Getting over excited

denis cooper

I'd like to compliment the author on the precision of his language -

"the EFSF will have a lending capacity of 440bn"

"provide hundreds of billions more in loan guarantees"

It's getting tiresome that lazy journalists keep giving the misleading impression that the EFSF will somehow be handed 440bn to be parked in an account somewhere, "firepower", "ammunition", etc etc, when the reality is that the EFSF operates by borrowing money from global investors to lend on to distressed eurozone states, and it has only very limited funds to hand at any time.

Details of the three EFSF bond issues so far are here:

http://www.efsf.europa.eu/investor_relations/issues/index.htm

What the participating states are giving is not money for the moment, but their sovereign guarantees that those who lend money to the EFSF by buying its bonds will be paid in full.

So the guarantors are assuming contingent liabilities; as it happens they are doing that in a way which brazenly contravenes Article 125 TFEU - each of the countries guarantees more than its pro rata share, so that the bondholders would still be paid in full even if some of the other countries failed to meet their guarantees - but nobody seems at all bothered about that.

Good stuff

I'm a grumpy git who is hard to please but found this article to be refreshingly clear and well written. Given that I am not a financial wonk I am pleasantly suprised to understand it. Well done and thanks for the article. More please.

Another person I enjoy reading is the editor of City AM. Knocks the current Speccie financial commentators into a cocked hat.

Baron

Raoul hits the nail that matters: “….talk of full fiscal integration and the collapse of the Euro are (now) the mainstream debates.”

The markets are indeed looking for a solution that’s permanent, fixes the debt mountain in a secure way, avoids patching up ad-hoc spots of financial risk.

And what would appeal to the markets best? Yup, you’ve guessed it, a move to “a new treaty creating a common Treasury for the eurozone”, says George Soros in the FT (read more by clicking on the URL below). The man is listened to, he ain’t alone pushing the idea, the Brussels apparatchiks must be pleased.

Soon, the great unwashed of Europe will be bombarded with an unceasing barrage of reasoned arguments why we must federalize or die.

http://www.ft.com/cms/s/0/2dc2be14-ea89-11e0-b0f5-00144feab49a.html#axzz1ZTBJQOSP

Augustus

A good article. The problem is the democratic legitimacy of European policy
making. The European Commission is charged to uphold 'the general European
interest'. But how is that defined? Democratic theory would suggest that it is derived from European citizens’ preferences and deliberations. But this implies a democratic process (and a European constituency) through which the general interest is formed and expressed, so that the Commission could then represent it. But this is not how things work in Europe. No European pact of full fiscal integration
will ever have the legitimacy of nationally elected governments when prescribing policies of taxation and spending. That is why the Stability and Growth Pact had to
collapse because it is normatively incoherent with democracy. There is no such thing as Europe’s collective interest. There is no such thing as a one-size-fits-
all European Republic.

TomTom

Funnily enough the Bundestag voted for 211 Billion Euros + 20% Contingency Reserve which nicely exceeds German Tax Revenues of 247 Billion Euros. So it has pledged the entirety of German Tax Revenues to an SIV in Luxembourg.

That clearly leaves the German public wondering how the 306 Billion Euros of Government Spending is to be financed.

kinglear

There are two things that haven't been mentioned 1) The constitutional court in Karlsruhe may torpedo this. They have final say as to whether or not it is constitutuionally legal for the German Government to enter into these arrangements and 2)The "overage" provisions, supposedly guaranteeing that lenders will get paid, are a weapon of mass destruction. It used to be in the UK that companies did not have limited liability and this made them more sound. City of Glasgow Bank failure in 1878 shows the problem. As the calls for paying the money bankrupted layer after layer of Glasgow and Scottish society, even the richest were reduced to penury. The same will happen to this fund.Last man standing will be Germany if it does not default first. But it neither will - nor can - shoulder the entire debt pile of the Eurozone.

daniel maris

My prediction:

The Euro will NOT fail. Because here politics trumps economics. Oborne is wrong.

