Will the IMF ride to Spain’s rescue?


           As we get ready for the meetings of the IMF and World Bank this coming week-end a familiar Euro crisis is brewing again. Yesterday Spanish ten year bond yields rose more, to 6.16%.  This week Spain is planning to tap the 12 and 18 month money market on Tuesday, and to raise 2 and 10 year money on Thursday. It needs to carry on borrowing, to keep pace with its deficit, to pay all those public sector bills. Some are alarmed at how much it will have to pay to carry on borrowing.

        Spanish shares have been falling. Markets have raised more doubts about some Spanish banks. The government has taken powers to be able to move in and run any regional government in Spain which does not do a better job this year of running its own finances. In March Spanish banks were borrowing Euro 316 billion from the European Central Bank, a large sum.

          The original idea of the EU in response to earlier versions of the crisis was to set up a big “firewall” or fund of money to bail out countries in trouble. They then wished the IMF to put a lot more of its members money at risk to back up the European funds.  This has been held back by German reluctance to sign up to a very large European fund, and by US resistance to the idea that it should contribute through the IMF when Euroland does not do more for itself.

          The Germans successfully pegged the total funds available from Euroland and the EU to a possible Euro 800 billion, of which 300 billion is already pledged to Greece, Portugal and Ireland under existing programmes. Much of this money has to be borrowed by the European Stability Mechanism in due course, which is a Luxembourg intergovernmental organisation backed by the credit ratings of the Euro area countries.

             The IMF is being asked by the Euroland countries to have more money available to stand behind the possible borrowed funds the Europeans might raise on their own credit account. Japan and China are indicating that they might  put some money in. They do not wish the Euro to flounder, and they would like the Euro to stay higher against their currencies for trade reasons. So too might some of the other emerging market economies. It is unlikely the US will change its stance from “No”, as it is difficult to imagine Congress and Senate voting to ratify such spending, especially in an election year. The UK’s position is also undecided.

                 The truth is large firewalls cannot solve the big underlying problems. The emergency funds dispensed so far have bought some more time. This time has to be used to tackle the underlying huge imbalances. Somehow member states in the Euro have to show they can finance their budget deficits in the normal way without needing subsidised finance. Somehow the Euro zone has to finance its trade with itself comfortably. Somehow the zone has to strengthen its banks without forcing yet more austerity and recession on the weakest countries. That would be a useful agenda for the IMF to work through. Instead the Euro part of the discussion may turn out to be yet another talk about the extent of firewall funds, who pays the bills and when they might get set up. Instead of discussing how to finance failure, more thought needs to be given about how to get member countries out of the need for subsidised loans in the first place.


  1. lifelogic
    April 17, 2012

    Once again tackling the symptoms not the underlying cause. Chucking the ball into the long grass for another week or two. When will they finally start to admit and tackle the real issues?

    1. Susan
      April 17, 2012


      Well just think lifelogic, if the UK were in the Euro now, you would already have those austerity cuts you are always asking for.

      During lunch today I was listening to Michael Heseltine talking about the EU. He seemed certain the EU would recover and indeed thought that the UK would join the Euro at some point.

      I guess a question for the UK is, are the measures being taken at the moment for its recovery working. Some will say no because Government is still spending, wasting and taxing too much. I agree on that but it would still take an awful long time before the UK economy would pull round at the slow pace cuts would have to happen waiting for that elusive growth and filling the gap with tax rises. So in reality are the UK merely doing what the EU are doing but at a much slower pace. In the meantime spending by Government continues to rise.

      Does devaluation really work?

      1. lifelogic
        April 17, 2012

        Michael Heseltine caused the problem by evicting Mr Thatcher and replacing her with the (word left out-ed) Major (who won the election as people had not realised (how wrong he was -ed) he was at that time). The ERM fiasco (that he a chancellor took us in to) then condemned the Tories to three election defeats in a row. Having lost their record for economic competence.

        Had they lost under Thatcher all the blame would have landed on Labour who also supported the insane ERM policy.

        Thanks you very much Michael Heseltine – at least at nearly 80 years he can surely do little more damage to the UK now despite his efforts.

        The UK private sector cannot recover strongly until the state sector stops bleeding it to death with regulation, expensive energy, duff banks and over taxation. The UK and the EU will indeed recover, if and when, this is finally addressed.

        I see inflation is up again – quelle surprise! What has the Governor got to say this time?

