Madame Lagarde’s expensive tastes in bail outs

 

             The IMF under Mme Lagarde says it wishes to have more money at its disposal to be able to bail out the bigger states of Euroland if necessary. The lady tells us that their current facilities of $400 billion may seem like a lot of money, but they  could spend it all quite quickly if one of the larger EU countries needed a rescue.

             I thought the IMF was there to lend money to near bankrupt sovereign countries when all else had failed. They normally put in a programme of spending controls, asset sales and devaluation, to give the problem country a chance to work its way out of debt difficulties. They regard it as a sovereign risk, as the state in question can always print some more money to meet the nominal liabilities it faces.

              If Scotland or California got into financial difficulties and needed to borrow more than the markets wanted to lend, the IMF would not go anywhere near the problem. The IMF would  say that  Scotland is part of the sterling currency union and UK federation, so it would expect the rest of the UK to sort it out. It would regard California as part of the US federation and a member of the dollar currency union, so again there would be no loan for that state.

              So we have to ask why are there loans for states who have given away their monetary and currency sovereignty and are now members of the Euro currency union? They can’t print the money they might need, and they can’t devalue, so why should they be regarded as sovereign risks that the IMF might take on and tutor back to economic health? They are clearly riskier bets than sovereign states, because they do not control their own Central Bank and monetary policy.

                  In her new role Mme Lagarde should not be an apologist for a failing Euro model. She should  not seek to distort the IMF portfolio by placing  massive bets on failing Euro states. These loans merely put off making the proper adjustments to the single currency model. Greece and Italy have to become like Scotland and California are within their single currency areas,  within the Euro union. They are the Euro area’s problem, not the IMF’s or the world’s.

                As a leading member and contributor to the IMF I would like the UK to ask some sceptical questions about the wisdom of the IMF bailing more Euro countries. Without proper budget discipline, monetary reform and new political architecture the Euro cannot work properly, so it is a huge mistake to go on pretending and extending more credit as if it was fine.

               Trying to bail out Italy if Italy finds it too difficult to borrow money in the normal way on the market should be too expensive for the IMF to contemplate. If Italy cannot finance herself in the Euro in the markets, there must be something  very wrong with the design of the Euro.

              I do see we have lost E1 trillion overnight in the latest briefings. Sunday’s newspaper stories of E3 trillion have become E2 trillion today. The longer the Euro authorities leave coming up with a plan which has been thought through in detail and looks as if it could work, the more damage the markets will do the exposed positions of Euro sovereign debts.

This entry was posted in Blog. Bookmark the permalink. Both comments and trackbacks are currently closed.

75 Comments

  1. Duyfken
    Posted September 26, 2011 at 6:24 am | Permalink

    Any loans made by the IMF should be subject to full collateral from all eurozone members – joint and several.

    BTW I did not know you were a a leading member and contributor to the IMF. 🙂

    • Disaffected
      Posted September 26, 2011 at 5:04 pm | Permalink

      Madame Lagarde can stick her shopping list for bail outs where the sun does not shine.
      Osborne might want to be at the head table at the IMF but not at the expense of the UK taxpayer. I do not want to work longer nor pay more taxes so he can waste another £9 billion on useless bail outs. He can throw away his money anytime he wishes. He should act more responsibly with taxpayers’ money.

      I trust all MPs will vote against contributing to another bail out, as the memory of the failed £9 billion bail out in July this year should still be fresh in their minds.

      Cameron has stopped challenging the Strasburg opposition as it might upset the French, another U turn on EU matters. The building cost about £450 million to build and is empty 9 months of the year. Travelling costs are about £150 million for the unelected Eurocrats. Perhaps he realises that we need French aircraft carriers to land our planes on. Better still he should provide the security of our state with an independent military force. Let us hope that the Tory party wake up in the near future. If they do not change in the next two years, Labour will be in power for a very long time and Cameron will be to blame.

      • Tim
        Posted September 26, 2011 at 7:14 pm | Permalink

        With French and German banks heavilly exposed to Greek and Italian debt (£80 billions + or so) they will be looking for anyone else to help their taxpayers. Don’t remember much support when we had to bail out our Banks other than scoffing at the Anglo Saxon model. I’m afraid that if true to form Cameron and Osborne will roll over. They are proving useless and Tory voters are starting to see the missing implementation of policies (immigration, public spending up, 72% for the EU alone to £13.5 billions and no repatriation of powers, no reform of Human Rights, foreign aid £11.5 billions to nucleur powers, international health service etc) or National interest. Get brave Dave and Gideon, or resign and let someone who can make the tough decisions in our interests take over.

  2. lifelogic
    Posted September 26, 2011 at 6:38 am | Permalink

    You correctly say “Without proper budget discipline, monetary reform and new political architecture the Euro cannot work properly, so it is a huge mistake to go on pretending and extending more credit as if it was fine.” What are the legal structures of the IMF and how can this be prevented? Alas Cast Iron will cave in and go along as usual I suspect.

    I also see that the number of lawyers in the UK has gone up by three times in the last 30 years. So whereas in manufacturing huge efficiencies have been achieved through technology, and fewer staff thus lowering the price of a car from two years average wage to now about 1.5 of on average wage and for a better more efficient & reliable car.

