Save Europe Day

[Admiral Yi]

Private bank liabilities are a fiscal issue?

Not until the government promises to pay them.

[Razgovory]

If you are in deep fiscal troubles the moment some kind of shit hits the fan, then you do have serious fiscal issues even when goings are good, you are just not noticing it.

I think Ireland's problem was that it was simply small.  A large wave could capsize it nor matter how good it was doing.

Absolutely. The same for Greece and Portugal. I guess the lesson is the smaller you are, the tighter your balance sheet needs to be.

Raz contributed to this thread in a meaningful way!  Hurrah!

[Zanza]

The Economist has an insider's take of the negotiations:

In the nick of time, a well-placed source (a senior official who is broadly neutral towards the British government in this fight) has given me his reading of what happened, and where it all turned sour for Mr Cameron. It rings true to me.

Mr Cameron had two problems, as my source sees it. The first was the nature of his demand, and how it was made. In essence, the British did not ask for an "emergency brake" clause or opt-out for financial regulation.

What they asked for was a protocol imposing decision-making by unanimity on a number of areas of regulation currently decided by majority voting. (If you want to be really technical, the choice is voting by unanimity or the special Qualified Majority Voting (QMV) used in the EU, which is a sort of super-majority system taking into account a certain number of countries and also their populations).

As my source puts it, this amounted to a big winding-back of the clock for many EU leaders, setting a "horrendous precedent" that could unravel the single market. As they see it, common rules for the common market have been adopted (with few exceptions, such as tax) by QMV ever since the Single European Act approved by Margaret Thatcher in 1986.

The much-discussed Financial Transactions Tax issue already requires unanimity and therefore could never be imposed on the City of London without Britain's agreement. What is more, as was pointed out in Brussels with some vehemence, when it comes to financial services there have hardly ever been any cases of Britain being outvoted in the adoption of such legislation.

In simple terms, that means that Britain's request to move to unanimity was taken as a huge ask that had nothing to do with the subject at hand (saving the euro) or was a sign of bad faith (because it is driven by mistrust regarding future legislation). In my source's view, Britain also tabled its request very late in the day, simply sending a whole draft protocol to the European Council legal service the day before the meeting without talking the ideas through with key allies and national capitals.

Then, says my source, came the second crunch moment for Mr Cameron. Once the 27 EU leaders gathered in the summit room, a sense rapidly emerged that a lot of countries did not share Germany's enthusiasm for full-blown treaty change, a process which is slow and fraught with risks (the markets might not wait that long, Ireland might have to hold a referendum, Britain would have to get a vote through the House of Commons and so on).

By a certain point on Thursday night, I am told, a majority of countries were growing interested in a quick and dirty legal fix, suggested by the president of the European Council, Herman Van Rompuy. The fix was dreamed up by lawyers working for Mr Van Rompuy. They said that a legal device, known as "Protocol 12", would allow the 27 leaders of the EU to agree most of the new rules and mechanisms for fiscal union in the euro zone by a simple, unanimous decision among themselves.

Suddenly, Germany looked isolated. Mr Van Rompuy, a former Belgian prime minister elected by EU leaders to chair their summits, decided to see if he could sweeten the deal for the wavering EU leaders, and asked Mr Cameron if he would consider dropping some of his requests. This made sense to some leaders in the room. Mr Cameron's demands were already more than many of his colleagues would tolerate, and Britain had already said publicly it would tailor its demands to the scale of the treaty change on the table. Mr Cameron said he would not lower his ambitions, and that his demands would be the same in the event of Protocol 12 being used, or a full-blown EU treaty.

A hostile view of this is that Mr Cameron overplayed his hand. In this version of events, the British prime minister thought the mood of the room was running towards Protocol 12, and because Protocol 12 is decided by unanimity, he thought he had the whip hand.

Instead, my source tells me, the room turned on Mr Cameron. This, I am told, "was the point at which the Protocol 12 route, which requires unanimity, was effectively closed down and one country after another accepted a new treaty at 17+."

Did Mr Cameron miscalculate? Did he want to end up with a treaty being crafted at almost 26, with Britain on the outside? My source is certain that was not Mr Cameron's goal, and my source is not alone in this thinking.

It is now almost inevitable that separate structures be set up, with Britain on the outside, it seems. Talk in London of preventing the "Eurozone-plus" from using the Court of Justice is also a mistake, I am told. Article 273 of the treaty allows just this.