        1. lifelogic
          April 17, 2012

          Take two similar companies tax one with nearly 50% of GDP (wasted by the state), expensive green energy, silly regulations and starve of bank lending and do the other one at 20%, few regulations and cheap energy. Which would you put your money on? It is not very difficult.

          Expecting the state to lead the recovery is like trying to pick yourself off the ground by pushing you own head up.

          1. lifelogic
            April 17, 2012

            The first company has to sell it widgets at perhaps twice the price of the second one just to break even. The second one then perhaps undercuts this by say 10% yet still cleans up with huge profits. It then has more volume and thus capital to invest in yet further efficiency.

            The first (the UK company) rapidly goes bust thanks to Osborne and Cameron. All the directors could have done do was to move to a more protected or an essentially UK service industry – lobbying MPs, pay day loans, or the law perhaps or have gone abroad themselves.

          2. APL
            April 17, 2012

            lifelogic: “Expecting the state to lead the recovery is like trying to pick yourself off the ground by pushing you own head up.”

            Yes. And it’s not as if we haven’t had enough experience of the State trying to pick Industrial ‘winners’ is it?

            British Rail, the only reason we still have it is you can’t practically get between London and Birmingham via Hong Kong.

            British Steel, What’s left of that?

            British coal, hmmm, 10:1 it’d would be in a better condition now if it hadn’t been nationalised.

            British Leyland, British Leyland, an object lesson in how the state destroys value.

            And now the government thinks it can get into banking. If that doesn’t put the fear of God into anyone working in RBS or Lloyds I don’t know what should.

          3. lifelogic
            April 18, 2012

            Indeed if you think the state will pick winners you are expecting politicians and civil servants to be honest and saintly, act in the public’s interests and be clever.

            Despite all the evidence to the contrary.

      2. Epigenes
        April 17, 2012

        Susan, I would not pay any attention to anything said by Heseltine. He was one of Major’s advisors that advocated joining the ERM.

        He was wrong then and has been wrong ever since. He is just too arrogant to admit it.

        1. APL
          April 17, 2012

          Epigenes: “Susan, I would not pay any attention to anything said by Heseltine.”

          Let’s not forget Heseltine’s part in the Westland cock up!

          He is one of those central planners that have, over the years totally wrecked the British economy.

          Hestletine’s ideology doesn’t much differ except in rhetoric from Harold Wilson’s desire to control the commanding heights of the economy.

          And look what happened to the commanding heights of the economy. Those places are now new towns with nowhere to work.

          Post war politicians have been an absolute disaster for this country!

        2. Susan
          April 18, 2012


          I do listen to others but in the end I come to my own conclusions. I just find it interesting after all the problems that the EU is experiencing that people still believe in the project. One has to ask why? After all Mr. Heseltine is putting his reputation on the line by being so certain in public of the outcome for the EU problem.

          You see I disagree with lifelogic over John Major. I think he is remembered not for the good he did in Government but for the one poor decision he made or should I say was part of making. He left the economy in very good condition for the next Labour Government and he introduced some good policies. However that is just my opinion.

          You see the point I am getting at is this. I am not convinced the right decisions are being made for the recovery of the UK economy. Indeed, I cannot see much difference at this time between the decisions being made in the EU to bring about recovery and the UK, except that Britain is making cuts at a much slower pace. Tax is increasing so no difference there and growth is very slow. So are we really in a better position because of the flexibility we have with the currency than the EU or is it just a presumption that we are. That was my question in my first post really.

          1. Epigenes
            April 18, 2012

            Susan, I am in broad agreement with your comments re Mr Major.

            The key word in your last para is ‘flexibility’. The troubled EU economies are in a straitjacket that is leading to increasing unemployment, bankruptcies and negative growth.

            The reduced spending in the EZ is not being evenly spread so some parts of it are taking disproportionate pain and cannot devalue.

            The UK would recover quickly if the current administration reduced spending, taxation and deficit financing. We are in a better position than parts of the EZ but I sympathise with your sentiment that this is a presumption.

          2. lifelogic
            April 18, 2012

            One hell of a poor decision to enter the ERM and he made a stupid exit costing a fortune, did not apologise or even admit is was idiotic and then ramming the Masstrict treaty down the voters throats and thus burying the party for three elections.

            “He left the economy in very good condition for the next Labour Government” that helped with the burying of the tory party too. The economy recover as soon as he stopped killing it with his ERM.

            “and he introduced some good policies” do you have any exampes?

