The battle for Italy

Today the markets cut up rough on Italian debt. Ten year bonds now yield 7.4% and one year money is priced at 9%. Pundits have told us 7% is the danger level, the point at which borrowing becomes too dear for the Italian state.

We await news from the Euro leaders what they now plan. Does Germany overcome her resistance to the ECB lending to Italy and printing more money? Does Italy now have to petition the IMF for funds?

The markets are moving much more swiftly than the politicians. The problem is jobs, businesses and standards of living are all being chanced on the roulette wheel of the Euro. Is anyone in charge? What is their plan now?

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85 Comments

  1. APL
    Posted November 9, 2011 at 11:32 am | Permalink

    JR: “What is their plan now? ”

    Ever closer Union. What else?

    • Disaffected
      Posted November 9, 2011 at 4:23 pm | Permalink

      I think it is a well constructed plan to pick off national states and their leaders one by one.

      John, about a month ago you posed a question around why Borosso and co deliberately spoke badly about debt when he knew there would be a reaction to it. This precipitated the market fury. I think you were correct that this was deliberate so it would be the only likely outcome to help form the pan European state by fiscal and monetary union. Political and social union naturally following without raising arms as national states subject themselves to German rule (Portugal and cowardly Ireland already submitted to EU rule). Whatever people think of Iceland, I believe they took the right action rather than become part of an EU state. Greece and italy need to follow Iceland’s lead.

      • Kenneth
        Posted November 9, 2011 at 11:29 pm | Permalink

        Whether they had a plan or not they were they have cut things too fine.

        The Germans won’t let the ECB print loads of money and the whole thing really is unravelling.

        The dark horse is the Netherlands. They are expected to write the cheques but stay meekly quiet.

        I don’t think they will stand for it much longer.

      • APL
        Posted November 9, 2011 at 11:32 pm | Permalink

        Disaffected: ” was deliberate so it would be the only likely outcome to help form the pan European state by fiscal and monetary union.”

        They’re welcome to their monetary union with no money.

        • Disaffected
          Posted November 10, 2011 at 10:16 am | Permalink

          I agree. I think we should leave the EU now, accept the pain but understand that the future will be brighter in 5 years without all the crap that goes with the EU. If it is possible to form a trade group and nothing more, then so be it. But this fanatical political ideology to form an EU state run by an unelected dictatorship must stop.

      • stred
        Posted November 10, 2011 at 8:12 pm | Permalink

        No German friend that I ever met suscrribrd to Pan European Rule. They just want to make sure their taxes are not mis-spent and the currency is not debauched.

  2. startledcod
    Posted November 9, 2011 at 11:38 am | Permalink

    “The problem is jobs, businesses and standards of living are all being chanced on the roulette wheel of the Euro.” difficult to have put it better perhaps adding ‘and on the vanity of it’s creators and masters’.

    Utter despair.

    • Tim
      Posted November 9, 2011 at 2:15 pm | Permalink

      The Euro politicians and our own Governement leaders are simply not capable of dealing with this. When you have Mr Alexander happy to give the Greeks £40 billion of our own borrowed money, you know what a fool thinks. Does it help an indebted nation to borrow more without significant structural reform? Tax, benefits and pension reforms should have occurred 20 years ago in the PIG nations, but weren’t. Now our leaders want to give them our future taxes. No, no, no to this and any other bailouts!

      • APL
        Posted November 9, 2011 at 11:34 pm | Permalink

        Tim: “Does it help an indebted nation to borrow more without significant structural reform?”

        Does it help a superficially creditor nation to lend to a country that is unable to pay back nor pay the interest on its existing debts let alone any new debt?

    • Disaffected
      Posted November 9, 2011 at 4:31 pm | Permalink

      This is not about jobs or business. It is about fanatical political ideology to form a Pan Europe state. Fiscal and monetary union will be spun as the only answer to solve the financial problems of EU countries. The public will have no say and the politicians will capitulate. Cameron and Clegg have capitulated on so many occasions it will be easy for them.

      • A different Simon
        Posted November 9, 2011 at 6:35 pm | Permalink

        ” Cameron and Clegg have capitulated on so many occasions it will be easy for them.”

        Yes , their Govt in it’s short history has jumped the gun when it comes to volunteering powers to Europe .

        If it was an athletics race they would have been disqualified for too many false starts .

  3. norman
    Posted November 9, 2011 at 11:46 am | Permalink

    At a wild guess I’d say announce a summit to be held in a month or so, prior to which we’ll be told we’re entering the last chance saloon, midway through the summit, amidst much back-slapping, we’ll be told that this time (finally!) a solution has been found and the world has been saved.

    Within hours this deal will be revealed as the emporers new clothes, the markets will react, and we’ll be facing the next stage of the crisis within a week.

    And the can gets a little more dented and a little closer to the end of the road.

  4. Martin
    Posted November 9, 2011 at 11:56 am | Permalink

    Well in many visits to Italy over the years I came to the conclusion that as a country it was happy when they had little or no government.

