Propping the Euro

 

          Mr Osborne’s rhetoric on using the IMF to prop the Euro has firmed up more. He has always said the IMF should not lend money to prop up a currency, only a country in trouble. I interpret this to mean the IMF should not lend to any Euro member, as that would in my view be lending to prop a currency. Mr Osborne may define it less severely.

            Now Mr Osborne is saying the UK should not make more money available to the IMF to lend to Euro members, unless and until France and Germany have made a larger contribution. He seems to have in mind those states putting more money into the European bail out fund. This is extremely unlikely. Germany thinks the problem countries should do more to rein in  their own deficits. France is becoming financially strained herself and is not looking for more ways to spend money. That would seem to mean no more UK money for these purposes, which would be excellent news.

           However, whilst there is still argument over IMF funds for Europe  and Big Bazooka bail out funds within the Euro area, it looks as if for the time being the European Central Bank has issued enough new money to commercial banks to delay the crisis. Italian and Spanish bond yields have fallen. The European banks have gorged on 3 year money at 1% interest rates. We are told in a few weeks time they will be able to take some more from the bountiful Central Bank.

          I am surprised the Germans have taken this so well. They have in the past fought against the ECB buying up government bonds itself. They wrote in the clause that prohibits the Bank lending directly to governments. So now the Central Bank has found a way round these restrictions,  by lending large sums to commercial banks who in turn can hold or buy government bonds, lending to the governments.

          Why have they in the past argued against it? Because Germany’s own experience is bitter when they had too much inflation. They are most concerned that this type of direct monetary action, effectively printing more money at one remove, will be inflationary. I guess they are hoping that in the short term the weak state of the banks will stop them lending this on to others and in so doing bloating the money supply. The ECB needs to be on vigilant inflation and money growth watch from here. It has pumped a lot into the system. It needs to see whether that finds its way into uses that allow banks to gear up and go on a lending spree. If it does, then watch out for inflation. If they are lucky, the broken state of the banks will stop too much inflation for now, whilst preventing collapse in the Italian markets.

                  Meanwhile, back in the real world, politicans in Euroland should be in panic about the high level of youth unemployment and of general unemployment. Now youth unemployment has gone above 50% in Spain and above 40% in Greece, they should ask themselves why they are so much in love with the currency scheme which has helped to bring about such a crisis.

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38 Comments

  1. lifelogic
    Posted January 30, 2012 at 6:27 am | Permalink

    50% and 40% youth unemployment is a terrible, immoral and totally pointless waste of resources and is storing up problems for future generations. All caused by a pointless EU political currency construction being retained for absurd political reasons. Even more pointlessly damaging than Osbourne’s “temporary” 52% tax on incomes. I regret I have no faith in Osbourne and Cameron to do the right thing his action so far indicate the reverse.

    • javelin
      Posted January 30, 2012 at 12:29 pm | Permalink

      … and it will not “be a crisis” until the EU gravy train jumps the tracks and the youths are revolting in Berlin, Paris and Madrid.

      It is the job of the UK Government to help and inform our fellows in the EU.

      That means cutting EU budgets and funding youth organisations in Europe.

    • zorro
      Posted January 30, 2012 at 12:43 pm | Permalink

      I think that these figures are a little exaggerated as intelligence suggests that the black market economy is quite substantial in Greece and Spain, and non declaration of income is endemic.

      In London, I note during my working day that there has been an increase in both Spanish and Greek youths working in different food outlets. This is usually a good indicator of problems with youth unemployment in Europe.

      zorro

    • Disaffected
      Posted January 30, 2012 at 2:01 pm | Permalink

      Totally agree. If they had any intention of doing something about the EU ball and chain around the UKs neck any action would be in motion by now. The Archbishop of Cranmer blog sums up the socialist drag from Europe brilliantly. Ideologically the Eu and its masters are totally different from the true Tory ideology.