          3. Susan
            April 19, 2012


            I know you dislike John Major but I think he was a very good Prime Minister. He was a true democrat and that is what good Government is all about. At the end of Margret Thatchers time the economy was already going into recession. Under his Government, through his economic policies, Britain saw the revival of economic growth and handed over an economy in the best condition it had been for many years to the incoming Labour Government. Although Mr. Blair took the credit, it was John Major who began the Northern Ireland peace process.

            He was not flashy or a good PR man but to my mind a good Prime Minister does not have to be. Whenever he speaks now people listen because it is always good sound common sense, something that we see so little of now. I wish he was in charge of our economy now, I really do.

            You need to open your mind on this subject because the Prime Ministers we have had since and a lot before that lacked his competency in running the UK.

            The Conservative Party was already losing its way towards the end of Mrs. Thatchers time, John Major held it together as best he could.

            Reply: The problem is JM took us into the ERM – with the full support of the Opposition and Lib dems – whcih did large damage to our economy.

          4. lifelogic
            April 19, 2012

            Susan he made two huge errors the ERM and Masstricht he has never even apologised for all the homes repossessed, the jobs lost, the suicides, the lives destroyed, the broken families.

            It personally cost me a very considerable sum and many of my employees at the time and all for nothing, just an absurd political wish to link the pound to an arbitrary DM rate because he liked 2.95? I assume.

            He is surely beneath contempt not because, as he would have it, he is from the poor working class, (I am too) but because he was incompetent and useless and not even man enough to admit his errors.

            On the positive side (if I can find one) I suppose he did not take us into too many counter productive wars on the basis of lies.

          5. Susan
            April 19, 2012

            I know he did Mr Redwood that is what we were discussing and I do understand that it was a massive mistake. The focus always seems to stay on that one issue, but I think taken as a whole he did some very good things. I believe he has had and still does suffer from very bad press which he does not deserve. After all Tony Blair and Gordon Brown absolutely destroyed the UK economy and still they are not vilified as much as Mr. Major has been. They made many mistakes in their time in Government, ones which will be much more difficult to repair.

          6. lifelogic
            April 20, 2012


            It went bad under thatcher due to JM taking them in to the ERM as chancellor.

            His lack of apology was idiotic as was his Masstricht fiasco.

            You say “After all Tony Blair and Gordon Brown absolutely destroyed the UK economy and still they are not vilified as much as Mr. Major has been.” Well we expect Labour to destroy the economy. Major was supposed to be a Tory! Mind you after Heath, Major and Cameron we might as well have Labour.

            Leaders mainly need mainly a sense of direction Major’s was out by 180 degrees and still is. He is simply in the wrong party. He is a pro EU, green, socialist like Cameron, Clegg & Blair.

      3. Lindsay McDougall
        April 17, 2012

        Devaluation only buys time but cutting public expenditure buys salvation. Follow Mitt Romney and hope that the US economy explodes in Obama’s face before November.

    2. lifelogic
      April 17, 2012

      I see that the BBC darling, Polly Toynbee, was trying to suggest on radio 4 that only the rich actually get tax back on charitable donations. This because, for administrative convenience, the charity can claim the basic rate taxpayers’ tax back under gift aid. The higher rates are claimed back by the tax payer themselves.

      In fact both rich and poor get a full tax deduction for the gross charitable donation. Rather typical of “BBC think” and their endless appeals to the evil politics of envy and class warfare.

      I do however tend to agree that it is probably better long term not to have the charitable tax relief at all just get taxes down to 20% and it becomes more trouble than it is worth.

  2. alan jutson
    April 17, 2012

    John. there seems to be a lots of somehow’s in todays post.

    Perhaps somehow, the politicians will learn that they can only sensibly spend what they get in income, from tax raising.

    Perhaps somehow, the politicians may realise that too higher a tax rate encourages the alternative economy, as people rebel against the majority of their income going to the State to waste.

    Perhaps somehow, our own politicians will realise that trying to hold back this tide of debt from drowning them, is a bit like king Canute attempting to hold back the sea.

    Perhaps somehow, our politicians will start to do simple arithmetic, and learn about the effects of compound interest.

    Perhaps somehow, our politicians will learn that a pound borrowed today, means very many pounds to be repaid in a few years time.

    Yes perhaps. !

  3. Mike Stallard
    April 17, 2012

    I love Spain.

    The big question must be this: Is Spain in difficulties because of a temporary blip caused by a temporary crisis – Greece, for instance? Or is the problem really the Euro itself?
    You – and I – think it is probably the latter.