You can choose to believe this account or not. It comes from a single source, who is well-placed but clearly viewing this from a particular perspective.

Time will tell. But what a mess.

[Sheilbh]

Ireland:

2005 debt--$53.9 billion

2006 debt--$56.6 billion

Ireland is supposed to have run a 3% surplus in 2006. WTF happened to the extra twelve billion or so dollars? Their debt should have dropped by six billion.

I'm not sure.  I could be wrong but I'd guess it's a combo of inflation, interest rates, debt maturity and government financing.  Also from my understanding governments would always need to be issuing debt to keep going, because the revenue is seasonal but the expenditure's constant.  It's cheaper for governments to do that by issuing long-term debt than it would be just to issue one-year bonds, say.  I think this may be the case with some of the Baltics.  I think Estonia has a government debt of around 5% which is pretty constant and probably just for financing government.

And of course what matters is how the debt's doing in terms of the GDP, the same goes for austerity.  In the UK the budget's increasing in nominal terms but is decreasing in real spending terms.

This is precisely the issue with Spain for example.  The debt itself isn't that bad it's the economic failure and the difficulty of foreseeing growth that makes Spain risky.  Italy's slightly different but I think for foreign creditors it's similar.

[The Minsky Moment]

Explain to me how Spain supposedly ran a surplus but their debt never went down.

2005 debt--$478 billion

2006 debt--$500 billion


That's a decrease in the debt to gdp ratio for them, but the debt didn't get smaller. Spain's "surplus" that year was 2%


Ireland:

2005 debt--$53.9 billion

2006 debt--$56.6 billion

Ireland is supposed to have run a 3% surplus in 2006. WTF happened to the extra twelve billion or so dollars? Their debt should have dropped by six billion.


My numbers come from The Economist.

The simple explanation is the the Economist is measuring the debt in dollars, but the actual debt itself is denominated in Euros.

Since the Euro increased in value against the dollar in 2006, the value of the debt in dollars increased even as the quantity the debt in Euros decreased.

Taking the Ireland example. $53.9 billion as of 12/31/05 would be about Euro 45.5 billion; whereas $56.6 billion as of 12/31/06 would be Euro 42.9 billion.

[The Minsky Moment]

If you are in deep fiscal troubles the moment some kind of shit hits the fan, then you do have serious fiscal issues even when goings are good, you are just not noticing it.

Under that definition, every country in Europe has serious fiscal issues.
No country in Europe can assume the liabilities of their banking system under conditions of severe crisis without trashing their public finances. 

[Jacob]

Under that definition, every country in Europe has serious fiscal issues.
No country in Europe can assume the liabilities of their banking system under conditions of severe crisis without trashing their public finances.

What countries can?

[The Minsky Moment]

Under that definition, every country in Europe has serious fiscal issues.
No country in Europe can assume the liabilities of their banking system under conditions of severe crisis without trashing their public finances.

What countries can?

Maybe a few of the big  Islamic oil producing countries that don't have traditional banking systems to begin with.
Or a couple of under-developed countries with tiny financial sectors.

[MadImmortalMan]

IMO, a nation without deep fiscal troubles is one that can cease taking on new debt for two or three years without disrupting the required spending of the state. If new debt is necessary for funding ongoing operations and not capital/infrastructure improvements, that's where the danger line is.

[Tamas]

I have a ready hyperbolic comparison: comparing the nature of the conflict within the EU to the one prior to the US Civil War.

I know it leaks from countless holes but you gotta admit, it is not as bad as if Marty said it.

[Zanza]

I don't know much about the ACW - would you mind giving a brief summary of the argument?

[Ideologue]

I hope it means that Germany is going to march south and burn Athens.

[Admiral Yi]

I don't know much about the ACW - would you mind giving a brief summary of the argument?

[Tamas]

I don't know much about the ACW - would you mind giving a brief summary of the argument?

I like to think on the "southern lazy dimwits ruining everything until their hard working northern neighbors bitchslap them, dragging them screaming and crying into a proper state, establishing a better federation in the process" line

[The Larch]

I don't know much about the ACW - would you mind giving a brief summary of the argument?

I like to think on the "southern lazy dimwits ruining everything until their hard working northern neighbors bitchslap them, dragging them screaming and crying into a proper state, establishing a better federation in the process" line

We already know that you're so fucking ignorant regarding the crisis that it hurts, no need to reinforce that notion over and over again.