EU Referendum

Showing posts with label euro. Show all posts

Juncker[i-Juncker]The "colleagues" – namely eurozone finance ministers - must have been pretty desperate (or worried) to turn out on a Sunday, although it was a teleconference rather than a physical meeting. Even then, what they seem to have announced could have waited until tomorrow ... or not. What do they know that we don't?

That would be a stupid question if it was meant as anything other than a rhetorical device, highlighting that, when it comes to Greek finances, more than a few things do not add up. And we're not just thinking about the accounts.

Anyhow, the news came officially at an afternoon press conference in Brussels, following which Bloomberg and others reported that a "rescue package" had been cobbled together for Greece, worth "as much as €45 billion".

This is to cover the €11.6 billion needed by the end of May to cover maturing bonds, on top of another €20 billion by the end of the year to pay debt coupons and finance this year's deficit.

As to following years, it was well into the evening before Reuters issued a correction, stating that the aid would be "significantly higher" than €40 billion. This was from an unnamed official who said "it would be logical" for it to amount to some €80 billion over the next three years.

And, contrary to earlier predictions - the money will be available at a variable rate, but below what it would cost it on the market. The level is currently calculated at about five percent for the member state contribution, and less for the €10-15 billion coming from the IMF.

Nevertheless, Greece is still declaring that it intends to seek money from the market. Only in the event that it is unable to get the requisite finance will it ask for the help, when an as yet unspecified "mechanism" kicks in. Or, that is the theory. In fact, there is an amount of incoherence in the statements.

Contrary to the public optimism of the Greek government, the Eurogroup – as it likes to call itself – says it is offering the loans at "non-concessional interest rate", in order to "set incentives for Greece to return to market financing." This makes it sound as if the loans are a done deal, with Greece already planning to take them up.

On the other hand, Luxembourg prime minister Jean-Claude Juncker (pictured), who chaired the tele-conference is saying officially that the money would come only "if needed". But it seems this is said at the behest of the Germans. It is they who are saying that Greece needs to try, and fail, to borrow on financial markets before it gets help – and this may be for domestic consumption.

Quite how the markets will react is anyone's guess – no doubt traders and bankers too are trying to work out precisely what is going on. We will be seeing some sort of a response later today. A Greek finance ministry official says that the reaction over the next few days "will determine future developments."

But that hasn't stopped Greece's prime minister George Papandreou crowing. "With today's decision," he said, "Europe sends a very clear message that no one, any longer, can play with our common currency, no one can play with our common fate."

This sounds an awful lot like hubris. The man may yet have to eat his words.

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train-wreck[i-train-wreck]Wolfgang Münchau in The Financial Times seems to be ruling out any possibility of fiscal union in the eurozone. That, he seems to be saying, will lead to a "terminal crisis" and the collapse of the euro.

I am not sure he's right – given that I've understood him properly. He could well be underestimating the sheer determination of the "colleagues" to pursue their integration agenda. The prospect of a "terminal crisis" is precisely the type of beneficial crisis which gives them their power.

Should the euro collapse – with the default of Greece – which Münchau suggests must happen next year, it will signal the end of the EU as a political project. It will not recover from such a blow and, once its agenda goes into reverse, it will not stop there. So weakened will it be that the EU itself will be under threat, and will have difficulty surviving.

The "colleagues" will know that, and have invested far too much in the project to allow it to fail so easily. They will break every law in the book – and some – and even suspend the laws of economics, as far as they can, in order to save it. And if they succeed, they will just stave off the inevitable, making the final collapse even more dramatic.

Either way, they have a train wreck on their hands – the die is cast and in the long run there is very little they can do about it. But it ain't going to be pleasant when it happens. A lot of people are going to get hurt.

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In response to Lord Stoddart's written question about the euro and a possible referendum, HMG said:

The Government's policy on membership of the single currency remains unchanged. As stated by the previous Chancellor in October 1997, “whenever this issue arises, under this Government there will be a referendum. Government, Parliament and the people must all agree”.

Not sure what those last four words mean. The people are unlikely all to agree. So, if there is merely a sizeable majority, will there be another referendum in order to achieve a unanimity? And what happens if HMG decides that the euro is a very different euro from the original?

euro-currency-01[i-euro-currency-01]Opinion on the other side of the Pond seems to differ. The Wall Street Journal appears to think that it is, indeed, just that and it will not be long before what they call Reykjavik on the Thames (that would be London, one of the largest financial centres in the world until the EU's financial directives and the determined vandalism of this government destroy it) will see the usefulness of being inside that big tent.