    At present Italy’s government is too big and expensive. Italy like some other countries (guess who!) needs a system where the state wage bill can be shrunk automatically if the state’s tax take dips.

    • lifelogic
      Posted November 9, 2011 at 1:01 pm | Permalink

      Most countries are happy with little or no government so long as they have a bit of defense and law and order – (apart that is from the over paid over pensioned state sector staff). In Italy, a country I know well, many state sector recruitments seems to be only by “personal family or other connection” and some “jobs” are so demanding that you can do another one or two at the same time.

      • lifelogic
        Posted November 9, 2011 at 1:35 pm | Permalink

        Just listened to World at One radio 4 where they asked three huge EUSSR advocates if they had been wrong to want to join the Euro. Kinnock said yes he was wrong (after a bit of waffle as you would expect) Shirley Williams and Michael Hesletine (again after the usual waffle) both still want full steam ahead to the end of democracy and a single country.

        Strangely there was no one to represent the BBC to admit they were wrong too.

        I assume we can look forwards to seeing Huhne, Cameron, Milliband, Clegg, Gore and hopefully a BBC person too lined up in ten years time to admit they were all talking nonsense on global warming, PV and wind farms too. Alas the billions will already be gone and the country covered in huge pointless “Betamax type” wind machines.

      • Bazman
        Posted November 10, 2011 at 8:02 pm | Permalink

        Not living a third world country with no infrastructure, education and health care certainly cheers up my day and I think that Italy despite it’s corruption and government problems is not third world. Well some parts of the south are and the reason why many leave. At least they can be skint in the sun, grow olives, drink wine, talk to beautiful woman, eat nice food. Why would anyone leave such a paradise? We could export our poor there.

  5. matthu
    Posted November 9, 2011 at 11:59 am | Permalink

    Yet if you consider total (rather than official) net government liabilities it appears that UK, France, US and even Germany are worse off than Italy.

    I suppose the real determinant thought is the maturity date of some of this debt. Perhaps if it is so far into the future – e.g. more than 10 years – then it is “not our problem”.

    Graph showing total net government liabilities alongside officially reported figures is here:

    http://www.guardian.co.uk/business/nils-pratley-on-finance/2011/nov/07/euro-italy-debt

  6. AndyC71
    Posted November 9, 2011 at 12:00 pm | Permalink

    Getting rid of Berlusconi, however desirable for other reasons, looks to have made the problem worse, because Italy has no consensus on what or who will follow him.

    On a related note, am I alone in finding the phrase ‘technocratic government’ sinister? Would ‘colonial governor’ not be more appropriate?

    • Single Acts
      Posted November 9, 2011 at 12:52 pm | Permalink

      I believe HG Wells was a supporter of government by technocrats, see Alexander Korda’s 1936 film “Things to come” for details.

    • Steve S
      Posted November 9, 2011 at 2:41 pm | Permalink

      As an outsider looking in, it seems that all techoncratic governments need to propose a ‘unity’ leader that has either worked as an EU Commissioner, and ECJ judge or been involved in the ECB and has never once uttered the word ‘referendum’ publicly. I await the ‘unity’ proposals for the next Italian Prime Minister with interest.

  7. Robert K
    Posted November 9, 2011 at 12:13 pm | Permalink

    No, they don’t have a plan.
    What we are witnessing a grand scale version of the UK’s ERM debacle, but with much greater risks. Fingers crossed that if euroland breaks up the end result will be as positive as our exit from the ERM was. But I wouldn’t bank on it.

  8. Peter Whale
    Posted November 9, 2011 at 12:13 pm | Permalink

    Mr Redwood I have no idea of a plan for the Euro zone as it was so ill thought out in the beginning. In the end whatever the EU decides will be accepted or rejected by the peoples involved piece by piece. When you have the richest people in the Euro zone unhappy as well as the poorest, what chance for its survival? Would you please tell George before he gives any more of our money to it.

    • lifelogic
      Posted November 9, 2011 at 2:57 pm | Permalink

      Peter Whale:- You have no idea of a plan for the Euro zone as it was so ill thought out in the beginning well – may I suggest that the reason is that it was never designed to work.

      That was never their main concern – it was designed to justify taking powers from individual countries to the centre and justify ever closer union in the interest of the bureaucrats rather like CAP, fishing, Carbon, trade rules, recycling and all the rest.

      If it did not work it gave them even more reasons for ever closer union and grabbing more powers. With Shirley Williams and M Heseltine cheering them all along the way.

      • cosmic
        Posted November 9, 2011 at 10:22 pm | Permalink

        I’m sure the plan was to create an unstable currency union which would end in crisis in somewhere like Greece. A problem in one country which could only be solved by more Europe, its government properly becoming a district council for the EU and forcing the construction of central fiscal and monetary authorities. Otherwise, why the recklessness in allowing Greece in? Why no means to arrange an orderly exit?