      I note Obama in his address to Congress has made a U turn on his stance to global warming leaving the UK isolated with Europe. He also wants to bash capitalism by making ill informed comparisons between heads of organisations pay and their workers, like Clegg. If all the wealth creators are got rid of or have caps placed on their salaries, who is going to pay for the welfare lifers and gravy bureaucrats?

      However, if we ALL can stay at home and get paid £35,000 then I am all for it, I don’t know what wizard will create the money, but I am sure Mr Clegg will tell us.

    • Mike Stallard
      Posted January 30, 2012 at 2:31 pm | Permalink

      Actually, Spain reminds me of Fascist times when there was still a lot of youth unemployment – I remember sleeping next to a Falangist in a train when on holiday at Rosas.
      The big difference is that now he would be paid by the state, not the Party.

    • uanime5
      Posted January 31, 2012 at 1:40 am | Permalink

      Given that makes Eurozone countries don’t have 40-50% unemployment the cause of this problem is more to do with the way these countries are run than their currency.

  2. Sue
    Posted January 30, 2012 at 6:55 am | Permalink

    I would guess that most of the poorer countries are frightened about coming out of the Euro. They’ve all obviously done well in the club. The great socialist machine has been generous with our money.

    There is also the added threat that the elected government could be replaced with a Eurocrat if it fails to comply with the EU’s austerity rules (which of course is perfectly convenient for the Frankfurt Group). This could of course, all be a “managed crisis” to achieve just that aim.

    The Euro is essentially a Franco/Germanic project with only one end. A European Political Union rather like the USSR was. Quite honestly, if that is Merkel’s dream, then the Germans have put up or shut up.

    They are obviously panicking about youth unemployment, part of the discussion today is to pump millions into training the young. It won’t make any difference, the austerity that European Governments are being forced to impose upon its citizens is stifling business. If there are no jobs, a million trained youngsters won’t be able to work. Skilled Greeks, Spanish and Italians are leaving their countries to find work elsewhere, many to South America and Australia.

    The EU will go down in history as a political and economic shambles. Another failed attempt by the Germans (this time in collusion with the French) to conquer Europe once again.

    What British politicians have to consider is how those same books will paint them, as traitors, selling out their own citizens or as patriots and advocates of democracy.

  3. Bernard Otway
    Posted January 30, 2012 at 7:29 am | Permalink

    They would not know how to run a …s up in a brewery,give them New Zealand’s famed
    Malborough Wine Region and it would be an agricultural waste land resembling a desert in no time flat,DESPITE the stored water residing in the NZ ALPS,which if offered to the KAROO region in South Africa would make it a green PARADISE.

    • Caterpillar
      Posted January 30, 2012 at 9:54 am | Permalink

      Not sure who couldn’t run what where?

      For example in the nineteenth century Germans were encouraged into mid and south Chile, bringing know how, technology and culture from which Chile still benefits today. So I think that’s an example of OK European knowledge export (though admittedly going back a bit).

      (BTW despite the permit form filling, inspection, cultural, port striking inefficiency based etc. non-tariff barriers that some may struggle with importing into NZ it is still possible to get a solid bottle of SA pinotage there for less than any half-drinkable NZ plonk … though perhaps a matter of opinion. The general case of knowledge export to NZ is much harder,putting the bicultural identity politics to one side, I think the debate on flora/fauna acclimatisation will probably go on and on and on).

  4. Geoff
    Posted January 30, 2012 at 7:33 am | Permalink

    Germany is taking the ECB buying bonds well because the money is coming from the US Federal Reserve through currency swaps which are, in reality, loans.
    The whole rotten system is so mutually indebted, riddled with insolvency and incapable repayment that a crash is inevitable.
    The only real question is where the collapse starts. The Euro zone weighed down by PIGS? USA with it’s crippling imperial wars, enormous deficit and increasingly Fascist government? UK with 500%+ of GDP debts? Japan with even bigger debts, ongoing nuclear accident and aftermath of Tsunami? China’s gigantic property bubble?
    We do live in interesting times.