The article disposes of the argument that the present financial crisis and the various governments' twisting and turning may lead to various members of the euro dropping out of the club or, according to some, freeing themselves from a straitjacket.

The thinking of those who believe Greece or Italy may drop the euro goes something like this: Freed of the shackles of a one-size-fits-all monetary policy and back in charge of their own currencies, these countries could devalue themselves out of the crisis, giving their industry a competitive advantage.

But this makes little economic sense. Any benefit from a devalued currency would be short-lived; it would surely lead to wage inflation, thereby neutralizing the advantage for exporters. The pitfalls of leaving the euro, though, would be enormous.

Through various tortuous arguments the article proves to its own satisfaction that countries are safer and more secure inside the eurozone. Not only would they be foolish to abandon it but those outside should really start thinking of joining it as soon as possible. Of course, that argument should apply to countries outside Europe as well. If the eurozone is such a good idea, why don't they all join it?

The euro is an anchor of stability, particularly for small members that otherwise would be much more exposed. Denmark may hold a referendum on joining the euro next year and in Iceland, which hitherto has declined to join even the European Union, a clear majority now favors adopting the single currency.

Perhaps the euro skeptics in the other Reykjavik, the one on the Thames, may soon rethink their position as well.

The trouble with all those majorities that they often disappear when the referendum actually comes round and people are faced with the reality of joining the EU (in Iceland's case and fish is not mentioned in the article at all) or the euro in Denmark's case.

I suspect this may be another effort by Alistair Macdonald, the egregious UK politics, economics and European financial regulation correspondent.

Landon Thomas in the New York Times and the International Herald Tribune thinks otherwise.

In Europe, after a brief lull, the financial crisis is back with a vengeance. Germany, France and the Scandinavian countries, though stronger, if also ailing, are mounting stimulus programs and building fences around their banks. The peripheral European economies are being left to twist in the market winds.

For many years, countries like Greece, Spain and Italy took advantage of the easy money that came their way. Trade deficits remained wide and governments borrowed up to their treaty-set limits - sometimes beyond.

Now, with the need for stimulus to deal with the severe downturn, these countries find themselves caught in an awful policy bind: credit is available, but only at punitive short-term rates; and further borrowing not only breaks with European Commission dictates but raises broader questions of solvency.

The situation is not exactly rosy in Britain with another bank bail-out, which, presumably, though Mr Thomas does not put it quite so bluntly, will be as efficacious as the last one.

For Mr Thomas the weakest of all links is Greece, something that will not surprise any of our readers as that country managed to scrape into the euro only by a great deal of fudging. There is the additional problem, not mentioned by Mr Thomas: most of those weaker, peripheral countries have had a great deal of money transferred into their economies from the other, somewhat stronger ones. That, too, may come to an end now.

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Rasmussen[i-Rasmussen]Both Reuters and AP report a statement by the newly re-elected Danish Prime Minister, Anders Fogh Rasmussen, on the subject of an EU referendum in Denmark. No, it is not a break-through for those who have been campaigning for a referendum on the Constitutional Reform Lisbon Treaty. That is going to be ratified without any recourse to the people.

What Mr Rasmussen is proposing is another referendum on the euro, rejected by the Danish people in 2000 but for which there is a marginal support in the opinion polls at the moment. Marginal support will not necessarily transform itself into votes, especially not if the economy of the eurozone remains a little choppy.

Mr Rasmussen thinks that many things have changed and it is time to ask the Danes again (the last time they voted the wrong way) about that and about the opt-outs that they were promised for the second Maastricht vote (the first time they had voted the wrong way).

As our readers will recall, in the second Maastricht vote

Danish voters approved a revised treaty with clauses letting the Scandinavian country stay outside a single currency and banking system and refrain from joining a European defense structure or conform to EU citizenship laws and common law enforcement.

Is Mr Rasmussen running interference by trying to disarm those who are calling for a referendum on the treaty by promising a referendum on something nobody really wants except for the political establishment?

COMMENT THREAD

link[i-link]Der Spiegel reports that there is some disagreement on the subject of the strong euro within the eurozone economies. The euro has hit an all-time high at $1.38 this morning but slipped back somewhat later on.

The politicians think this is a good thing, the businessmen, particularly in Germany, are not so sure.