    Meanwhile the legal profession now, with state of the art computer systems cannot even, even now after years have passed, give a clear judgement on a planning issue on for example the Essex travellers site. Clear, quick, decisive, affordable and sensible judgements are needed we get the exact opposite delivered with all these lawyers. The country needs more lawyers, legal complexity and level of courts like it needs more state expenditure, more zombie banks and more regulations. It is a largely parasitic industry, driven by poor laws and a silly balance of risk/reward and a huge degree of legal ambiguity in almost any issue.

    The government should sort it out with the bonfire of red tape. Has anything started on this bonfire yet? Start with the absurd squatting and employment laws. Make sure people have to put up risk money to take actions so heads you win tails you do not loose does not ever apply.

    • lifelogic
      Posted September 26, 2011 at 7:30 am | Permalink

      The Peter Oborne and Francis Weaver pamphlet “Gilty Men” by the Centre for Policy Studies is very well summarised on Delingpole’s blog on Saturday.

      It suggest the Guilty Men in the EU/EURO mess – “Andrew Rawnsley, Chris Patten, Tony Blair, Peter Mandelson, Michael Heseltine, Ken Clarke, Charles Kennedy, Danny Alexander, Niall FitzGerald, Adair Turner, David Simon, et al – you can be sure that those Guilty Men won’t actually be experiencing even the slightest frisson of guilt or embarrassment about the decent people whose reputations they have helped destroy, or the damage they have done to our economy, our democracy and our freedoms.”

      Also the organisations the FT, the BBC and the CBI – these people (and of course John Major) proven so clearly wrong but they just go from strength to strength. Cameron’s appointment of Chris Patton to the BBC the worst example and the best indication of Cameron’s true pro EU, socialist, big government inclinations.

      He suggests we will see the same with those many guilty of the huge global warming the exaggerations many of the same people. Once again we have the BBC to the fore. Are some of these not in the Lords already? Remind me when did they predict the oil and gas were going to run out – about 1980’s was it not.

      • lifelogic
        Posted September 26, 2011 at 9:23 am | Permalink

        It is reported that Mr Miliband will, in his speech, acknowledge the last government did not spend every penny wisely.

        Somewhat of an understatement – and a policy being continued under Cameron and Clegg with a similar enthusiasm.

      • D K McGregor
        Posted September 26, 2011 at 11:11 am | Permalink

        re Chris Patten getting the job , you’re dead right there. Imagine if his erstwhile colleague ,Tebbers , had got it.

        • lifelogic
          Posted September 26, 2011 at 11:43 am | Permalink

          Ms Coyle the assistant head of the BBC trust seems to have similar monolithic BBC views – I quote from Delingpole’s Spectator article.

          “Ms Coyle in her role as economics writer for the Independent ten years ago. Here’s an example of her prejudicial analysis: ‘The defenders of sterling are, in the main, a group of elderly men with more stake in their past than in our future. They clothe their gut anti-Europeanism and Little Englandism in the language of rational economic argument.’

          I am not that old and with my Italian wife and my house in France for very many years I do not really feel I have a gut anti-Europeanism or Little Englandism. I do however rather dislike the EU, over large state sectors, a lack of democracy, socialism, quack greenery and the BBC political line which pushes these down people throat using their licence fees.

          Why, when so few read the Guardian and Independent do we have to have endless “Guardian” and “Independent” style BBC TV news.

          • lifelogic
            Posted September 26, 2011 at 12:55 pm | Permalink

            Sorry it was actually Mr Oborne’s article in the spectator but linked to from Delinglpole’s blog.

      • Bob
        Posted September 26, 2011 at 11:29 am | Permalink

        The BBC are at the root of the problem for using their licence fee financed dominance to promote the EU to the detriment of the British people. Maybe the coalition could look at taking some of the licence fee to help reduce the deficit, say 2.5 billion a year. I sure the BBC should be able to provide some basic TV programs for a billion pounds a year.

        • lifelogic
          Posted September 26, 2011 at 1:04 pm | Permalink

          The old ones they have in their stores are much better than the new ones they make anyway – all they need it someone to put the tapes on and press go. It should not cost very much.

    • lifelogic
      Posted September 26, 2011 at 2:24 pm | Permalink

      I see yet another legal ruling on Dale Farm. How many more £millions will need to be paid to the legal profession before they can make a “final” decision on this absurd ten year dispute.

  3. norman
    Posted September 26, 2011 at 6:56 am | Permalink

    Why worry about this? With modern technology things are so much easier. Back in the day you’d have to hire more printers, printing machines, order more of the special paper, distribute the stuff, all very time consuming and irritating.

    Now simply pick up the phone, say ‘Merv, George here old man, add another £50bn on to that last order, those rotters at the IMF are asking us to stump up more’, one of Mervs minions pushes a button and ta-da!

    If the Euro zone are printing 3 trillion we have to stay competitive in the race to the bottom so £100bn won’t cut it, plenty of scope for more currency debauchery.

  4. Mick Anderson
    Posted September 26, 2011 at 6:57 am | Permalink

    I know nothing of Mme Lagarde, but have noticed that Mr Brown has been rather quiet lately.

    Are we sure that the former isn’t the latter in drag? The ideas have a familiar timbre to them.

  5. Posted September 26, 2011 at 7:16 am | Permalink

    John, given Lagarde’s history with the EU, this was ALWAYS the intention of her appointment. Many others commented and predicted this.