TomTom

The danger is the politicians have been given Permission to create a Credit Line administered by an SIV incorporated under Luxembourg Law. Noone knows who will run this, nor that it can borrow from the ECB if it chooses; or issue Bonds; or the Achleitner Plan of guaranteeing Bonds issued to redeem PIIGS paper from firms like Achleitner's Allianz/Pimco Group.

ARD TV in Germany questioned MdB (MPs) and found NONE understood what they were voting for, but as the Porfalla (Merkel's PPS) harassment of Bosbach revealed thuggish approaches to democratic representatives make this a GDR Moment as does the CDU attack on the Deputy Speaker for permitting Opponents to address the Bundestag.

Democracy died a death in Germany akin to the Social Democratis voting War Credits in 1914; and the Zentrum Party voting for the Enabling Act in 1933

Minnie Ovens

Possibly the Germans attitude to war has changed but not their subservience to power.
Befeln ist Befeln.

TomTom

Minnie Ovens, that is a really stupid comment considering Conservatives voted for Maastricht and Ken Clarke, QC boasted he hadn't even bothered to read it. Conservatives clearly operate on the Fuehrerprinzip and obey The Leader....just as Cameron has discovered to his pleasure !

Axstane

Yet another confiscation from the UK Treasury looms. I hope we pay our share out of our Foreign Aid budget.

denis cooper

Baron -

When Soros calls for “a new treaty creating a common Treasury for the eurozone”, it's necessary to distinguish between two options:

Option 1 - A new EU treaty, involving all the EU member states, to allow the eurozone states to create a common eurozone Treasury.

Option 2 - A new intra-eurozone treaty, involving just the eurozone states, through which they create a common eurozone Treasury.

Option 1 woud have the huge disadvantage that it would involve getting all 27 EU member states to agree and ratify the new treaty, and in particular it would involve the UK.

While some of the other 9 non-euro states might cause problems by trying to add on other treaty changes which they wanted, by far the most serious problem would be with the involvement of the UK.

Because while the UK government would be perfectly amenable to the eurozone states setting up a common eurozone Treasury - "a stable eurozone is in Britain's interests", and "we should not stand in their way", etc - the Tory party MPs and members have been led to believe that the next EU treaty change would be the opportunity for the UK to "re-negotiate its position within the EU", "re-patriate powers", etc - and if it became widely known to the British public that a new EU treaty was being negotiated then would be demands for the UK government to insist on such concessions and for the new treaty to be put to a referendum, and the government would have to fight off those demands.

Option 2 would be far better, because as a non-euro member state the UK simply wouldn't be a party to the new intra-eurozone treaty, so it would not be involved in the negotiations and it would not have a veto at its disposal.

So the question is this: if the EU treaty change which was quietly agreed on March 25th came into force, would that make Option 2 available under the EU treaties as then amended?

In my view it would; with only a slight stretch when interpreting the new paragraph which it would insert into the EU treaties, the EU treaty change agreed on March 25th through European Council Decision 2011/199/EU:

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:091:0001:0002:EN:PDF

would give the eurozone states a licence under EU law to go off and create a common eurozone Treasury through an intra-eurozone treaty, and to do many other similar things in the same way, without any further risk that non-euro EU member states like the UK might obstruct them in what they want to do.

And then British eurosceptics could whistle for the new EU treaty which would be the grand opportunity "to re-patriate powers", because there would be no need for any such new EU treaty for these purposes.

RCE

I've only just watched Oborne on Newsnight, having read the reports and hype.

It was a bravura performance; these idiots are responsible for and should be held to account. Bearing in mind what they have done, they should be hoping their destiny doesn't involve a guillotine or gallows.

Augustus

"It was a bravura performance; these idiots are responsible for and should be held to account."

I agree, because it's hard to think of ways leaders could have extended or deepened this crisis more than they have done. Expect
another downward lurch in the big indices.