"That is an exchange rate that we can live with," said German Economy Minister Michael Glos on Thursday at a German-Arabic business conference. "The economy is doing great. There are no worries at present."

This was echoed by Portugal's Finance Minister, Fernando Teixeira dos Santo:

"I don't think ... that we have a problem in exchange rates at the moment," he told a European Parliament committee. "Let's not fall into temptation to resolve our economic problems by devaluing. If we want to gain competitiveness it's not by devaluing our currency."

Fair enough. It is economic reforms that will overcome stagnation not a single currency as some of us insisted on telling supporters of the euro in the early nineties.

Still, German industrialists are not happy:

Despite Glos' equanimity, German industry on Wednesday complained that the strong euro was not good for business. A spokesman for Germany's machinery manufacturing industry told the Süddeutsche Zeitung that a number of company's were having trouble competing against foreign companies this year due to the strong euro. The country's automobile industry likewise told the paper that it has felt the effects of the currency's strength.

"The currency's development is causing us to become more and more concerned," Matthias Wissmann, president of Germany's federation of automakers, told Süddeutsche Zeitung. The strength of the European currency makes products from euro-zone countries more expensive abroad -- or can decrease profits in the US if companies try to keep dollar prices constant. Indeed, the strong euro has Volkswagen thinking about opening up a factory in the United States.

Globalization, anyone?

EU+-+Euro+notes+2[i-EU+-+Euro+notes+2]An interesting little item in the International Herald Tribune reminds us that one can never quite predict economic and fiscal developments. It would seem that the euro has its uses in international trade. It has become the currency of choice for Latin American cocaine traffickers.

There are two reasons for this unexpected development, one economic and one social. As we know the euro is gaining in strength as against the dollar, which makes it a good currency for others to trade in, though not, perhaps, for European manufacturers.

Then there is a curious shift in cocaine use. Apparently, that, too, is much stronger in Europe than in the United States and growing.

"The euro has replaced the dollar in the Western Hemisphere as the currency of choice among these traffickers, which is an extraordinary shift," she [Karen Tandy, head of the Drug Enforcement Administration] said. "As cocaine use has declined in the U.S. dramatically, in the European market it has risen."

Traffickers are drawn by bigger profits on the European street, where a kilogram of cocaine sells for about $50,000, compared with $30,000 in the United States, officials say. Donald Semesky, chief of financial operations for the U.S. agency, said 90 percent of the €1.7 billion in euro currency - equivalent to $2.3 billion - registered as having entered the United States in 2005 came through Latin America, where drug cartels launder their European proceeds.

Spain and Portugal are the main gateway of drugs into Europe, hence the decision to hold the International Drug Enforcement Conference here this year. Officials in the two countries seized 70 tons of cocaine in 2006, almost the same amount as was seized in all of Europe in 2004, according to United Nations figures.

Good to know we are burying America (to use Nikita Khrushchev’s unforgettable phrase) in some respects.

There are a couple more details of interest. One is that West Africa, whose fishermen we have deprived of their livelihood and whose governments have received huge amounts of European money in aid, has become the hub for the international drug trade.

The other is that

Spain has become a European leader in money laundering and is home to about 25 percent of all €500 notes - known locally as Bin Ladens - in the eurozone, according to figures published last year by the Spanish central bank.

It all makes geographic sense as well.

COMMENT THREAD

EU+-+Euros+004[i-EU+-+Euros+004]It is not only in Iraq that there is an ongoing battle for "hearts and minds". There is one raging in the Eurozone and, according to FT-Harris poll just published, the European Union is losing it.

An overwhelming majority of citizens in the big eurozone countries believe the euro has damaged their national economies. Of the French, Italians and Spanish, more than two-thirds believe the single currency has had a "negative impact". More than half of Germans feel likewise and, in France, a mere five percent said the euro has had a positive effect on the French economy.

More than half of citizens in countries using the euro say they prefer their former national currency, according to the poll of 5,314 adults in Germany, the UK, France, Spain and Italy, which was conducted between January 10 and January 22. Almost two-thirds of Germans say they preferred their former currency, the D-Mark.

Despite that, citizens of eurozone countries generally see wider benefits of the euro. More Germans, Italians and Spanish see a positive impact on the EU economy than a negative effect. The big exception is the French, more of whom see a negative rather than positive impact.