    I despair at the lack of foresight from our ‘leaders’ (it appears that they are the ones being led), who should have anticipated this move and put out the counter-arguments / warnings already – probably in the run up to her appointment and certainly upon her appointment – thereby controlling the narrative, etc.

    But once again, the monsterous planning of the EU has outwitted those in office here.

    Reply: I did advise that the UK should not back her appointment…

    • lifelogic
      Posted September 26, 2011 at 7:38 am | Permalink

      I assume Cameron supported her appointment? Could the UK have blocked it anyway?

      Reply: The UK did support it. We had no veto, but if you want influence you have to voice your worries.

    • Posted September 26, 2011 at 7:43 am | Permalink

      John, this was not a dig at you – you’re one of the few whose eyes are open.

  6. Greg
    Posted September 26, 2011 at 7:26 am | Permalink

    Considering that not a single minister, banker or MEP in a position to actually affect policies seems to have the slightest grasp of economic reality or clue as to what to do to improve the situation it’s no surprise that Lagarde is as witless as the rest. Government finances and their currencies are really doomed unless people like you, Mr Redwood, Daniel Hannan and the other euro sceptics manage to either get the leadership to listen or, better, kick them out.

  7. Antisthenes
    Posted September 26, 2011 at 7:40 am | Permalink

    French banks are in dire straights as they hold too much Greek and Italian debt and the director of the IMF is a French lady. Christine Lagarde was the finance minister under the current French quasi right wing government, DSK was the director of the IMF but he is a socialist. DSK gets unmasked as a randy (….) old man. If this was a book it would be a best seller. As it has only been released in serial form we will have to wait for the final installment to see who are the winners and losers. Will it be the evil EU cartel or the dashing heroes of the right who are fighting against hopeless odds. In any event I cannot see a happy ending.

  8. Posted September 26, 2011 at 7:56 am | Permalink

    Very good points and something should urgently be done. Happily a provision is available. The full Articles of Agreement for the IMF are at:

    http://www.imf.org/external/pubs/ft/aa/index.htm#a5s3

    A Section 5 notification should be made under the Articles of Agreement of the IMF in respect of any IMF member who is a participant in the EMU:

    Section 5. Ineligibility to use the Fund’s general resources

    Whenever the Fund is of the opinion that any member is using the general resources of the Fund in a manner contrary to the purposes of the Fund, it shall present to the member a report setting forth the views of the Fund and prescribing a suitable time for reply. After presenting such a report to a member, the Fund may limit the use of its general resources by the member. If no reply to the report is received from the member within the prescribed time, or if the reply received is unsatisfactory, the Fund may continue to limit the member’s use of the general resources of the Fund or may, after giving reasonable notice to the member, declare it ineligible to use the general resources of the Fund.

    • Martyn
      Posted September 26, 2011 at 8:39 am | Permalink

      Good spot, thanks. It will no doubt be ignored and I wonder if the IMF can actually afford to bail out the Euro?
      Might not the non-Euro nations who provide the IMF with money decide they do not wish to be a part of the bail-out and pull their money back, bringing down the IMF itself?
      Darned if I know, I simply cannot comprehend the idea of being so much in debt that the only way to recovery is to print/borrow/spend more money that doesn’t actually exist other than as a paper promise. How does that work?

    • Duyfken
      Posted September 26, 2011 at 9:09 am | Permalink

      The Articles of the IMF are quite opaque to me and there seems to be a mismatch of membership. Whereas Greece and other countries in the eurozone appear to be separate members, the USA, UK and other composite countries with a common currency are members but not their constituent States/countries.

      So far as concerns Section 5, I note it is up to the “Fund” to opine on a member’s inelegibility, so I would not be too optimistic!

  9. Peter van Leeuwen
    Posted September 26, 2011 at 8:07 am | Permalink

    When in 1976, countries like Italy and Spain helped to bail out Britain, IMF’s theater of operation was only a fraction of what it is nowadays. I read that the DAILY turnover in the global foreign exchange market reached $4 trillion in 2010. Of course there is a design fault in the euro but to achieve Mr. Redwood’s spelled out design for the euro will take time. Some countries (e.g. France) held out for intergovernmental influence, others (e.g. Netherlands) push for a supranational solution. When democracy takes time, 17 democracies take more time. Authorities (Mr. Osborne) have given us 6 weeks. This sense of crisis does help to focus minds. On the positive side, mainstream parties in the Netherlands have become far more europhile during the summer months and in Germany the vote this week on the euro is sure to pass.

    • Mark
      Posted September 26, 2011 at 12:57 pm | Permalink

      Have you noted how high the external debts of the Netherlands are? Per capita, they are among the very highest in the EU. I’m sure it influences their stance, because on the other side of those borrowings are “assets” that may turn out not to have the value they are supposed to…

      • Peter van Leeuwen
        Posted September 26, 2011 at 2:20 pm | Permalink

        When you add private debt to the public debt you’re correct. Dealing with private debt (mortgages) would require another government coalition, but another IMF warning might help. I believe that the current europhile stance by politicians comes from the realisation that the Netherlands with its very open trading economy has done quite well from the euro so far.

    • sjb
      Posted September 26, 2011 at 2:46 pm | Permalink

      I agree that the votes on 29 September in the Bundestag and Bundesrat are likely to endorse more powers for the European Financial Stability Facility; Germany will take whatever measures are necessary to ensure the euro survives.