    • zorro
      Posted January 30, 2012 at 12:45 pm | Permalink

      As in the 1920/30’s and post WW11, the Fed is attempting to prop up its strategic interests in the European banking system.

      zorro

      • Mazz
        Posted January 30, 2012 at 8:13 pm | Permalink

        22 January 2012
        ‘… The Federal Reserve just created more money than ever in the history of the US, and gave it to for-profit banks, many of which aren’t American. How much? $16 trillion. You are reading that right. Trillion. The money went to US and foreign banks – (words left out) Banks in the UK, France, Switzerland, Germany, Belgium… Everyone got hundreds of billions or trillions, bailouts which were never authorized by Congress or anyone but the Fed. Free money, from the American taxpayer, at unprecedented levels, for use however they felt like – and I’m guessing, it was to make big profits. …’

        (gives an untested source and says he is not sure about it-ed)

  5. Mike Stallard
    Posted January 30, 2012 at 7:51 am | Permalink

    I lived in Spain – Murcia – when the currently unemployed youth were at the sort of A level stage. Every day they would dutifully head down to the local library where they would sit poring over books and writing copious notes. I thought at the time that this was very unEnglish.
    They must be furious!

    “France is becoming financially strained herself and is not looking for more ways to spend money.” And with two of her biggest banks on the skids, this will mean desperation after the election, no doubt.

    Germany – we had the Somme, the Germans had inflation and, let us never forget, inflation came totally out of the blue a few months after they thought they knew that they were going to win the First World War and then divide Europe up in their own favour. They clearly remember the anger and disgust (German expressionism) which led directly to you-know-who.

  6. Brian Tomkinson
    Posted January 30, 2012 at 9:00 am | Permalink

    It seems that no price is too high to pay to “save” the euro as far as the eurocrats and euroland politicians are concerned as they move towards their dream of a country called Europe. The worry is that our leaders are too weak to effectively look after the interests of the UK.

  7. alan jutson
    Posted January 30, 2012 at 9:27 am | Permalink

    Forgive me but this just seems just like a giant Ponzi scheme to refinance the Banks, which will eventually be funded by taxpayers or by default.

    While the Banks borrow at 1% and lend at 9%,
    Businesses and their customers pick up the costs.
    Banks can still pay bonuses.
    Customers get a crap return on deposits.

    Until it all eventually goes t.ts up.

    Then investors get proection on their investment funded by……….taxpayers.

    Anyone notice a common theme here ?.

  8. Steve L
    Posted January 30, 2012 at 9:43 am | Permalink

    I’m slowly becoming convinced that full or low unemployment is almost impossible to achieve in the post-automation age. There are very few labour-intensive industries any more, and those that do exist have moved to developing countries where labour costs are much lower.

    All parties seem to focus on economic growth as the answer to provide jobs, but at the growth after the 80s recession showed, modern economic growth is achievable with low job growth – in fact is more likely to be employment light.

    It only seems logical to me – think of all the industries that have either moved overseas or slimmed dramatically in respect of workforces – shipbuilding, car manufacturing for example. My career was largely in electronic engineering, and even that highly skilled occupation has changed dramatically with design automation and high levels of integration reducing the number of designers needed. Drawing offices have largely disappeared, secretarial and administrative roles have shrunk through the use of computers. Even IT work has been deskilled and wages contrained – and this was heralded as one of the new golden opportunities we should be training people for. The time that the shrinkage in good jobs started to show itself was masked by the rapid growth in public sector employment in the late 90s and early this century.

    I simply can’t see where mass jobs are going to come from other than in low paid, low skilled service sector roles. It comes to something when the BBC heralds as good news that MacDonalds are planning to create thousands of new jobs!

    Surely the only way to address the future is for a complete shift in our political models that plans for a society that will never have full employment, where business and growth is capital intensive rather than labour intensive?

    Reply There are many good jobs in services, and likely expansion in these roles. Factories become fully automated, but there are many jobs in design, marketing, sales, legal, accounting and all the other back up services for a a manufacturing company.