The interesting thing is though that the results coincide with a relatively buoyant time for the euro. Eurozone growth prospects have brightened, thanks largely to a pick-up in Germany, and employment prospects look better than they have for some time.

Given an economic downturn or currency crisis in the Eurozone, one can see sentiment turning even more sharply against the single currency, which means that this result is probably as good as it gets. From here, it can only get worse.

COMMENT THREAD

Slovenian+euro[i-Slovenian+euro]The third day into the German presidency of the European Union and it is already boring. Yet again we hear that Angela Merkel is trying to promote, not exactly a free-trade area but some freeing up of trade between the United States and the EU. We heard this last year and, before that, it was an idea promoted by the FAES think-tank, presided over by the former Spanish Prime Minister Aznar. Well, it will give Chancellor Merkel something to think about as she clearly isn’t about to introduce any of those reforms in Germany (except for putting up VAT).

In the meantime, another country has joined the euro, Slovenia, the first of the former Communist states to do so, and probably for a long time. As the New York Times points out, the others are some way off from satisfying the criteria (as are many of those who are members) and have lost interest in the subject, not being able to see the benefits:

Lithuania, one of the first of the newcomers to break with communism, hoped to adopt the euro on Monday, but it failed to meet the European Union’s inflation test by 0.06 of a percentage point this summer. Poland failed to muster the political consensus in favor of joining, and is threatening to hold a referendum on the issue in 2010. Hungary, burdened by political instability, has abandoned its previous target of entering the euro zone in 2010. Even Estonia, a Baltic tiger lauded for its economic prowess, has decided to move back its entry date from 2008 to 2010.

According to the BBC, the Slovenians are overjoyed at the thought of being in the euro and inordinately proud of being the first East European country to have made it into the club.

Others describe certain doubts. There are fears that prices will go up and some worry that the benefits of EMU will not outweigh the difficulties. One market stallholder, who has seen off four currencies in her seventy years, has even expressed the view that, as an independent country, Slovenia, should keep its own currency. Hmmm. I have news for the lady. Slovenia stopped being independent on May 1, 2005.

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EU+-+Euro+sign[i-EU+-+Euro+sign]On 1 January 1999, more than 30,000 people joined a street party in front of the European Central Bank in Frankfurt to celebrate the launch of the euro and the first economic union in Europe since the Roman Empire. A band struck up a stirring tune to mark the historic day. Curiously, it was not Beethoven's "EU Anthem" but Land of Hope and Glory.

Eight years later, with Slovenia's rats joining the sinking ship, how different it all is. There is neither land, nor hope, nor glory and, it seems, even the French are turning against the project.

That much the Sunday Times told us yesterday, with an account of how a French diplomat who spent the festive period at his weekend home in rural France was astonished last week when a man in a DIY shop presented him with a bill in francs, rather than in euros, with the excuse: "I am sorry, monsieur, most of my clients prefer it that way."

Actually, it has never been any different, so I don't know where this "French diplomat" has been. Ever since the introduction of notes and coins on 1 January 2002, French shops have continued with dual pricing and, in some instances, show the prices only in Francs in the shop windows.

Nevertheless, we are told that hostility towards the single currency is growing as a wider malaise over an expanding Europe takes hold, making our diplomat "very pessimistic about the future" – and this blog very happy indeed, especially as the Libération newspaper noted in an editorial last week that the euro has been a far cry from the "very great federating power" that Hubert Védrine, the former French Socialist foreign minister, imagined for it.

"It has not had the effect of an integration lever that its founding fathers dreamt of," the paper wrote. "At a time when the European project has broken down ... you have to be a Slovene to feel any enthusiasm about joining the eurozone."

euro+notes[i-euro+notes]In another editorial today, the writer notes that it is the three that stayed out — Britain, Denmark and Sweden — that have prospered. In Britain, public opinion is granite hard for sterling, to the extent that no serious politician proposes joining the EU currency, and the lobby group set up to campaign for it has folded (only to be replaced with Open Europe).

And, with the advocates having concentrated on claiming that monetary union was inevitable, they are now on a loser. Remove the sense of inevitability and the entire construct collapses, says the paper. Yet that fool – albeit a dangerous fool – Geoff Hoon is saying that Britain will have to reach a compromise with the 18 EU member states that have already ratified the constitution.

That's the thing about these Europhiles – even when their beloved construct is in its grave, and rotting flesh is peeling from its carcase, they will still be mooning over it... necrophiliacs, one and all, they are.

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