    But there is no crisis so big that the government cannot make it worse. Unelected, unaccountable, feeding on each other’s determination not to do a U turn, second raters politically, listening to Civil Servants in a vast bureaucracy, Messrs Rompuy and Barroso and their Commission are not going to back down.

    And Spain, which I love, is doomed therefore, in my view, to more violence as wages are not paid and pensioner starve or commit suicide and the place drifts back into the 1930s – or even the 1830s. And when the Spanish get (angry it’s owrrying-ed) and the heirs of Philip II and Leopoldo Alas (Clarin) can do down and out very well too

  4. norman
    April 17, 2012

    Has something messed up in the auto-post software? This post seems to be happening time and time again.

    By the way, I know a guy who knows a guy who can repair brick walls cheap if any start showing indentations.

  5. Kevin Ronald Lohse
    April 17, 2012

    Aren’t we borrowing/printing another £10 billion to lend to the IMF just for this purpose?

  6. Martin
    April 17, 2012

    Given that the UK has the worst trade deficit in the EU in manufactured goods (Ireland has a massive surplus) you are right that firewalls can’t sort out Sterling’s problems. Indeed the UKs deficit is about the size of France & Spain added together (Jan 2012). Germany and the Netherlands had huge supluses.

    The country whose currency imbalance ought to be causing you (and the IMF) most worry is the UK – with monster deficits. Indeed if sinking (floating) currencies were the solution then why is the UKs manufactured goods performance so ghastly?

    1. A Different Simon
      April 17, 2012

      An awful lot of Britons still think they should live the lifestyle of royalty yet have done absolutely nothing of distinction in their mediocre lives to deserve it .

      My pet peeve is peoples failure to even look where their food or manufactured products come from .

      Buying foreign goods because they are 5% cheaper in the short-run costs you more in the long run – it takes longer for the money to get back to you , if ever .

      Simmilar story with offshoring work and importing cheap labour via ICT visas .

      Almost every penny spent in the UK either goes directly to the banks , directly to the Govt or overseas .

      For money to do any good it has to circulate in this country .

      It’s not enough to promote exports , people need to start buying British and I mean really British , not ex-British like Pilkington , Cadbury .

  7. Susan
    April 17, 2012

    There is going to be trouble if George Osborne commits more British money to the IMF. It would have been better perhaps if Christine Lagarde was not head of the IMF as she is very keen to keep the EU project together no matter what the cost.

    Difficult one for the Government, who perhaps do not want to be seen as the ones to help bring down the single currency by not standing behind its rescue, but at the same time doing themselves political damage at home by pledging more money.

    I am keeping my mind open on the IMF contributions by the UK because I am always mindful that the UK needed their assistance themselves in the past.

    1. Robert Christopher
      April 17, 2012

      “It would have been better perhaps if Christine Lagarde was not head of the IMF as she is very keen to keep the EU project together no matter what the cost.”

      If the Euro ‘fails’, France will suffer more than economically, it’s pride will be dented!

      That’s why we HAVE to throw money we do not have into the Euro black hole.

      PS: Christine Lagarde is French first, and head of the IMF second.

  8. Martin Cole
    April 17, 2012

    I think perhaps you might find the answers you seek to the questions you raise in this posting by re-working your final sentence as follows:

    Instead of discussing how to finance failure, more thought needs to be given about how to get member countries out of the need for subsidised loans in the first place.

    Some may wish to add the words “of the euro” in replacement, personally I would select “of the EU!”

    Reply: I have just published a lot of work setting how they could get countries out of the Euro!

  9. Sue
    April 17, 2012

    These countries know full well that the Euro’s survival is the most important thing to the Eurocratic elites. Without the currency union, their plan for a political dictatorship and a EUSSR will eventually fail.

    They know they will be bailed out no matter what they do, so they can comfortably ignore much of what is being asked of them.

    We can only hope that our politicians finally show some sense and refuse to support this ridiculous endeavour. This currency union cannot possibly work unless all those participating have very similar economies and it will take years for the transfer of wealth from the richer members to the poorer ones for this to occur.

    The Euro has caused nothing but pain and suffering to the ordinary European citizen. We should have the courage to tell them “enough is enough”.

    1. uanime5
      April 17, 2012

      “These countries know full well that the Euro’s survival is the most important thing to the Eurocratic elites. Without the currency union, their plan for a political dictatorship and a EUSSR will eventually fail.”

      Who are these Eurocratic elites, what country are they from, and how are they going to create a political dictatorship without anyone noticing? If you can’t answer any of these questions then it’s probably because you made the whole thing up.

