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Ad Hoc Commentary

Wednesday June 27th 2012

 
Wednesday, June 27th 2012  
 
"...You can never solve a problem on the level on which it was created. ..."
Albert Einstein

 
The slow pot boiler story of the week...The European Union Summit.
 
When asked whether or not she would like the idea of Euro Bonds...the socialisation of European Sovereign Debt, Chancellor Angela Merkel did not just say:
 
"...Nein, danke..."... her response was far more blunt and unequivocal... "...nicht in meiner lebenszeit..."
 
A simple "...no thank you..." could be interpreted as maybe if it is modified. However, "...not in my lifetime..." leaves no room for ambiguity. Mrs Merkel wants none of it. Even if a full page of promises on fiscal behaviour, a surrender of budgetary control and why even sovereignty were signed it is clear that the Germans do not believe much of of what is said or promised within the Euro Zone and superficially at least she is not going to tell the German electorate that they have to pay for it.
 
As we get ready to tune into the next "Brussels Beano" {A Beano was an old fashioned factory workers outing to the seaside} there are 2 clear camps emerging...Germany versus the rest.
 
Van Rompuy's  plan   - run aground on its maiden voyage
 
Proposals to re design the Euro Zone floundered as Presidents Van Rompuy and Barros whacked a bottle of fizz on the hull.  On launch it drew a hail of criticism from the deep pocketed Germans as it placed far too great a weight on debt sharing and too little on controlling national budgets.
 
But what would you expect from career politicians and bureaucrats...all they know is how to be very clever at spending other peoples money.
 
 
 
The 10-year road map was built around:
 
  • Common banking supervision and deposit insurance
  • A "criteria-based and phased" move towards joint debt issuance.
        &
  • It also suggested  the EU could impose upper limits on annual budgets and debt levels of euro states.
Note "could" ...not "would"  or "will" or "should"...far too lightweight!
 
 
 
"...Parts of it read like a wish list...towards various models for mutualising debt. What comes up short is improved controls..." German Deputy Foreign Minister Michael Link said in Luxembourg. (You are not wrong sir!)
 
 
 
The fact that Germany did even wait for everyone to settle around the table in Brussels simply underlines how pale the prospects of any meaningful agreement will be over the next  days. Shame holding summits is not an Olympic event as the European Union/Zone hold the world record as this will be the 19th since the 2010 crisis flame was lit. It would be a gold medal shoo-in.
 
As for elements of the plan the UK will not sign up to a European Banking Union at the risk of placing an FTT on the City. Absolutely not. Why should competitive edges be diminished by taxes?
 
One really critical flaw in the Van Rompuy plan is that whilst it is framed under a 10 year structure there was no offer of detail for a timeline and milestones on the road to Banking Union or Mutual Debt. It is simply half baked. Why not consult with Germany as against just throwing this plan out there?
 
We said there 2 camps:
 
There are going to plenty of voices that will argue against the German resistance. It will be noted that the Euro has been good for German trade and exports and that the nation has prospered. It is highly likely that their argument will be centred on the following points...
 
“...There is no single nation in this economic or monetary union that became rich only by their own efforts. It is accepted that Germany built modern factories and shaped its labour force into a very competitive power . We salute you for that ...however, it must be clearly understood without any ambiguity that German exporters transported their goods to other European national markets via roads the union paid for. You may have been disciplined in wage restraint and if your enterprises have produced  terrific products, well done. We want them to keep the lions share and to boost German GDP. But you have grown rich by standing on the shoulders and the backs of other Europeans...so now it is time to help reset the sagging shoulders and mend those broken backs  . If we are a union. let us all stand united as one. ..."  
 
It is a passionate plea that we believe will be uttered...can't see it falling onto receptive German ears. Germany is not perfect by any means, however, it is standard that other Euro Zone nations should aspire to match, not drag down to the lowest common denominator. We are sure the Germans will say as advice, "...Legen sie ihr eigenes Haus in Ordnung..."   "...Put your own house in order..."
 
The European Union/Zone desired to build a level playing field for commerce...sadly it wants to level out borrowing costs and unique sovereign variances. The truth is we do all operate at the same level some have sunk and others risen, the European tide has not floated all boats and  in 2012 we are on a new number of levels , like locks in a canal, compared to 1999 when the Euro was born. We cannot, as Einstein said, solve the present problems by going back to the original level...the game has changed forever.
 
Steve
 

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