    • Steve L
      Posted January 31, 2012 at 1:56 pm | Permalink

      But all of the other jobs you refer to require fewer and fewer people! Jobs lost through technology can’t be replaced effectively in enough quantity. It’s ok if we’re all happy working in a call centre or coffee shop, perhaps…..

      • Jim (Spain)
        Posted January 31, 2012 at 7:11 pm | Permalink

        Yes. There was an interesting article in the FT a couple of months back – I wish I could give you the reference – which argued that while in the past new technologies have created more jobs than they destroy, it could be that this is no longer the case. Using pattern recognition, computers are starting to able to do things such as drive cars, and this is likely to produce unemployment.

  9. Jim (Spain)
    Posted January 30, 2012 at 10:24 am | Permalink

    Many people don’t realise that in Spain the new government’s austerity measures are coming on the back of years and years of previous austerity.

    Most of the young people – and in fact many of the not so young – who are unemployed have never had a job and so are not entitled to any kind of unemployment benefit. This is not a new measure that has just been introduced; it has always been the case.

    The media in Britain and elsewhere routinely refer to the political party that ruled Spain from 2004 till last month as Socialists. And so they are – in name. But in many respects their socio-economic policies were well to the right of the British Conservative party.

    So is more austerity the right medicine for Spain? Well, we’re going to find out because it’s what new President Rajoy has been told by his euro-masters to deliver and that’s exactly what he intends to do …

  10. GJ Wyatt
    Posted January 30, 2012 at 10:32 am | Permalink

    The BBC, surprisingly, has been broadcasting useful and informative pieces by Allan Little on the origins (in Germany) of the euro crisis. Not much new for those who have been following these things assiduously, but powerfully presented. A straw in the wind.
    website: http://www.bbc.co.uk/news/world-europe-16761087
    iplayer: http://www.bbc.co.uk/programmes/b01b8yy6

  11. Sue
    Posted January 30, 2012 at 10:33 am | Permalink

    http://order-order.com/2012/01/30/hague-confirms-obvious-dave-defeat/

    And there you have it. TURNABOUT-DAVE!

    Really, what a useless government this has turned out to be.

    NB; So what bit of my previous post have you taken exception to?

    Being called traitors?

    The truth does hurt, doesn’t it?

    • JimF
      Posted January 30, 2012 at 4:53 pm | Permalink

      Another talk-the-talk moment which ended up with this government crawling back into its shell when it came time to walk-the-walk.
      The saying was never more apt than for these Cameron-ites.

  12. Denis Cooper
    Posted January 30, 2012 at 11:08 am | Permalink

    Osborne could stop prevaricating and simply say “No”.

    But he won’t; and eventually he’ll commit more of our money to the IMF, knowing full well that it will be used for illegal eurozone bailouts.

    Then he’ll spread the story that he didn’t want to do it, but Clegg made him.

  13. Ross J Warren
    Posted January 30, 2012 at 11:21 am | Permalink

    In the end we will end up finding extra money for the IMF. The difficulty will be spinning it, so it appears we are not leading to the Euro-zone, but to Nations.
    I believe I am right in thinking that the IMF cannot lend to a currency even if it wants to. Loans from the IMF are to individual nations and come with conditions. So far we have never lost a penny by lending it to the IMF.

    At the end of the day, we must decide if we are going to continue to back the IMF and by extension the whole post war fiscal system or not. I believe we must back the IMF, its as simple as that.

  14. Graham
    Posted January 30, 2012 at 11:53 am | Permalink

    Sorry to raise it again but the massive levels of assisted immigration has also contributing in large measure to the unemployed stats.

    Will there be more rioting everywhere within the next year?