      “The Euro has caused nothing but pain and suffering to the ordinary European citizen.”

      Do you have any examples of this? I can’t recall anyone in Portugal, Ireland, Italy, Spain, or Greece blaming the euro for the mismanagement by their governments.

      1. Lindsay McDougall
        April 18, 2012

        If you govern in the belief that Germany will always bail you out, you are likely to govern badly.

  10. Brian Tomkinson
    April 17, 2012

    JR: “The UK’s position is also undecided.”
    Cameron and Osborne will follow instructions from their Brussels masters and offer more of our borrowed money.

  11. David Williams
    April 17, 2012

    Spain has a good track record of getting its bills paid by others.

    Admittedly, Spain is now suffering as a consequence of the foolish precedent set by the Greek haircut. However, there is still a lot that Spain could do itself to improve its situation, before passing round the begging bow. Here are just a few ideas:

    1 Allow shops and businesses to open on Sundays.
    2 Remove the unnecessary regional layer of government/administration.
    3 Ask the EU to phase out 100 euro, 200 euro and 500 euro notes to discourage cash (black economy) payments.
    4 Introduce a 0% purchase tax for foreign buyers of real estate.
    5 Privatisations including selling some of the 5000km state owned coastline.
    6 Stop state subsidies of the unions.

  12. Lord Blagger
    April 17, 2012

    Same as Tory policy in the UK.

    Keep on borrowing. Keep on spending. Up in real terms isn’t it.

  13. Richard1
    April 17, 2012

    Spain is interesting in the context of the possible ‘devo max’ option for Scotland. The regions have a lot of autonomy, but when when their spending is out of control the Spanish taxpayer must step in and foot the bill and take emergency powers. I had been in 2 minds about devo max for Scotland (which seems the only option Scots would actually vote for). Spain seems to me to make it clear that it should be out of the question – if Scotland gets tax and spending power and remains in the UK, the UK taxpayer will ultimately have to stand behind it. Do you agree?

    1. Robert Christopher
      April 17, 2012

      No wonder Alex Salmond likes devo max!

    2. Martin
      April 17, 2012

      The Scottish Government already has tax and spend powers under the existing Scotland Act (+/- 3p on the standard rate income tax) and other assorted charges (e.g. sky high water taxes in a country not exactly short of the stuff). Under the present Scotland Act the budget must be balanced (block grant + local charges = expenditure) each year.

      1. Richard1
        April 18, 2012

        Yes – so currently there isn’t a big risk to UK taxpayers from an over-spending Scottish executive. But a Scottish Govt with tax and spend powers under devo max – but which was still part of the UK – would be a huge contingent liability. The Scots must choose – independence or be part of the UK, albeit with an enhanced local authority in Edinburgh calling itself a ‘Government’.

    3. Susan
      April 17, 2012


      The answer Richard is yes.

      Devo max is the deal Alex Salmond really wants. It would mean he can run Scotland pretty much as he pleases whilst still having the ability to fall back on the rest of the UK should financial trouble come to Scotland.

      Its called having your cake and eat it. On past record the UK Government will roll over and give him whatever he wants just to keep a dead Union alive.

  14. GJ Wyatt
    April 17, 2012

    If Euroland is a single economy, which Bruxelles likes to believe, then the IMF should have no role to play in propping up a constituent part. But if Euroland as a whole is in (balance of payments) difficulties, then IMF diagnostic and financial support would be relevant. But nobody suggests this to be the case.

  15. Dan
    April 17, 2012

    I would hope we can rely on Mr Redwood to do the right thing and rebel if Osborne attempts flush yet more billions down the Euro drain with further loans to the IMF/PIIGS

  16. oldtimer
    April 17, 2012

    The EZ needs to sort itself out, without resort to the IMF. Nor should the UK be party to additional IMF funding which, in effect, is Lagarde`s attempt to bolster IMF resources to aid the EZ. I read that another £10bn billion is the amount contemplated by Mr Osborne for this purpose. He should decline to do so.

    Despite its problems, the EZ is one of the wealthiest areas in the global economy. The idea that it should get less wealthy areas to bail it out is plainly wrong – apart from the politics involved.

  17. English Pensioner
    April 17, 2012

    I see from today;s papers that British taxpayers are to contribute (ie give) another £10billion to the IMF to support the Euro.
    Why, Why, Why? We’re broke already and borrowing money ourselves.

  18. owyn glydwr
    April 17, 2012

    The truth is I was always taught never to throw good money after bad. Something all parliamentarians should bear in mind.