        What they didn’t allow for was about half a dozen countries in the same mess at the same time and the rest unable to bail them out with small change.

        It’s pretty clear that the Euro was always a political project rather than an economic one and there’s a long history of political dreams colliding with economic reality.

      • Peter Whale
        Posted November 10, 2011 at 10:21 am | Permalink

        Lifelogic You are probably correct with your comment that it was not designed to work.
        That then puts the politicians into another category other than stupid, which is beyond delusional and bordering evil.

  9. scottspeig
    Posted November 9, 2011 at 12:26 pm | Permalink

    What needs to happen is devaluation of the Euro.

    As Germany is the only country with any money, is it not possible to devalue the Euro but have large pay rises across Germany? Would that not work, and if not, why?!?

    • Single Acts
      Posted November 9, 2011 at 12:53 pm | Permalink

      We are indeed fortunate that you “know” the correct value of the Euro.

    • Ian Wragg
      Posted November 9, 2011 at 1:29 pm | Permalink

      Big pay rises in Germany, BMW costs go up, exports drop, unemployment rises.
      Euro is designed for Germany and France at the expense of the rest of EUSSR. Subjugation of the people is next with the rise of the Forth Reich only this time financial rather than military might.
      The Third Reich failed and so will this.

    • lifelogic
      Posted November 9, 2011 at 1:55 pm | Permalink

      But what is right today will surely be wrong tomorrow. You need boats that can float with the prevailing conditions not ones that are all bolted together.

      Or a single undemocratic, ungovernable, socialist country as Shirley Williams and Heseltine both seem to want.

    • Ralph Musgrave
      Posted November 9, 2011 at 7:57 pm | Permalink

      Scottspeig, Yes, a large pay rise in Germany would solve the problem. That comes to the same thing as a large pay cut in periphery countries which I suggested on this site a day or two ago (under the heading “What if the IMF/EU austerity packages do not work?”.

      Problem is that Germans don’t like inflation.

  10. lifelogic
    Posted November 9, 2011 at 1:06 pm | Permalink

    Let us hope the markets, and this 9% one year rate, will finally deter Cameron from chucking taxpayers money into the fire and start action on his huge overspending.

    But no he seems more concerned about poppies on football shirts I see.

    • A different Simon
      Posted November 9, 2011 at 1:34 pm | Permalink

      He’s more concerned with the environmental effect of the polythene bags the shirts come in than taxpayers money .

      He’ll be showing off with the credit card soon enough .

    • lojolondon
      Posted November 9, 2011 at 6:54 pm | Permalink

      Cameron will never take a stance where it is needed. Cute puppies, poppies for football players, and apologising to women in general for nothing in particular, that is where his strengths lie. That is why I call him ‘Brave Dave’ – always there when you don’t need him, but nowhere to be seen when you do.
      The latest – telling the reporters that ‘Europe needs to sort themselves out’, meanwhile Osborne is saying we need to save the Euro and Danny Alexander on the same day said that we have £40Bn in the IMF and must be ready with more in case required.

      • Winston Smith
        Posted November 10, 2011 at 10:26 am | Permalink

        Some of us could see through the spin unleashed in 2005 to get Cameron elected as Party leader. We spotted a PR man with little substance. Unfortunately, the admirers of superficiality won the day. I believe John Redwood voted for Cameron.

        Interestingly, 253,000 members voted in the leadership election. I understand membership is now half that number.

  11. George Stewart
    Posted November 9, 2011 at 1:20 pm | Permalink

    John, is there a point when the people in the Westminster Bubble throw in the cards, say they were wrong and start leading a retreat away from this mess?

    I know it would be psychologically hard for the politicians in the Euro 17 but our own surely have got to be feeling troubled.

    Seriously I feel like the British public are in a car heading towards the cliff and the mandarin/politician driver is slamming the accelerator.

    Reply: No signs of that yet

    • norman
      Posted November 9, 2011 at 2:18 pm | Permalink

      The problem with allowing an outbreak of common sense would be where would it stop? It would be like perestroika – one minute you’re allowing people a little bit of freedom as part of a long term plan, the next Boris Yeltsin is sitting on a tank in Red Square taking swigs from a bottle of vodka and your empire is gone.

    • Norman Dee
      Posted November 9, 2011 at 2:36 pm | Permalink

      George, the suggestion of an accelerator suggests the possible existence of a brake, I prefer my idea of a boat heading to a huge waterfall, it’s past the point where anything can help.

      • lojolondon
        Posted November 9, 2011 at 6:57 pm | Permalink

        No it is not too late. A Brave PM could contact the EU, tell them we are having a referendum next week and will follow the lead of the people. Meanwhile, we are suspending payments to the EU and withdrawing our EMP’s and enforcing British rights over our fishing waters. It could all be over in one month, and I bet Margaret Thatcher would have done it.