      In the UK, it is reported that the German public are turning against the euro. However, when Merkel’s coalition partners (the FDP) decided to run on an anti-euro ticket in the recent Berlin election their share of the vote fell from 7.6% (2006) to just 1.8%.
      http://www.ft.com/cms/s/0/1edbb314-e2c9-11e0-897a-00144feabdc0.html?ftcamp=rss#axzz1Z43lwqD0

      • Posted September 27, 2011 at 3:54 pm | Permalink

        Well no-one likes a hypocrite. The FDP were seen as trying to save their scrawney necks but the voters still held them responsible for current policy.

  10. Richard
    Posted September 26, 2011 at 8:08 am | Permalink

    A comment I hear “on the shop floor” is :
    How come they tell us there is no money for all kinds of things (including pay rises) but they can suddenly find a few trillion when they want to….?
    One minute we’ve no money to keep our school crossing patrols and disabled care centres open, the next we are helping the EU out with a few billions we’ve just found lying around near a printing press.
    Not good politics if you want to remain popular.
    We should be brave and say we are too poor to be able to help, much as we would like to, this would at least make sense to the average voter.
    This bail out addiction, (banks and EU countries) is similar on a micro scale to what happened in the engineering industry when Chinese and Indian competition blue a hurricane of competition through it about 15 years ago.
    I watched as many wealthy family businesses, established over several generations, decided to pour all their money back into their businesses to keep them going, despite mounting losses and the impossible task of trying to compete with China.
    In the end many lost everything, their companies, their homes, their long established wealth.
    They just delayed the inevitable, but at great cost.
    The clever ones merged or closed down whilst there was still money in the business and went away to regroup or do something different.
    Shame our political masters seem hell bent on doing the former.

  11. Colin D.
    Posted September 26, 2011 at 8:20 am | Permalink

    I remember a quote attributed to Lagarde: “We broke all the rules”. With scant regard for principle, Lagarde is now hijacking the IMF to sustain a failing European ‘project’.
    I wonder if Lagarde sees this as a covert way of furthering her own career ambitions within Europe

  12. Tedgo
    Posted September 26, 2011 at 8:26 am | Permalink

    Slightly off topic, last week on the BBC a correspondent was asked how Belgium was coping with the financial crisis. The response was that Belgium still had not got a new government in place after 12 months of wrangling, essentially the people in the north of Belgium are feed up bailing out their compatriots in the south of Belgium.

    So much for European unity.

  13. ian wragg
    Posted September 26, 2011 at 8:34 am | Permalink

    I bet George will be able to magic a few billions for propping up the Euro.
    Amazing how we can’t afford decenc armed forces or pensions but we have unlimited reserves for the EUSSR>

  14. Electro-Kevin
    Posted September 26, 2011 at 8:45 am | Permalink

    You raise an important point there, Mr Redwood.

    The contortions people will go through to save an ideology.

    http://www.telegraph.co.uk/finance/financialcrisis/8786547/The-Greek-tragedy-no-money-no-hope.html

    This is awful to read. Perhaps a foretaste of what is to come. I at least expect millions of despairing youth from the PIIGS nations to be headed our way.

    London as the banking capital of the world ? Not when the riots kick off.

  15. alan jutson
    Posted September 26, 2011 at 8:51 am | Permalink

    Whatever happed to the usual stance of a Bank wanting claims on an asset in exchange for a loan.
    It would surely tend to concentrate the mind if a few Greek Islands were put up as as collateral.

    The alternative.
    The Bank able to put in its own staff (administration) to run the country after first having sacked all Ministers (no severance payment agreements) if the repyment programme falters.

    This is standard practice and what happens in the commercial world.

    Perhaps then politicians may get real !

  16. javelin
    Posted September 26, 2011 at 9:07 am | Permalink

    The ECB and PIIGS are all bankrupt financially and economically, if not now but when the whole future picture is taken into account. There is not enough money in the world to sustain the Euro political project.

    The IMF and the UK should not be sucked into the failed Eurozone

  17. Javelin
    Posted September 26, 2011 at 9:27 am | Permalink

    I find it interesting to speculate why the political “elite” in the EU think they can defy economic gravity.

    I think they do not see the difference between pushing a Currency through against the will of the voters and pushing a Currency through against the will of the markets.

    The difference between voters and markets is that voters can be worn down through years of attrition, whilst markets cannot. Markets are like gravity because Creditors will not go away – they will always be there demanding their interest payments. The EU think they can wear down the markets – they cannot.

  18. Elliot Kane
    Posted September 26, 2011 at 9:36 am | Permalink

    The really sad thing is that everyone knows the inevitable result of all this. Sooner or later, at least a few of the nations in the Eurozone are going to have to default, decouple, and go back to using their own currencies.

    The longer this is put off, the worse the damage will be not just to those nations, but everyone else, too.

    Yet the govts of the Eurozone seem to be playing some kind of weird game where they pretend to be unable to see the truths that are right in front of them. Somehow, destroying their own nations and those of everyone else has become preferable to admitting they made a mistake.

    I have to wonder at the mentality that is prepared to burn the lifeboats rather than admit the ship is sinking…

  19. waramess
    Posted September 26, 2011 at 9:52 am | Permalink

    The IMF will continue to throw money at these countries because it will not face up to the fact that the EU’s banking system requires a massive reorganisation and politicians are rarely willing to face up to anything massive.