    I am afraid that MP’s take their constituents for granted, never ever consult them on the direction they may wish their MP to take. This issue of the IMF has been around for ages and I wonder just how many meetings, consultations you have held with your constituents so that you can stand up and tell government what a majority of YOUR constituents wish.

    Do you, with the assistance of local newspapers and radio, seek the public views on many subjects? Or, Mr Redwood, are you one of those MP’s that believe they know what the people want?

    The people want a referendum on the EU but will they be listened to? What is the answer when people are ignored? Who and what do we turn to? The question is growing in peoples minds especially with the incompetent Cameron/Osborne and Lib Dems administration.

    The time, Mr Redwood, is for MP’s to actually consult then speak up. Our democracy is teetering on the edge of an abyss, we are in real danger of being trapped in a soviet style EUSSR.

    Reply : I regularly speak up for a referendum and voted for one. I also have spoken out and voted against more IMF funding for Euroland.

  19. ian wragg
    April 17, 2012

    When will it all end??????

  20. Frank Salmon
    April 17, 2012

    The current EU setup is about making all countries equally uneconomic. When we all share the PIIGS debts and have the same uneconomic forces working on us, the EU will have won. Surely, you can see, with UKIP on the rise, the time has come to leave the EU? (They will never allow a repatriation of powers.)

  21. Mactheknife
    April 17, 2012

    The IMF has said today that the single currency has fundamental flaws and the exit of one of the members from Eurozone is a possibility. If they are saying this then I think we must be close to it. Will it be Spain – who knows ? I doubt it as the Spanish are part of ‘the project’, so maybe Greece is still in the frame. Will the IMF rescue Spain – maybe, but not with UK taxpayer funds I hope !!
    It seems to me that Germany are the ultimate beneficiaries of the Euro so time for them to dig deep to keep their partners afloat.

    Reply: Greece is the obvious first candidate for exit

  22. rd
    April 17, 2012

    Or… they devalue.

    1. BobE
      April 17, 2012

      Greece can’t devalue the Euro. They would need to revert to the Drachmah to do that.

  23. MajorFrustration
    April 17, 2012

    Will the IMF ride to the rescue of the Banks – of course it will. Will the people of Spain see the benefit – of course they will not. Same old same old. With the rise of UKIP the 80 Tory back bench MPs had better start to do more than talk. – the “Not me Guv I was on holiday” aint going to wash. We need to sort out our own deficit, immigration and membership of the EU and bring some clarity to politics – Dave and George just like the idea of being in power – no idea idea of how to use it or providing the leadship to produce the much needed growth. Just keep on taxing – its always the soft option.

  24. Bill
    April 17, 2012

    Is it true that George Osborne is trying to Bankrupt the U K On the orders of the EU???

    1. uanime5
      April 17, 2012

      Why would the EU want this? They depend on us to lend them money to support the Euro and to buy their exports. Bankrupting the UK would just create problems for them.

      If Osborne is bankrupting the EU it’s due to mismanagement.

      1. uanime5
        April 17, 2012

        Last sentence should read:

        If Osborne is bankrupting the UK it’s due to mismanagement.

      2. BobE
        April 17, 2012

        A bankrupt UK would let the money makers move to Brussels which is what the EU wants.

  25. Denis Cooper
    April 17, 2012

    I shouldn’t worry too much about Spain; everyone who’s anyone in the EU says that Spain will be OK, provided that it sticks with the plan and shuts down large parts of its economy.

    If it did need help, the ECB could just create enough new money to buy all the bonds issued by the Spanish government – like the Bank of England and gilts – and although that may be illegal under the EU treaties it seems that kind of thing no longer matters – it’s not as if the EU treaties are supposed to be solemn legally binding contracts between the EU member states, duly approved by their national parliaments down to the last comma, or anything like that.

    Obviously what shouldn’t happen is any involvement of the IMF, any more than the IMF would get involved if the Welsh Assembly was faced with bankruptcy, and certainly Osborne should not be pledging any more of our money to try to preserve the eurozone intact so that it can later expand and eventually engulf us as well.

    Which brings me to this interesting passage in the recent report from the European Scrutiny Committee:


    “In October 2010 the European Council agreed on the need for a permanent crisis mechanism, which became the ESM. In preparation for an agreement to establish the ESM, on 25 March 2011 the European Council adopted a Decision amending Article 136 TFEU …. ”

    “So we were extremely surprised by the Financial Secretary to the Treasury’s comment …that:

    It is not legally necessary for the Article 136 Treaty change to have been made before the ESM can come into force.