    • Steve S
      Posted November 9, 2011 at 2:48 pm | Permalink

      Heseltine, Kinnock and Williams were on the World at One today – all would still take us into the Euro in the future to ensure the UK’s prosperity “when the time is right”. Unbelievable. Kinnock did at least recognise at the time, and now that the Euro assumed vanity project status from the word go, and that there should have been far stronger policing of entry conditions and spending, and greater fiscal union from the word go. It looks like the colleagues wanted a smaller crisis than this one to force a United States of Europe. This crisis looks to be big enough to blow the whole thing up rather than fuse it together.

      • lojolondon
        Posted November 9, 2011 at 7:01 pm | Permalink

        A good example of how corrupt our state broadcaster is – no dissenting voices there, no Farage or Redwood to upset the apple cart. It is hard to imagine three more out of touch commentators on the subject, but I guess they missed a trick by missing out Ken Clarke.

        • APL
          Posted November 9, 2011 at 11:40 pm | Permalink

          lojolondon: “A good example of how corrupt our state broadcaster is – no dissenting voices there ..”

          No “Neil Kinnock is in receipt of a very fat pension from the European Union and in the following interview will not endanger the payments by criticizing the European Union ..” either.

          • Winston Smith
            Posted November 10, 2011 at 10:29 am | Permalink

            Kinnock used to campaign for withdrawal from the EU, back in the 80s. I wonder what changed his mind?

      • Dennis
        Posted November 9, 2011 at 10:07 pm | Permalink

        ‘This crisis looks to be big enough to blow the whole thing up rather than fuse it together.’

        I think that sums it up precisely.

        I don’t profess to know a fraction of what is going on but looking at the body language and faces of Merkel and Sarkosy I see fear and panic. It reminds of our ERM debacle many years ago. The Government left it far too late until the market forced us out with Norman Lamont walking back and to between Treasury and No 10 in a state of barely disguised panic.

        I see that same fear and panic in Merkel and Sarkozy which indicates to me that more than likely the game is up. Not an economically reasoned basis (which I do not have the knowledge to do) but just gut feeling mostly based on one of life’s past experiences. I fear we are going to be in for a very rough ride indeed for which most of the country is not prepared.

  12. Tad Davison
    Posted November 9, 2011 at 1:35 pm | Permalink

    Sometimes it’s a circuitous and convoluted route, but eventually, the argument and the reason for all the present economic problems, comes around to one thing – Debt!

    No politician really wants to be the bringer of bad news, but the outright dishonest ones who promise a rosy future if we vote for them, regardless of the way this dream is to be delivered, tend to get elected. The ones who tell it like it is, are looked upon as merchants of doom. That’s the way it is, and essentially, that’s the way we got into the present mess. The supporters of the European Union kept saying, ‘If you vote for us, everything in the garden will be lovely.’ without ever giving a sound strategy for its achievement.

    At the time of writing, Italy’s cost of borrowing has now broken through the 7% barrier, and is reckoned to be unsustainable without a bailout. Once an economy is given close scrutiny, the analysts soon pick holes in it, and in the case of Italy, that isn’t too hard to do. The question for the near future, must be, how many more EU countries will not withstand the same level of scrutiny?

    Just days ago, France instituted cuts to its public spending and other measures, and already, socialists and trades unions are planning strikes and civil unrest as a response.

    There are certain things any decent and civilised society ought to provide, and it should ever be thus, so some public spending is a necessity. Yet waste, mismanagement, bureaucracy, misappropriation, and profligacy, can never be countenanced, as it is so readily within the EU.

    These are the very things the EU has become known for. The evidence is massive and irrefutable, but we must also add a lack of democratic accountability to the mix, and then we get a very dangerous beast indeed!

    I have said before, it is essential that we who are against this fraud, should keep up the pressure, and often the best way to win a war, is to change the mindset of those whom you are fighting against. But this is a different kind of war. I continue to challenge the Europhiles to give me their side of the story – to tell me how the EU could possibly work – but they won’t even engage me.

    We really are fighting Zombies who are in some blind trance. Either that, or they know something we don’t, and won’t tell us.

    Tad Davison

    Cambridge

  13. John Maynard
    Posted November 9, 2011 at 1:57 pm | Permalink

    Why is the German establishment so keen to cling on to the Euro zone ?
    If Germany pulled out (with, say, Holland and Austria), the Euro would take a hefty devaluation and the crisis would soon pass.

    Germany is the last mercantilist country amongst the developed countries.
    Germany runs a ludicrous trade surplus, without comment from the deficit countries.

    By most measures, Japanese and German cars are the best.

    Japan is not a member of a currency block, and it’s Yen just keeps rising against the currencies of it’s main markets. The main Japanese auto companies have now warned their government that they risk total wipeout of the domestic industry, if the Yen stays at it’s current level.

    Germany, as a Eurozone member does not have this problem as it’s trading currency is artificially kept cheap.

    The US likes to accuse China of “currency manipulation”, for maintaining it’s currency at a very competitive rate against the US$. China replies that although the Pearl river delta, Shanghai, and the Beijing-Tianjin complex are “relatively advanced economies”, the rest of the country is at an early stage of development.