    Whatever we care to believe the IMF is now an economic arm of the EU and they willl continue to respond to the funding requests made of them by Brussels.

    Fortunately market forces are far stronger and the end game will see the PIIGS leave the euro; and quite rightly so.

    Convergence of economies is a meaningless guide if it ignores entirely productivity. Prices in Greece, for example have increased as have wages so that now there is little difference between Athens and Berlin but there has been no corresponding change in productivity and it is productivity that pays the bills.

    Bring it on, and let the markets show the way. These politicians will spend their (our) last farthing in defending their beliefs but in the end the markets will determine the way forward. Let’s just hope that they do so before penury strikes

  20. Gary
    Posted September 26, 2011 at 9:53 am | Permalink

    From the Sunday Telegraph, Geithner lays the policy out : they are going to throw the taxpayers into the banking black hole, until the banks are made whole. This is fascism.

    By Ambrose Evans -Pritchard
    7 :00 PM BST 25 Sep 2011
    The threat of cascading default,
    bank runs, and catastrophic risk
    must be taken off the table ,” said US
    Treasury Secretary Tim Geithner
    over the weekend.

    • Horatio McSherry
      Posted September 26, 2011 at 11:35 am | Permalink

      I do like Ambrose Evans-Pritchard and read his offerings with much relish, but he does make me smile as I can’t help comparing him to Doc Daneeka in Catch-22.

  21. Denis Cooper
    Posted September 26, 2011 at 10:00 am | Permalink

    I hope that this time MPs will stand up for the rights of Parliament and insist that any further IMF subscription must be authorised through a full Act of Parliament, not through an Order under the International Monetary Fund Act 1979.

    When JR poses the question:

    “So we have to ask why are there loans for states who have given away their monetary and currency sovereignty and are now members of the Euro currency union?”

    he is in effect supporting my contention that the 1979 Act is no longer applicable when any extra money given to the IMF is clearly intended to help bail out eurozone countries.

    My argument remains the same:

    1. The eurozone bailouts are illegal under the EU treaties, as openly admitted by Christine Lagarde herself last December:

    “We violated all the rules because we wanted to close ranks and really rescue the euro zone.”

    “”The Greek and Irish rescues – €110 billion and €67.5 billion, respectively – and the creation of the bailout fund were, Ms. Lagarde said, “major transgressions” of the Lisbon Treaty that is the European Union’s governing document. “The Treaty of Lisbon,” she says, “was very straightforward. No bailing out.””

    2. It would be absurd if the “very straightforward” prohibition of bailouts in the EU treaties could be circumvented simply by passing money to a country through a third party such as the IMF, and indeed the EU treaties make no exception for the IMF meaning that under EU law the “no bailout” clauses in the EU treaties should be held superior to anything in the IMF Articles of Agreement.

    3. The EU treaties have been incorporated into our national constitutional law through the European Communities Act 1972 and subsequent amending Acts, most importantly in this instance the European Communities (Amendment) Act 1993 to approve the Maastricht Treaty including the “no bailout” clauses.

    4. The 1993 Act must supersede the 1979 Act, both because the 1993 Act is the later, and because it incorporates the superiority of the Maastricht Treaty on European Union over the IMF’s Articles of Agreement.

    5. Of course it is open to Parliament to authorise the government to break the EU treaties and supply more money to the IMF to help fund eurozone bailouts, but correctly that Parliamentary authorisation should be through primary legislation, an Act, not secondary legislation, an Order.

    6. Therefore MPs should not allow the government to treat Parliament with contempt by proceeding through an Order rather than an Act.

  22. Electro-Kevin
    Posted September 26, 2011 at 10:13 am | Permalink

    http://1.bp.blogspot.com/-xoNML1UykU4/Tn-svwGEsmI/AAAAAAAADZ8/yNzjNjMOmXU/s1600/income%2Btax.jpg

    Off topic if I may please, Mr Redwood.

    The above link is of the tax distribution in the UK. It illustrates clearly the disproportionate amount that the £1m plus category pays. I feel a bit bad about grumbling now.

    Perhaps such an illustration would help to put your case better. Supplied by Alice Cook of the excellent UK Bubble.

    Reply: Yes, it does illustrtae how steeply progressive Income Tax is. Nothing wrong with progressive, as long as enough of the high earners stay around to pay it.

    • Mark
      Posted September 26, 2011 at 12:46 pm | Permalink

      So that’s where the excellent Alice Cook now comments. A quick scan through recent posts produced this gem:

      http://2.bp.blogspot.com/-dqLsY1D-XXA/TnFWsNUmCII/AAAAAAAADYk/UbJSw6Kmf4U/s1600/greek%2Bproblem.JPG

      which reminds me of the Russian joke about the boastful fisherman, bragging about the size of fish he catches: the village gets fed up with him, so they handcuff him. He brags again… “Last week I caught a fish that was this big!” (stretching his fists as far apart as the cuffs allow), and the villagers laugh “So big, Sasha! Now we’ve cut you down to size.” He replies, “That was the distance between his eyes…”.

      • Mark
        Posted September 26, 2011 at 7:36 pm | Permalink

        Translation of the German caption:

        The development of the Greek deficit

        or “what a whopper!”