    When we questioned the Minister about this he reiterated that:

    It [the Treaty amendment] is desirable, but I do not think that it is necessary.”

    Clearly Merkel thought that it was necessary, or she wouldn’t have pressed so hard for it; but if it’s not necessary, let’s not waste parliamentary time on a Bill to approve it, and let’s not waste expensive goatskin parchment on a formal instrument to ratify it.

  26. Bernard Otway
    April 17, 2012

    Re Susan on Heseltine,IMHO he is (wrong headed-ed),an absolute example of the Peter Principle in action.As for the situation re the Euro and
    now Spain, whether the politicians do it or not govt. spending should be exactly what is raised in Taxation AND be a MAXIMUM of 25% of GDP.The political class and all the public sector WILL get this very soon as THE WORM [PUBLIC] is now turning against them,the longer they delay the greater will be the backlash [IT WILL NOT BE PRETTY] I say
    IT SERVES THEM RIGHT.As I said in a very recent post ,I conduct on a daily basis my own Poll in what I do,the average number of DIFFERENT people I talk to is 20 ie 600 per month and 80% think like me. I am not staying to find out I will be gone soon,and as the
    Sun once said “the last one out Put out the lights”.

  27. chico k-g
    April 17, 2012

    Dear John,
    Appreciate all the insights, thank you.
    Have I missed a significant issue, or have all the commentators ?
    TARGET2 imbalances are in excess of Eur 1.0trn.
    If one country exits, and there is a devalutaion, we lose the government debt and the imbalances too – what is th emechanism to prevent a domino effect ?
    All those promoting devaluation and exits, don’t address this point which could be as large as the udnerlying government debt itself.
    Surely it’s cheaper to pay the transfer costs of fiscal support than take th eone-off hit to debt and TARGET2 imbalances ?

    Reply: You do not lose it all, there is a one off adjustment. You stop the future losses that stem from Euro membership.

  28. Barbara Stevens
    April 17, 2012

    There is an old saying, ‘ never a borrower, or a lender be’ and Osborne should reflect on whom and what he’s lending to. For me he should now say NO, enough is enough, and go back to what the IMF was intended for, countries not currancies.
    This whole government should reflect where they stand in the opinion polls, and its falling by the day. UKIP, are now level pegging with the LibDems, what does that tell you?
    The whole government is becoming a shambles with one thing and another. Yet, through all the waffle nothing concrete is done, and it’s this that grates with the public. T May has put a splendid fight over the foreign terrorist, (name?), but why do this, just send him back as the French did with their terrorists and let then argue their case in their own country. Human Rights were ignored by France so why should be comply in this case.
    It appears as one gaffe after another.
    In today’s Times, we have and article on Food Banks, where our own people are having to get free food to survive, often with children to feed, yet, 29 billion of foreign aid is sent out of this country. No wonder people are angry, no wonder they are thinking of abandoning the three main parties; and who can blame them in the circumstances that have been created by a political elite who have no idea how the real world operates.
    The press keep telling us about the EU and its problems, I think our own starving are more important, the jobless, and over taxed society that as become selfish in it’s attitude to the less well off. Time to go back to basics, dump the EU, and begin again, before the anger people feel festers into something no political party will handle.

    1. sjb
      April 17, 2012

      Barbara wrote: UKIP, are now level pegging [in the opinion polls] with the LibDems, what does that tell you?

      Just how unpopular the LibDems have become :-;

  29. Denis Cooper
    April 17, 2012

    Here are a couple of interesting articles about the “fiscal compact”.

    In the first, an Irish MP explains why he is going to the Irish Supreme Court with several legal challenges:


    “As an Irish legislator and citizen I keep asking myself, would it not be absurd if Irish voters were to vote in the 31 May Fiscal Compact Referendum in favour of imposing austerity rules on ourselves in order to get future access to a proposed permanent Eurozone loan fund when the separate but “complementary” treaty establishing that fund is arguably illegal under EU law, unconstitutional in Ireland and has not yet come into force and indeed may never do so.”

    Inter alia:

    “I am asking the Court to examine the legality of the amendment of Article 136 of the Treaty on the Functioning of the European Union (TFEU) before any further action is taken by Government to approve that amendment. That amendment permits the establishment of a “stability mechanism” that would be able to grant financial assistance “subject to strict conditionality”. That amendment is being adopted under the so called “simplified revision procedure” which I believe is legally wrong. My argument is that the changes being proposed are so fundamental they should go through the ordinary revision procedure to ensure proper democratic scrutiny. They also require the approval of the Irish people in a referendum.”

