Bill Mitchell — The Eurozone – being ‘trapped in a dysfunctional monetary system’

On November 6, 2000, the Financial Times correspondent Wolfgang Münchau wrote in his article ‘Weak euro reflects uncertainty of euro-zone’ that “structural reforms alone will not determine whether the Emu is viable … The Europeans have no system of transfer payments and the EU budget is too small for this purpose … the euro-zone countries cannot remain as they are: they must move towards full economic union”. He also observed that the “current is clearly flowing in the opposite direction: EU governments increasingly emphasise inter-governmental co-operation as opposed to a wider role for supra-national institution”. I examined that ‘current’ extensively in my current book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015) – as it was (and is) a major reason the monetary union has failed. And, further, the cultural and national barriers which prevented the creation of a system-wide fiscal union are still insurmountable. Münchau is one of several journalists and commentators who have shifted their positions on the desirability of the common currency yet remains wedded to the idea of retaining it – as if returning to national currency sovereignty would be a disaster. I opposed the Maastricht proposal when it was made public and remain opposed. Restoring national currencies, while initially disruptive will not in the long-term prove to be worse than what Münchau admits is a state where nations are “trapped in a dysfunctional monetary system”.….

Bill Mitchell – billy blog
The Eurozone – being ‘trapped in a dysfunctional monetary system’
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Yanis Varoufakis — A European New Deal financed by the EIB, with ECB QE-backing, is the optimal policy: Now recommended also by W. Münchau

Faced with deflationary forces in its core, and a lasting depression in the periphery, the Eurozone requires a major investment drive. One of the Modest Proposal’s policy recommendations is that the European Investment Bank (along with the European Investment Fund) embarks upon a massive investment drive (up to 8% of Gross Eurozone Product) without any national co-funding. These investments could be funded through 100% issues of EIB-EIF bonds, with the European Central Bank purchasing, in secondary markets, sufficient quantities of these bonds to ensure that their yields stay well below 1.5%, thus making a European New Deal not only possible but also self-financing – and off the books of national budgets.

The logic of this scheme was outlined first in a post entitled How should the ECB enact quantitative easing? A proposal. It received considerable support at The Economist May 2014 Bellwether Conference, as well as in the Journal of Central Banking, where Tom Bowker wrote an article entitled QE for infrastructure investment could be ECB’s alternative to ‘pushing on a string’.

Most recently, Wolfgang Münchau, in his regular Financial Times column, astutely noted that Prime Minister Renzi and Chancellor Merkel are on a collision course, courtesy of the former’s determination not to fall prey of Italy’s slow burning depression. Renzi, according to Münchau, is committed to an investment boom that will see off the forces of recession. Merkel, on the other hand, is determined not to allow fiscal deficits to exceed the Fiscal Pact’s austere limits. Can a clash be avoided?
The answer is affirmative…

A European New Deal financed by the EIB, with ECB QE-backing, is the optimal policy: Now recommended also by W. Münchau

Yanis Varoufakis

(h/t Jan in the comments)

Münchau disses EU summit result

The European Union last week destroyed the illusion that the eurozone and the UK could happily coexist inside the EU. That may have made it a historic summit. But the decision to set up a fiscal union outside the European treaties will do nothing whatsoever to resolve the eurozone crisis.

Read the rest at The Financial Times
Snags, diversions – and the crisis goes on
by Wolfgang Münchau

Wolfgang Münchau: Greece getting rolled

Uh oh.

With this construction, the downside to your losses is limited. Depending on how some of the parameters of this agreement evolve, you will probably make a small loss, relative to the par value of your holding. If you are lucky, you might come out positive. You will probably not be lucky. But you will still be better off than if you sold today, or if Greece were to default. More important, the accounting rules allow you to pretend that you are not making any losses at all.

If this was any other field of human activity, you would go to jail if you accepted, let alone made such an indecent offer. [emphasis added]

This structure is still not quite so complex as some of the more elaborate CDOs we have encountered in the global financial crisis. If you take some time to work through the arrows and boxes, you see relatively quickly that this complex structure is not a private sector participation at all. Rather it is a private sector bail-out.

Münchau concludes: "We are not just 'kicking' any old 'can down the road' any more. This is a can of explosives."

See the article and video at The Financial Times: The Greek rollover pact is like a toxic CDO

(h/t Zero Hedge)

UPDATE: Yves Smith weighs in: Partying on the Edge of the Eurozone Volcano

Calculated Risk: Greece Update: S&P says proposed Greece Debt Plan is "likely a Default"

Euro Intelligence: Finns Draw Line In The Sand Of Greek Collateral Requirement

The Finnish parliament, whose powers reign above those of the government in eurozone crisis resolution management, decided to attach a collateral requirement to all future loans to Greece. The document said that a collateral requirement was not a Finnish wish, but a rare case of a Finnish line drawn in the sand. But given the political situation in Greece, a collateral requirement, as part of which creditors would end up with a sizeable chunk of Greek assets, is hardly acceptable. The snag is that under the rules of the EFSF, any decision to disburse new aid requires unanimous support of all member states. It is possible, technically, for Finland to opt out of the scheme, leaving others to foot its relatively small share of the programme. But official are extremely nervous about this, as this may send a dangerous political signal