      • Mark
        Posted September 27, 2011 at 11:07 am | Permalink

        Did you miss moderation of this? I see the post with the translation of the German has been approved, yet the one with the link to the photos of Merkel appears to be still awaiting moderation. I hope some light humour is tolerated – we need it in these times.

  23. A David H
    Posted September 26, 2011 at 10:20 am | Permalink

    Bail-out down from E3 trillion to E2 trillion overnight. Hyper deflation – quick lower the interest rates and print some more money.

  24. Posted September 26, 2011 at 10:26 am | Permalink

    Your logic is impeccable, but unfortunately logic doesn’t apply in the Eurozone, or now apparently in the IMF.
    Don’t the member countries have a say on what the IMF does, or has it become a one woman dictatorship? One can imagine that quite a few of the member countries will be unhappy at the thought of giving, what is effectively, a subsidy to the Eurozone. Don’t they have a vote?
    But I bet Cameron will cough up more of our non-existent money (ie borrow more) in order to remain at the “heart of things”. Perhaps he should learn a lesson from the old USSR, which used just one word “Niet”!

  25. A David H
    Posted September 26, 2011 at 10:31 am | Permalink

    Sorry, I guess that should have been “hypo- deflation.” Anyway, the prospect of a few trillion something or others has cheered up the French and German markets by a couple of percentage points, this morning. It’s an ill wind…….

  26. Posted September 26, 2011 at 10:47 am | Permalink

    “more money”, “more money”, “more money”, “more money”, “more money”.

    Plus ça change.

  27. Horatio McSherry
    Posted September 26, 2011 at 11:15 am | Permalink

    In voting for Madame Lagarde, the IMF showed their hand and revealed that they are not a monetary organisation, but a political organisation. The IMF has no interest in Greece – or any of the PIIGS – their interest is in the political continuation of the European Union. The longer this goes on, the more important it is to get out. The European Union can now only be viable via totalitarian and fascist means.

    • backofanenvelope
      Posted September 26, 2011 at 12:12 pm | Permalink

      Lagarde is French. Whatever solution to the current problem is found, it will be to the advantage of the French. It always is.

      • Horatio McSherry
        Posted September 26, 2011 at 12:59 pm | Permalink

        Indeed!

  28. stred
    Posted September 26, 2011 at 11:45 am | Permalink

    So the IMF, under Mme Lagarde, requires members to increase funding in $ and convert to Euros to lend to PIGIS in order to allow them to continue funding their government spending. The US has no spare $. The UK has no spare £ but is printing some more. The EU has no spare Euros and would like to print some, but Germany will not go along with this .

    So the Governments either print some more or borrow through bonds sold on the international market. These are bought by the Chinese, presumably paid for in their currency converted to devalueing $, or sold to very rich private funds. Where does this money come from? Is it perhaps from the accounts holding the missing trillions that were sold between banks as derivatives for dodgy loans, all bailed out by the citizens of countries that can bear no more tax and are run by governments that refuse to shrink.

    So, in the end the ordinary citizen finishes up in debt up to the eyeballs and funding interest, leaving the taxes left over for poor services and regulation. Any savings lose their value, unless put into in inflation linked bonds. But these have been withdrawn by goverments and no banks offer these terms.

    Would the mega rich or the Chinese funders agree to lend, without inflation linking, to a government deliberately devaluing by QE and did they last time?

  29. Chris Rose
    Posted September 26, 2011 at 12:21 pm | Permalink

    The British Government must be absolutely firm in opposing IMF support for the Euro, particularly after the IMF demanded that our subscription should be raised a few months ago. As you say, the fate of currency unions should be none of the IMF’s business.

    The euro zone is capable of handling its own problems and should do so.

    • Gary
      Posted September 26, 2011 at 1:12 pm | Permalink

      The British Govt, or at least the powerbrokers, are fully signed up to this World Govt Project. Why else would they support the IMF and EU ? As has been noted above , this is a political not a monetary project. It is only monetary as far as the monetary policy will support the aims of the political policy.

  30. Mark
    Posted September 26, 2011 at 12:23 pm | Permalink

    “Qu’ils mangent gyros *”

    *γύρος is a Greek sandwich, with a pronounciation that is quite similar to ευρώς (Euros) – and we remember the fortnightly Giro from the welfare state… a suitable multi-culti substitute for de la brioche.

  31. stred
    Posted September 26, 2011 at 12:57 pm | Permalink

    The above is a series of thoughts in genuine puzzlement and not rhetortical. Answers and thoughts from the financially expert contributors would be educational.

  32. Gary
    Posted September 26, 2011 at 1:16 pm | Permalink

    While this morning’s bout of ridiculous volatility, especially in precious metals, may be briefly over (but certainly not for long) after gold has surged by nearly $100 from overnight lows, the economic weakness persists despite what the futures are saying. As usual European liquidity is at the forefront, with 3M USD Libor rising per usual and every single day for the third straight month in a row, this time from 0.360% to 0.363%, leading to new all time wides in German, French and Belgian CDS to 111 (+3), 201 (+4) and 301 (+6) respectively, which no matter how hard the /ES frontrunning and momentum machines can try, there is little that can be done to dissuade the market that French banks will soon be in need of a full blown bailout.

    – zerohedge

    • norman
      Posted September 26, 2011 at 2:24 pm | Permalink

      It’s a travesty that someone like me with no economic education, and no inclination to learn, has got to the point where paragraphs like this make sense.

