an intelligent comment on it.

I can tell you.  The choices will be the same but the economic costs of either will be significantly higher

Let's see.