    By subsuming it’s economy into the Eurozone, Germany performs precisely the same trick, with far, far less justification, but the trading world stays silent.

    Question: How do the Germans get away with this massive manipulation ?

  14. NickW
    Posted November 9, 2011 at 2:02 pm | Permalink

    The ex Communist European President Barroso has said that “more Europe” is needed to solve the crisis.

    What Barroso is saying, is that he and the shadowy henchmen around him need and want “More Power” in order to restore order.

    Before granting these people more power, we need to consider carefully what an almighty mess they have made with the power they already have, and to ask ourselves what changes have occurred in their judgement and intelligence which makes us believe that with more power they can resolve the mess which they themselves created, instead of making it even worse.

    We must not give more power to people who have shown themselves incapable of using what they have got, we should be stripping them of all the power they have.

  15. Damien
    Posted November 9, 2011 at 2:18 pm | Permalink

    The Euro is overvalued and so the ECB needs to reduce rates further and quickly.

    Italy needs to enter talks on debt restructuring as all other options are likely to fail because Germany rightly will not backstop the ECB.

    Uk banks have recently passed with flying colours the bank stress tests and we are assured neither overly exposed nor under capitalized. The government published a plan for further strengthening the UK financial center and protecting taxpayers. Last weekend there were reports circulating that the Treasury would begin planning our response should the situation continue its current trajectory .

    Only when the tide goes out will we discover who has been swimming naked.

  16. Antisthenes
    Posted November 9, 2011 at 2:26 pm | Permalink

    Observing the euro crisis and watching the can being continually kicked down the road with the opposite effect to that desired reminds me of another political can kicking that of spending and borrowing today for the next generation to pay for. Well that can kicking has landed on the next generation and that generation is us. So soon we are going to suffer what we so selfishly wanted to pass on to others. Thanks Brown, Lucas, Gore, Huhne, EU and all the other crazies who have destroyed our ability to create growth and wealth.

  17. Norman Dee
    Posted November 9, 2011 at 2:33 pm | Permalink

    Is anyone in charge? What is their plan now?
    Question 1. Who knows ! you have an almost unlimited choice of presidents
    Question 2, If you know the answer to question 1 you might have some insight but otherwise I repeat “who knows”.

  18. RD
    Posted November 9, 2011 at 3:00 pm | Permalink

    The game is about over realisticly but prepare for Euro bonds next to keep this teetering oligarchy in place.

  19. Ferdinand
    Posted November 9, 2011 at 3:13 pm | Permalink

    Oh help !! Not another plan. Governments should not have the monopoly of money supply. Let the banks print their own money. We should soon learn which banks to deposit with and which to avoid. The banks woul;d not then lend beyond a reasonable fiduciary ratio. It is because of the government’s monopoly of money that it has been freed from restrictions on expenditure. Hence our monumental deficit.

  20. waramess
    Posted November 9, 2011 at 3:38 pm | Permalink

    Very clear message from the market to governments: stop spending, no more easy money, start living within your means.

    Very sensible

  21. Jose
    Posted November 9, 2011 at 3:53 pm | Permalink

    They’ll head straight towards the IMF and expect us all to dip into our pockets in order to help them firefight! The US, UK, China etc must absolutely resist providing further money until they’ve at least demonstrated some willing to help themselves.

  22. GJ Wyatt
    Posted November 9, 2011 at 4:00 pm | Permalink

    On the radio, with minor caveats, Hesletine, Kinnock, and Williams all still pro Euro.
    There’s none so blind as won’t see.
    The “euroskeptics” still bear the curse of Cassandra.

  23. Oldrightie
    Posted November 9, 2011 at 4:13 pm | Permalink

    Competition within the eurozone is none existent. Hence the mess. It needs to be broken up and countries allowed to find their own peculiar solutions to their problems. Big Brussels is nothing more than a bureaucratic sea anchor.

  24. Denis Cooper
    Posted November 9, 2011 at 4:27 pm | Permalink

    Part of Italy’s problem is that it probably needs something a 50% reduction in the external value of its currency, which of course it can’t have while its currency is still the euro rather than its own currency.

    How do I get that figure of roughly 50% for the necessary devaluation?

    By extrapolating the long term decline in the external value of the euro described in detail in a comment by “MacTurk” here this morning:

    http://www.telegraph.co.uk/comment/telegraph-view/8877146/Berlusconi-goes-but-Italys-problems-remain.html

    over the period since the exchange rate of the lira was fixed against the ecu in 1999 – 12 years at an average compound rate of decline of 5.6% pa.

    That’s on the assumption that joining the euro did not effect a miraculous fundamental transformation of Italian society, contrary to the hopes or expectations of the pro-euro fanatics.

    Italy entered the single currency at 1936 lira to the euro, and maybe if it left the euro the new exchange rate would be something like 3760 lira to the euro.