      The governments of Europe and the USA have made such a mess of things that discussion of arcane practices that should have our eyes glazing over now appear relevant.

  33. Jon Burgess
    Posted September 26, 2011 at 1:57 pm | Permalink

    Your logic is sound, Mr Redwood and you lay out the questions that the UK government should be asking. But you and I know they won’t ask such things.

    So what will happen?

    You will vote against extra funding for the IMF, along with a handful of colleagues and the odd labour defector, but the funding will be agreed by a majority vote.

    How many times do you need to vote against your party to accept that they are not conservatives any more? What does it take to make you realise that the Tories no longer think or act or vote like you do? What are you doing still being part of this discredited defunct left wing rabble?

    We, the majority conservative thinking public, need some show of solidarity, some crumb of comfort that Cameron does not represent the political right in the UK, otherwise I fear this will end in total financial devastation, or war, or both.

    Won’t you stand up and be counted and leave the Tories? Stand as an independent, I don’t care that you won’t join UKIP; you vote as if you had – but there needs to be a new right wing movement in the UK – the Tories are dead in the water – and time is running out. For God’s sake get on with it.

  34. NickW
    Posted September 26, 2011 at 2:02 pm | Permalink

    The Euro project needs a lender of last resort, otherwise we are presented with the ridiculous spectacle of French, Spanish, Italian, Portuguese, and Irish politicians borrowing money from themselves in order to pay off their own debts, which is collective insanity.

    Step forward Germany; the rest of Europe not only has their hands in your pockets, they will tear the clothes off your back to save themselves.

  35. Posted September 26, 2011 at 3:45 pm | Permalink

    The Euro is like a very sick animal,it should be put out of it’s misery, that would be the kind thing to do,BUT as the Rulers are not kind at all they are keeping it alive at taxpayers expense
    WITHOUT the mandate to do so.As I have said before I call this PROJECT which is all encompassing “The Matrix” and the Rulers are much more cruel than the Machines in the film trilogy of the same name,because the HIVES of humans kept alive are of their own kind,
    if you look at other analogies I use there are another two films that encompass what is being done one is Equilibrium and the other Serenity and finally there is 1984 Orwell was right just got the wrong date.Other posters above forecast as well what I have been castigated for namely a very BAD outcome,and there will be A CASTRO/GUEVERIAN
    denueoment,it is unavoidable and inevitable,anyone who denies it does not understand human nature and the desire for revenge.As an example there was a letter in the Mail from a man who was schooled in the 50’s and had corporal punishment,which he resented and hated,he went on to become a teacher himself and is now retired,he told about his visit to the one teacher whom he felt very angry with whom he visited when this man was by then
    in his 80’s ,who he told off in front of his elderly wife,this wife then badly berated her husband for what he had done to this former pupil,my point is he waited 40 years to do what he did, HE WAS THAT UPSET. That is what is in store for the Rulers but WORSE.

    Reply: there are democratic ways of dealing with these issues which this site backs. Do not urge violence which would make things worse.

  36. Posted September 26, 2011 at 3:50 pm | Permalink

    By the way I have emailed Tea party people in the USA and told them to go after and expose
    this IMF treachery,after all the USA is it’s main funder and it’s HQ is Washington,I have provided links to the articles by Ambrose Evans Pritchard ,James Delingpole ,Simon Hefer and all. I urge any of you who can do so to do the same if the IMF is in the Tea Party Cross
    Hairs WATCH OUT.

  37. Chris
    Posted September 26, 2011 at 3:56 pm | Permalink

    It would seem that Christine Lagarde has created a new role for the IMF which effectively takes responsibility/accountability away from those who should rightly bear the cost. As far as I can see, there could be an endless commitment to bail out the Eurozone, with the UK repeatedly having to find extra millions/billions. Surely a bold stand by the Chancellor is required, including a demand for rigorous scrutiny of the actual raison d’etre of the IMF and clarification of its role?

    • Winston's Black Dog
      Posted September 29, 2011 at 5:30 pm | Permalink

      The IMF is just a way of getting the UK to pay by stealth and nearly all of the traitorous bastards in WEstminster go along with it as their loyalties lie with a country called EU rather than the United Kingdom of Great britain and Northern Ireland.

      Dave can preen himself and say he has resisted demands from “Brussels” whilst Georgie simultaneously hands Christine a cheque.

      These traitors will get their comeuppance one day.

  38. Leslie Smith
    Posted September 26, 2011 at 7:18 pm | Permalink

    Mr. Redwood is the only senior Politician, not in Government or Opposition who really seems to “Get it” about the Euro failure and the imminent greek default situation. We are talking Trillions of US Dollars, YES Trillions to make an IMF Buffer Lending Vehicle to avoid dafault or the domino failures of Sovereign Debt taking down Italy, Ireland and Spain too. For myself, I am now out of ALL stockmarkets and also out of Treasury Bonds, Gilts etc for the first time in fifty years. I am only holding cash, in sterling, Swiss Francs and US Dollars and no more than £85K in any one UK Bank. I await Armagedon, JR certainly is too, I feel as when this really starts to move on us all Jon’s political credibility will soar.

  39. Leslie Smith
    Posted September 26, 2011 at 7:19 pm | Permalink

    I also hold a few Kruger Rands and Gold to buy food. other essentials should it be required later.