  15. Denis Cooper
    Posted January 30, 2012 at 12:03 pm | Permalink

    Another prevaricator.

    http://www.telegraph.co.uk/finance/financialcrisis/9048721/Britain-officially-drops-opposition-over-use-of-European-Union-courts-to-enforce-fiscal-pact-says-William-Hague.html

    “Government lawyers have advised that is is technically illegal to allow the European Court of Justice (ECJ) to police the fiscal compact’s debt brake rule”

    Right, so we wouldn’t want ministers to fail in their duty by turning a blind eye to that illegality, in contravention of the Ministerial Code of May 2010 issued in the name of the Prime Minister, no less:

    http://www.cabinetoffice.gov.uk/sites/default/files/resources/ministerial-code-may-2010.pdf

    “… the overarching duty on Ministers to comply with the law including international law and treaty obligations … “.

    And no doubt if they did, many MPs would have something to say about the contempt of Parliament revealed by that ministerial disregard of its Acts to approve the EU treaties and incorporate them into our national law.

    Maybe even with references to the Bill of Rights 1688, which is still on the statute book as the fundamental constitutional law underpinning our parliamentary democracy.

    But wait:

    “William Hague, the Foreign Secretary, admitted that Britain had dropped its threat to formally block use of the EU institutions by the fiscal pact.

    “This group cannot cut across the EU treaties,” he said.

    “If the use of the EU treaties at any point threatens Britain’s fundamental rights under the EU treaties, or damages our vital interests such as the single market, then we would have to take action about that, including legal action.

    “So we will reserve our position on the specific question about the use of the court.” ”

    Ah, another of Hague’s “We would not let matters rest there” moments.

    As with the Lisbon Treaty, except that this time he is actually in government and not in opposition.

  16. PayDirt
    Posted January 30, 2012 at 1:45 pm | Permalink

    Hernando de Soto in today’s FT on why the problems will not be fixed until proper accounting (showing real value of assets as opposed to off-balance sheet tricks) is re-enforced. Too many risks for investors/businesses to restart until the banks come clean. http://www.ft.com/cms/s/0/4520ccda-4769-11e1-b847-00144feabdc0.html#axzz1kwlgO8x2

  17. forthurst
    Posted January 30, 2012 at 1:52 pm | Permalink

    “Meanwhile, back in the real world, politicans in Euroland should be in panic about the high level of youth unemployment and of general unemployment.”

    As with all evil empires, the project and the nomenklatura count for more, a lot more, than the people.

  18. Disaffected
    Posted January 30, 2012 at 2:15 pm | Permalink

    It is reported in the DT that: William Hague, the Foreign Minister, admitted that Britain had dropped its threat to formally block use of the EU institutions by the nations using the new treaty..

    Another Cameron U turn John?

  19. Bernard Otway
    Posted January 30, 2012 at 4:21 pm | Permalink

    Caterpillar
    I meant ALL politicians,barring a few like JR and especially ALL euro ones,PLUS all the bureaucrats,could not run a piss up in a brewery.As for the wine question I have visited EVERY winery in South Africa as I lived there for 28 years until 2008 [over 600],Pinotage is
    good provided you buy right,BUT NZ Sauvignon Blanc is acknowledged worldwide especially from the Malborough region on south island,where growing conditions are perfect.
    All I was doing was saying that they can turn a silk purse into a sow’s ear ,gold into lead and
    unlike Lord Jesus wine into water,they all are the equivalent of the tax collector before he becomes a disciple.

  20. John Harmsen
    Posted January 30, 2012 at 5:03 pm | Permalink

    A most interesting and well-argued article. Forty to fifty per cent. youth unemployment
    in some EU countries is absolutely staggering. However,what I do not understand is
    why there isn’t a strong (political-ed) backlash. The Weimar republic ended
    when Adolph Hitler sorted out the mess. Why are the established impotent political
    parties still ruling the roost? This all appears to go against what history has taught
    us about the past. I look forward to hearing a reply to this what I think is an important question.

    Reply I am relieved that there is no rise of a fascist party or a communist party proposing drastic remedies. Clearly voters do not wish to turn to barbarism. We may find that there is increasing fragmentation of votes in countries that have proportional representations sytems and growing frustratino with the fomeer main parties. THis in turn will lead to more difficult coalitions, and a further psosible shift of power to unelected officials.