    Apart from anything else, what the euro has done is to store up over a decade’s worth of small and relatively harmless seismic movements in the exchange rate to now be unleashed in a single devastating earthquake, exactly as critics of this incredibly stupid, economically illiterate, ideologically motivated, project warned from the very start.

    • Denis Cooper
      Posted November 9, 2011 at 4:32 pm | Permalink

      Sorry, that should be “long term decline in the external value of the lira”.

      • Denis Cooper
        Posted November 9, 2011 at 6:50 pm | Permalink

        But, JR, the comment to which this correction relates is unpublished!

  25. Mike Stallard
    Posted November 9, 2011 at 4:29 pm | Permalink

    Civitas has just published a booklet which I am saving up for!
    Its idea, I think, is that we could easily become like Norway and half join the EU. Or we could be like Switzerland and leave, but with the same trading rights as, say, Brazil. If we just announced, through parliament, that we were leaving in, say 2016, it might lessen the shock.

    I realise that nobody at all in parliament would support this idea. The civil service would go beserk in a very suave and charming way.
    I realise too that it is not going to happen.

    But the alternative, of staying in a minority of one in a group of 27 countries who take decisions on a majority vote, while paying out, paying out, paying out on borrowed money while country after country goes bust seems a pretty dire alternative.

  26. forthurst
    Posted November 9, 2011 at 4:35 pm | Permalink

    Surely, the proposed solution is for making the Germans pay. It is not clear whether this is for previously committing acts for which their is no evidence corresponding to the similarly well documented acts of the Bolsheviks or whether this is the price for their success in making stuff the world wants to buy rather than paying themselves for inspecting each other. Either way, the idea that the Germans should be made continually to pay for the stupidity and excess of everyone else seems unreasonable and ultimately unsustainable. The Germans have the Euro on life support; they should euthanise it.

  27. Kenneth
    Posted November 9, 2011 at 4:51 pm | Permalink

    Apart from the loss of democracy on the continent, this should be a warning to us all: we must cut our debt now!

    I worry that the government is too relaxed about debt when our bonds are not costly. Our favourable bond position is temporary and relative. We must cut our debt now while we are in a position to do so in an orderly way.

  28. Kenneth
    Posted November 9, 2011 at 4:55 pm | Permalink

    I feel sorry for the BBC.

    They have provided a lot of pre-promotion for the student demo, have tried to get the Home Secretary on the hook and still the Euro crisis comes along and spoils all their efforts.

  29. Mazz
    Posted November 9, 2011 at 5:28 pm | Permalink

    This from an Italian:
    – a 59-year-old from Bari: “I’m worried that my savings could become waste paper. All the efforts to put something aside and I won’t get anything for it”.

    I’m a saver. When do I withdraw my savings, because that is what I am contemplating at this moment in time?

    • Single Acts
      Posted November 9, 2011 at 8:53 pm | Permalink

      This is not financial advice merely what I consider, you should always take independent financial advice etc.

      When inflation exceeds interest, cash in the bank devalues. So that is the point I withdraw (or perhaps I should say substantially withdrew) my cash. And setting aside inflation there is significant capital flight from Southern European banks. This maybe something you may wish to urgently consider.

      Again make your own decisions.

  30. alan jutson
    Posted November 9, 2011 at 5:41 pm | Permalink

    John

    They have a plan.

    Ever closer union.

    Getting rid of existing presidents and prime ministers, and installing their own placemen (Mps with past EU experience) who currently exist within that country’s government structure, and who are totally complient with the EU dream.

    Then print some money (Germany will not be happy, but perhaps could be out voted) or the alternative, all countries to underwrite all of the debt as guarantors.

    Probably not within the rules, but when has that ever bothered any of them.

    It may buy them another couple of months, until that is the guarantors have to start coughing up.

    This crisis is really starting to gain momentum now, with ever shorter periods between problems, which are also getting larger and larger.

    Do you think they will make it to Christmas, then perhaps rudolph and Santa maybe able to help.

    Sorry to sound flippant, but this was so obvious it was going to end in tears, I cannot for the life of me see why the politicians (present company excepted) cannot/could not see it.

    Me thinks any vote in the HOC to help with a bailout may get more than 81 conservatives voting against.

    The tide is perhaps at last begining to turn against the EU. The media are now onto it, and people are starting to become more aware.

  31. Chris
    Posted November 9, 2011 at 5:49 pm | Permalink

    I see that Ambrose Evans-Pritchard is suggesting that it ought not to be long before China and USA intervene regarding the EU, Italy, and the threat of contagion. Significant that he refers to the EU project as both dangerous and insane:
    http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100013198/america-and-china-must-crush-germany-into-submission/

    “Having followed the German political scene closely for the last five months, it is clear to me that almost the entire German political establishment is out of its depth, ideological, sometimes smug, apt to view the EMU debt-crisis as a Calvinist morality tale, and lacking in deep understanding of what it has got itself into.

    One can understand German worries about money printing – and especially the loss of fiscal sovereignty and democratic control – but matters have already moved on. It is too late for that.

