Sovereign debt bubble thread

[Iormlund]

The Troika has absolutely no intention of fixing what's wrong in Club Med. It just wants its money back.

They can't fix it if you don't want to.

There's no way any party will run on cutting pensions or removing protection from older workers. You just have to take a look at demographic data to understand why.

But the Troika can easily do that by specifying those (and others) as pre-conditions for turning Draghi loose.

[Zanza]

The idea that the Troika can suggest or even implement any policy that doesn't at least have some local support is unrealistic.

[Sheilbh]

Not really. The history of the EU is, often, about the EU forcing local politicians to do things that they should but probably couldn't without it being required by the EU. So people may oppose the actual policies but support it because it's required to join the EU/to join the Euro/to get a bailout. As the saying goes the problem's Spain, the answer's Europe.

[Razgovory]

You really still believe that?  After all that has happened?

[Iormlund]

The idea that the Troika can suggest or even implement any policy that doesn't at least have some local support is unrealistic.

How many people do you think were anxious to borrow €100bn for the banks? To suffer one tax hike after another? See hospitals closed?

[Zanza]

The idea that the Troika can suggest or even implement any policy that doesn't at least have some local support is unrealistic.

How many people do you think were anxious to borrow €100bn for the banks? To suffer one tax hike after another? See hospitals closed?

At the very least one:

[Sheilbh]

You really still believe that?  After all that has happened?

No.  It's a saying that I think's been around in Spanish politics for a while.

Zanza to answer about the markets I don't think the City or Wall Street should be got rid of because the Euro's fate will be determined by the markets, roughly for three reasons.

If it wasn't Wall Street and the City, it would be Dubai and Hong Kong.  The Euro's fate will be determined by whether the response to the crisis is credible and can instil confidence in the financial markets.  That's true no matter where those markets are based.  The benefits from having them in London and New York are immense.  Not least that they're transparently regulated by democratic governments and are required to meet global standards on things like Basel, tax evasion and money laundering.  What's more, because they're there those global requirements are largely shaped by democracies.

Secondly I think it's generally as much an error for democratic governments to try to direct or control the economy just as it is for authoritarian regimes.  Economy's should be regulated and mixed, for sure, but they shouldn't be about encouraging or discouraging certain forms of economic behaviour unless it's so damaging (insider trading, potentially LIBOR).  This is why I always think of King Cnut when I see that Europe's banned short-selling, again.

Finally the markets normally act as a necessary corrective to policies pursued by democratic governments.  Arguably this current crisis is the market response to the political error Germany (and others) made when they let Italy and Greece into the Euro, knowing they were lying.  Similarly the markets fixed the error of Britain's entry into ERM, the democratic meddling was precisely the problem with Cajas and Landesbanks (the German regional banks) and recessions allow for creative destruction.  They're a positive and, as I say, necessary balance to democratic politics.

The problem I have with current policies is that they're leading to a self-inflicted depression in Southern Europe - that's the real issue, not the markets.  Solutions are agreed to problems that are consistently underestimated (according to the 2010 program, this is the quarter Greece returns to growth; according to the autumn 2011 program this year the Greek economy should only shrink by 3%; in fact the Greek economy is on course to shrink by 7%, like last year making it a 21% decline in 4 year).  The destruction in the periphery isn't even creative.  Both good and bad businesses are failing (who would extend a Greek bank a line of credit now, regardless of the success of their clients), both solvent and insolvent banks are struggling to finance themselves and a generation is being trashed - over 50% youth unemployment in two Eurozone states and unemployment in Greece that's reaching the peak Germany suffered during the depression.  In this context governments that have lower deficits and debts than the US or UK are having to make swingeing cuts to meet an artificial, political timetable (2013, or 2014 for Spain) in a context of restrictive monetary policy.

Understandably the financial markets look at all of that and at the political difficulties of bailouts, or fiscal transfers, and at Bundesbank opposition to ECB bond buying and conclude that something's got to give.  While that goes on Europe's leaders will continue to lose their credibility and confidence will continue to seep out of the periphery, reinforcing all of the above problems in a vicious cycle.  If something doesn't change soon, then I think economists will look back on this period with amazement, as they look at policymakers in the Great Depression. 

And the problem all of this poses for the core of the European project is, I think, quite serious - I don't think European unity is irreversible.  I'm reminded of the Stefan Zweig line on World War I that Paul Mason recently quoted, Europe's common optimism betrayed us.

[Zanza]

Sorry, I deleted my posts because I felt like I was just rehashing discussions we had before.

I don't think European unity is irreversible.

I am no longer sure if that's a bad thing. If the EU isn't right for Britain - as you say yourself - it might not be the right thing for us either. I used to be a convinced euro-federalist, but I am no longer sure that's the right way forward.

[Sheilbh]

I am no longer sure if that's a bad thing. If the EU isn't right for Britain - as you say yourself - it might not be the right thing for us either. I used to be a convinced euro-federalist, but I am no longer sure that's the right way forward.

Same.  I was a committed believer in Europe (and weirdly when I'm studying EU law my flame's rekindled).  Though I wonder if our motivations were always different?  I saw Europe, as Blair recently put it, as being about power.  By pooling together we'd have more clout and influence on the world stage.  My vision of Europe was basically mildly Gaullist.  But I think that's probably a way that only pro-Europe Brits and French see it.

For Germany it's always probably been different.  Europe for Germany's decidedly not about power.  I imagine for Eastern Europeans it's largely about economics and not being Russia.  I don't know if you can build 'Europe' when that means something different in each political climate.

As I say if we were to vote now I'd withdraw from the EU, not least because we're not a great exporting country.  But I think the best solution could be the old British vision of a looser, borderless free-trade union.  Given Europe's history it's still an enormous achievement, but given the hopes I can't help but feel that's still kind of sad and limited

[MadImmortalMan]

Sir Humphrey's "Pig's Breakfast".

[Zanza]

Sir Humphrey's "Pig's Breakfast".

That suggests some kind of planned policy with goals and actions. My impression of the current British government is that it is completely clueless and reactive regarding its EU policy.

[Iormlund]

The UK might not manufacture as much as Germany, but contrary to commonly held belief, it does have significant industry. And then there's the service sector that serves other EU markets, starting with the City itself.

I can't see how the UK can walk away from the Common Market without taking a massive hit.

[Zanza]

I think the idea is that they somehow leave the EU without leaving the Common Market. I am not sure why the rest of the EU would agree to that when they have nothing to gain from it.

[Sheilbh]

The UK might not manufacture as much as Germany, but contrary to commonly held belief, it does have significant industry. And then there's the service sector that serves other EU markets, starting with the City itself.

There's no common market in services yet, and in terms of export we now have more trade with non-EU than EU countries.

I can't see how the UK can walk away from the Common Market without taking a massive hit.

There'd be a hit, for sure, but I don't think it would necessarily be as catastrophic as people have suggested.  My view is that overall the costs of EU membership are now, probably, slightly more than the benefits - especially if Europe decides to try to regulate the City.

That suggests some kind of planned policy with goals and actions. My impression of the current British government is that it is completely clueless and reactive regarding its EU policy.

You're flattering them by only extending that to EU policy

[Sheilbh]

I think the idea is that they somehow leave the EU without leaving the Common Market. I am not sure why the rest of the EU would agree to that when they have nothing to gain from it.

Cameron's policy is ridiculous.  From what I can tell he wants a referendum (but not in/out), he would never support leaving the EU and he wants to renegotiate our membership to get lots more opt-outs.  It's almost like he designed it to annoy the maximum number of people