    • A different Simon
      Posted September 28, 2011 at 1:27 pm | Permalink

      If there is a total breakdown at home and you cannot escape to somewhere stable , you and your Krugers will be trumped by other peoples Rugers and Lugers .

  40. Leslie Smith
    Posted September 26, 2011 at 7:22 pm | Permalink

    Finally, I own my own House, lock stock and barrel, living in a village, just North of the English Border in Scotland.. ( We own a lot of water in Scotland) Oil can run out or be too expensive, but you cannot last long without access to good water….

  41. rose
    Posted September 26, 2011 at 9:32 pm | Permalink

    If you were a powerful Frenchwoman and you wanted Britain to pay through the nose as usual for EU folly, you would get the IMF rather than the Eurozone to underwrite your banks wouldn’t you?

  42. Martin C
    Posted September 26, 2011 at 10:41 pm | Permalink

    For me the strangest thing about this IMF bailout is the silence of the lambs – the fact that the innocent are being asked to stump up and not a chirp of protest. It is an International monetary fund, not a European one. What in earth is Mme lagarde doing using it as an eurozone bailout mechanism? The reue economic powerhouses today are China and India, they back the IMF, arent they going to complain when the likes of Mme Lagarde were to use the fund to remedy EU problems when there is absolutely no chance the IMF would respond in the same way should satellite economies of China or India suffer the same sort of problems?
    We risk a massive loss of confidence among the true global paymasters. The center of economic power is moving East. Mme Lagarde et al. need to wake up to that fact and stop seeking to use the IMF as some sort of parochial Eurozone-only backstop fund. If I were Chinese, I wouldn’t stand for it.

  43. REPay
    Posted September 26, 2011 at 11:06 pm | Permalink

    The west is already a laughing stock in the emerging markets but I wonder how amused they will be at having to fund the first-world cock-up that is the Euro. I was amazed the members voted for another European, let alone French official to run it. Another institution falls into disrepute.

    A country is not really sovereign if it has no currency of its own! I think we will hear IMF members using JR’s argument!

  44. Damien
    Posted September 26, 2011 at 11:56 pm | Permalink

    Germany will pass the bailout package put before its parliament this Thursday so that sufficient funds will be available to bailout their own banks when Greece defaults. These funds will then be leveraged throughout the central banks of europe, laundered by the ECB. Think of it as similar to the repackaging of sub-prime mortgages that were then sold on from the US to contaminate the whole of the banking system. The banks in the UK will happily take on this toxic rubbish peddled by the ECB. These leveraged funds may provide a sugar rush. It will not make the euro a sound currency but rather corrupt the currency. The irony is that in corrupting their currency they will ultimately risk destroying the eurozone.

  45. Chris
    Posted September 27, 2011 at 11:19 am | Permalink

    See statement by Andreas Vosskuhle, “top judge in Germany”, as reported in D Tel today apparently saying that referendum required re proposed “solutions” re euro crisis and bail outs.
    http://www.telegraph.co.uk/finance/financialcrisis/8790785/German-turmoil-over-EU-bail-outs-as-top-judge-calls-for-referendum.html
    Is this true/as important as it sounds?

    Reply: Yes and No. I suspect Merkel can carry the vote for the E440 bn facility. THe issue of ECB gearing of the fund is a very tense one in Germany, as the Judge has highlighted. It is constitutional and monetary. Does the ECB have the right to issue Euro bank bonds to cover the extra lending to Euro area banks? Will it simply print money? Germany begins to grasp that these issues are fundamental, and damages German economic powers.

  46. Chris
    Posted September 27, 2011 at 12:34 pm | Permalink

    Thank you very much for clarification. Further comment today in D M re effect on markets:
    “…Michael Hewson of CMC Markets said: ‘Talk out of Europe about the consideration of bank recapitalisations, a 50 per cent Greek default and an increase of leveraging up of the bailout fund (EFSF) has encouraged(the markets), but numerous obstacles remain with the German constitutional court being one of the biggest, next to the ECB.
    ‘Andreas Vosskuhle, head of the constitutional court, said politicians do not have the legal authority to make any agreements that violate or impinge on German national or fiscal sovereignty, and any leveraging up or increasing the EFSF would do that, and any such measures, if being considered, must be put to a referendum of the people.
    ‘This intervention, coming as it does ahead of a key vote on the EFSF in the Bundestag on Thursday, could well make matters tricky for getting the vote passed.’

    Source: http://www.dailymail.co.uk/news/article-2042323/Markets-rally-hopes-eurozone-Greek-deal-Obama-accuses-leaders-scaring-world.html#comments

  47. Chris
    Posted September 27, 2011 at 12:57 pm | Permalink

    One further questionregarding the new plans apparently being drawn up by the EFSF: is the European Investment Bank “allowed” to be used as a vehicle for issuing bonds, or were its original terms of reference drawn up sufficiently broadly to permit this? (Referred to in 11.45 am posting on live blog in D. Tel.). The comments by Deutsche Bank on this and also Neil Hume of FT are interesting.
    http://www.telegraph.co.uk/finance/financialcrisis/8782663/Debt-crisis-live.html

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

  • John’s Books

  • Email Alerts

    You can sign up to receive John's blog posts by e-mail by entering your e-mail address in the box below.

    Enter your email address:

    Delivered by FeedBurner

    The e-mail service is powered by Google's FeedBurner service. Your information is not shared.

  • Map of Visitors

    Locations of visitors to this page