    As for the EU authorities with their mad contractionary fiscal and monetary policies in an accelerating slump, they seem to have achieved little by toppling two elected governments in one week.

    In Italy they have already made matters worse. I doubt that much will change with “technocratic governments” in either Greece and Italy, yet immense damage has been done to democratic accountability.

    The EU Project has become both dangerous and insane.”

    • Single Acts
      Posted November 9, 2011 at 8:54 pm | Permalink

      I wonder where AEP thinks America will get the money from to intervene?

      • APL
        Posted November 9, 2011 at 11:46 pm | Permalink

        Single Acts: ” … America will get the money .. ”

        Same for China, talk is in their housing boom property is 50% overvalued. When Europe fails, China fails too, it’s a deathly embrace.

  32. simple soul
    Posted November 9, 2011 at 6:04 pm | Permalink

    The moral of the EU turmoil appears to be that weak peripheral countries with backward economies have no hope in a common currency area shared with highly propserous neighbours. Would it not therefore follow that if Scotland is ever to stop being a depressed backwater, it must have a currency of its own with power to devalue and fix its own interest rates independently from England? Scotland’s woes are not that different from those of Greece.

  33. Chris
    Posted November 9, 2011 at 6:09 pm | Permalink

    One financial analyst has suggested that Italy will cost 1.4 trillion euros to bail out:
    http://www.guardian.co.uk/business/blog/2011/nov/09/greece-prime-minister-italy-berlusconi-resigns#block-11
    “10.54 am Why does it matter if Italy faces the prospect of paying upwards of 7% to borrow from the financial markets?

    Because Italy’s national debt is 2.7 times as large as Ireland, Greece and Portugal combined.

    And because more than €120bn of long-term government bonds mature in 2012, along with €180bn of short-term debt (aka bills). So to ‘roll over’ this debt, Italy needs to be able to borrow the same amount from international investors (on top of any deficit it runs next year).

    Gary Jenkins of Evolution Securities warned that it simply wouldn’t be affordable for the EU and the IMF to bail Italy out.

    In fact, he says, it could cost €1.4 trillion.

    If we look at it simplistically, the two Greek packages plus the Irish and Portuguese bailouts come at a cost of €388bn, add to that the ECB purchases to support these markets up to August this year of €74bn and about €50bn from private sector involvement in the second Greek deal (€80bn less €30bn collateral provisions already accounted in the second €130bn package) and the total cost is €512bn.

    Now multiply by 2.7 to get an estimate of the cost of bailing out Italy, we are looking at €1.4trn.”

    Mr Redwood, do you think that figure of 1.4 trillion is a realistic estimate, on the basis of the arguments Gary Jenkins uses above?

  34. Electro-Kevin
    Posted November 9, 2011 at 6:16 pm | Permalink

    Stephanie Flanders on the BBC states

    “If the euro fails then we’re all in trouble.”

    So – according to the BBC – our fortunes hinge on the euro surviving ?

  35. A.Sedgwick
    Posted November 9, 2011 at 6:22 pm | Permalink

    Charlie Croker – “Hang on a minute, lads, I’ve got a great idea!”

  36. Javelin
    Posted November 9, 2011 at 6:24 pm | Permalink

    The solution is economic not fiscal or financial.

    Doing the maths the only way Italy will survive is to devalue. Germany must devalue until the Italian economy recovers. This will take 5-15 years.

    Germany now has no choice. They must face their demons of the 1930s.

    Incidentally the cleverest way out of this mess is to create a New Euro. Leave all Hovernment bonds with the old Euro and deflate it in the FX markets. This will not trigger any CDSwaps. All old Euro notes and private sector accounts are assigned to the new Euro. Inflation is kept under control and only that part of the economy that is broken will be effated. Bond holders will all get haircuts but they deserve it for no due diligence. They will be more careful in future – but that is what we want.

  37. Chris
    Posted November 9, 2011 at 6:51 pm | Permalink

    Although relating to Greece, I believe the following has relevance to the situation regarding Italy i.e. the EU has tried to dictate to Greece and Italy the sort of national unity government it would like, but is finding that dealing with people and individual politicians is not as easy as it thought. So, Greece tonight has put on hold the issue of the new PM, and the likelihood of Papademos being chosen has receded – the backdrop is of political wrangling, and barely disguised anger at demands from EU masters to sign new affirmations regarding the bailout. See following excerpts from Athens News article:

    http://www.athensnews.gr/portal/8/50186

    “…Unacceptable conditions:

    Some Greek media reported that Papademos had set conditions that the parties would not accept, and others that there were objections from Finance Minister Evangelos Venizelos because Papademos wanted to change the government’s economic team….

    Under pressure from party dissidents, Samaras attacked the EU for demanding written undertakings from Greece that it would stand by its promises to implement the bailout package that eurozone leaders agreed last month.