  21. Steven Whitfield
    Posted January 30, 2012 at 10:23 pm | Permalink

    I expect more propping up of the Euro by our own governemnt and the European central bank …back in 2011 wrote about the unlikelihood of the Euro scheme ever breaking up.

    “I don’t share Mr Redwood’s view that there is a 50/50 chance of a break up.That would suggest that there could be some kind of practical tipping point when the practical downsides of EU integration will become too great. Because the EU currency project is not based on practical reality, no such tangible point can ever exist. The elite will always find a way to conjure up the right numbers or just move the goalposts”.

    “By hook or by crook, fair means or foul, the project will remain intact”

    If Dan Hannan is right, it seems that the Euro Elite have had the sheer audacity to introduce their own ratings agency under the precept that it would be more ‘independent’ . As always, if the elites don’t like the result of the game they just change the rules.

    (Please allow this link Mr Redwood)
    http://blogs.telegraph.co.uk/news/danielhannan/100133029/the-solution-to-the-euro-crisis-a-european-credit-rating-agency/

  22. John Maynard
    Posted January 30, 2012 at 11:59 pm | Permalink

    I believe the Eurozone money supply has been in decline for sometime.

    Osborne SHOULD have meant: when Greece and Portugal fall out of the Eurozone, we and other G20 countries, will, through the IMF, support those two countries through their crises, (but he obviously can’t be that specific).

    No UK money while they are part of the problem though ….

  23. Bill
    Posted January 31, 2012 at 4:26 am | Permalink

    The general gist of these comments is that these problems are blindingly easy to solve and that all we need to do is to hold a referendum, pull out of Europe, start trading again with all and sundry and then, hey presto, everything in the garden will be lovely.

    And if the politicians don’t agree, they must be stupid or cowards or both.

    But surely it is not as simply as everyone seems to suggest and the politicians in charge (as far as we know from their performances at university) are not stupid. Surely, the issue is that the politicians are AVERSE to UNINTENDED CONSEQUENCES. They simply do not know what would happen if the simple prescription of holding a referendum and pulling out of Europe were followed. That is why they hesitate.

  24. Alexander
    Posted January 31, 2012 at 3:37 pm | Permalink

    The greatest private fraud of human history.

    Who are the great (architects of big debts and economic chaos-ed)? How does the economy “illness” threaten Democracy and the freedom of people?

    ———————————

    By knowing what happened in indebted Greece, where loan sharks created “bubbles” and the current inhuman debt, one can understand the inhuman plan in total …understand where this plan started just to bring all states at the same end …understand how this type of plans are established…

    by PANAGIOTIS TRAIANOU

  25. Jon
    Posted January 31, 2012 at 8:35 pm | Permalink

    Why? Perhaps because they have decided to put up a confident front. Confidence doesn’t cost anything until its probed that is. Its a united front of smiley faces with a hope the markets won’t probe that. In other words it buys a few weeks more. I don’t think the German parliament changed, its just a temporary cover for time yet again.

  26. David John Wilson
    Posted February 1, 2012 at 12:45 pm | Permalink

    The recent announcement that a number of courses will no longer count as GCSEs should lead to a consideration of how much more useful these courses could be made to potential employers. Many of them are actually carried out by potential employers. Why not go one step further and make them the first stage of an apprenticeship. Thus successful candidates would on leaving school have the opportunity to continue their training as an apprentice for a number of further years.

  27. Lindsay McDougall
    Posted February 2, 2012 at 2:42 am | Permalink

    When is this Euroland madness going to end? It is obvious to anyone with half a brain that Greece should leave the Eurozone right now, with Portugal and Spain to follow within a year. Ireland has already endured such pain that it may have a choice. Italy is a proud former member will probably be willing to endure as much pain as Ireland to remain inside. And don’t underestimate the amount of lobbying that the Roman Catholic Church will undertake throughout Europe on Italy’s behalf.

    There is an alternative. German could leave the Euro zone. The German people were solemnly promised by the German political parties that the Euro would be a hard currency like the deutschmark. To rat on that promise would be a betrayal.

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