    European Economic and Monetary Affairs Commissioner Olli Rehn made the demand, exasperated by Greece’s record of making promises on tackling its huge debt and budget deficit and then falling short of fulfilling them.

    Rehn said Greece had breached confidence with the EU by calling the referendum. Now Brussels needed undertakings to release even the next 8-billion-euro instalment of funding for Greece under its original bailout package, pulled together last year, he said.

    Samaras reiterated his intention not to sign early on Wednesday, adding that he was certain the European Union would withdraw the demand…”

    So all is not sweetness and light, and neither will the Italian situation be easy, with Berlusconi indicating that he might yet try to hang on to power, at least for the interim. The Groupe de Francfort are facing real challenges to their authority, and these are not likely to go away.

  38. zorro
    Posted November 9, 2011 at 7:23 pm | Permalink

    John,
    Have you seen the debt crisis live page in the Telegraph? Is it any wonder that Europe is in trouble financially when journal don’t know their billions from their trillions? Consistently wrong figures throughout….http://www.telegraph.co.uk/finance/financialcrisis/8846201/Debt-crisis-live.html

    Zorro

    • zorro
      Posted November 9, 2011 at 7:24 pm | Permalink

      Journalists

      • zoro
        Posted November 9, 2011 at 10:31 pm | Permalink

        The figures are correct now for some reason….

        zorro

  39. Rebecca Hanson
    Posted November 9, 2011 at 7:53 pm | Permalink

    So it’s just me who things we should look at the online mechanisms social media and how they could be used to generate alternative possibilities?

    Oh well, I shall carry on thinking so aloud.

    Here are my notes from my workshop at the Mozilla Festival in Greenwich on Sunday where we analysed they ways in which online conversations which are stuck, abusive, spammed or trolled and be made productive.
    http://cyberrhetoricbyrebeccahanson.blogspot.com/2011/11/mozilla-festival-notes-on-cyberrhetoric.html

    • Libdem
      Posted November 9, 2011 at 11:44 pm | Permalink

      Nice try Rebecca, you should ‘post’ that link on the Alastair Campbell site as it might help a few contributors!

      • Rebecca Hanson
        Posted November 10, 2011 at 2:41 pm | Permalink

        & you should try getting the Libdem website working properly so people like me can contribute to the discussion. 🙂

        Your post is spooky as I had already done that when you posted the suggestion but it still hasn’t gone live!

  40. George Stewart
    Posted November 9, 2011 at 8:11 pm | Permalink

    Many years ago I would have been considered a Europhile.

    Then I became eurosceptical admitting my earlier errors no doubt attributed to my youth.

    Three years ago, I became B-O-O.

    Excuse the analogy but right now the EU/Euro is drowning in the channel. Reading some op/eds instead of throwing the project it is starting to look like throwing an anchor.

    Trying to fight battles along the edges seems to be a waste of energy instead of going to the heart of the beast which is Germany.

    Instead of an IMF bailout, I think we need to be supporting Ed Balls, yes I said it!

    Germany needs to be the transfer union in full OR the ECB needs to print and print and print!! Both solutions are completely untenable and that will hasten the demise or bring them to their senses. Like minded politicians need to push it and push it and push it until Frau Merkel starts throwing the dishes and glasses.

  41. Freeborn John
    Posted November 9, 2011 at 8:34 pm | Permalink

    I think today will be looked upon in retrospect to have decisive for the single currency. The rubicon was almost crossed in early August but ECB buying delayed the point of no return until today. The world’s 8th largest economy just lost the ability to finance itself while remaining in the eurozone. Something must now give. If Italy can’t be ‘saved’ now then there is no point continuing with the greek ‘rescue’, nor to continue with the austerity in Ireland and Portugal. Greece and Italy will be forced by markets to leave the eurozone and Portugal and Ireland will follow in due course. Growth will be restored in the periphery in time and euro-federalism will have suffered a mortal blow.

  42. fox in sox
    Posted November 9, 2011 at 9:07 pm | Permalink

    Dear John

    For every willing borrower there needs to be a willing Lender. Surely there are a finite amount of funds for loaning out, even in a world of fractional reserve banking. Quite apart from the wisdom of loaning to countries like Italy are we not starving business of capital by letting nation states hog the lot?

    • lifelogic
      Posted November 10, 2011 at 7:30 am | Permalink

      Indeed staving business of funds and over charging them too.

  43. Robert George
    Posted November 10, 2011 at 12:37 am | Permalink

    I won’ revisit most of the issues which have already been thoroughly canvassed but I would like to ask a question.

    We have been told that it will be a disaster if any nation exits the Euro; the dominoes would fall one after another. But would it be a disaster, and if so for whom? It would be a major disruption of course, and private banks rather than taxpayers would be in the initial line of fire.

    My only conclusion is that the ECB will have to be established as a lender of last resort, whether or not nations either leave or remain in the Eurozone. German intransigence has to be dealt with and ironically that might only happen with a combined diktat from USA, China and Japan— so much for independent Europe!

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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