    The second mentions not only that legal challenge in Ireland, but also those in two other countries, of which the most important is that in Germany:


    “Legal challenges in Germany, Ireland and Estonia, as well as political uncertainty in the Netherlands, may delay the setting up of a permanent eurozone bail-out fund at a time when Spain’s economic woes require a strong firewall.”

  30. Bert Young
    April 17, 2012

    I spent yesterday in London – the first time for many years . I felt I was in a foreign land hearing every language but English . I hope the voices I heard were all contributing tourists to our economy and not individuals living here taking advantage of our benefits system ! It was sad to see men without ties , women half undressed (( it was cold ) and younger people not giving up their seats to older folk . I saw no evidence of a difficult economy ; I did witness extensive use of the credit card . Is my recent experience symptomatic of a decaying habitat , and , is it indicative of the downward trend in Euroland ?

    1. stred
      April 18, 2012

      One of my yokel relations came to visit me last year and we took the tube from the outskirts into a grotty area of east London. After struggling to pay £8 for his ticket at an unmanned station, he sat listening to all the foreign languages without speaking himself. When we emerged into the street, he took a look at all the foreign food shops and heard friday prayers wafting down from the mosque.

      His first comment was “Are we still in England?”

      1. alan jutson
        April 18, 2012


        Many politicians would not understand what you are talking about, as they seem to live in a bubble which excudes real life.

        Because our host communicates with the outside world on a daily basis via this site, and does his own research canvassing in the Town with the local businesses, he is I hope, rather more aware than most other MP’s, and I would suggest far more aware than Ministers or shadow Ministers would like to admit.

        1. stred
          April 18, 2012

          Probably some politicians are aware. The DT caught Labour out a while ago, using the undeleted minutes of a meeting in Whitehall and describing immigration as ‘socially useful’. ie more votes.

  31. Andrew Smith
    April 17, 2012

    I wonder if anyone at the BoE HMT or FSA has thought to check on the balances of Santander, which is by far the largest Spanish owned and controlled bank operating in the UK.

  32. lojolondon
    April 17, 2012

    John, there is only one sentence I don’t like here –

    “The UK’s position is also undecided.”

    The answer is NO NO NO.

    If you are unsure, then ask your voters.

    Reply: My position is not undecided – I voted No to the last IMF contribution and will vote against any future one for the Euro.

  33. Lindsay McDougall
    April 17, 2012

    It’s easy. Spain must leave the Euro, restore the peseta and float. The things that the UK can do are (a) to advocate this publicly (b) to refuse to lend money to any bale out funds and (c) to call for the resignation of the highly political head of the IMF, who is abusing her position.

  34. BobE
    April 17, 2012

    At last its working. Did you see on Newsnight how the Cons are realising that UKIP is now a rising force. Either do something about the EU or you will loose the next election.

  35. Atlas
    April 18, 2012

    On a point of information which you might have at your fingertips John:

    In which currencies are the German Federal financial reserves held?

    Should they be entirely in Euros then it would seem the Germans could not afford to exit the Euro. Such a move would put the ECB in the position of a bad bank and so the huge German surpluses (in Euros) we are told about would become worthless.

    Reply: By definition the German foreign currency reserves are not in Euros. They have substantial gold holdings as well as I presume other leading convertible currencies.

  36. Bernard Otway
    April 19, 2012

    Read Andrew Alexander,Daily Mail wed 18th April,A TRUE PROPHET

  37. lojolondon
    April 19, 2012

    The sooner the corrupt EU and Euro collapse, the better for all of us. The UK does not have money for ourselves right now, let alone money to waste on the EU and their 15 years of fudged accounts.

  38. javelin
    April 19, 2012

    Whats interesting is the Target2 inter-Central Bank borrowing in the EZ at the moment.

    Currently €800 billion has been borrowed by the PIIGS. Of that €635 billion has been lent by the Bundesbank.

    So the question is what happens if, say Greece leaves the EZ? Simple the other central banks pick up the tab.

    This means that if the EZ breaks up German tax payers are on the hook for €635 billion. Now I always though they had been promised that this wouldnt happen. But it has. Now they are being sued


    This is the German translation on google – but the Bundesbank have been served legal papers. Basically blah, blah, you misled the German people, we’re on the hook for 600 billion which is against the law.

    “For weeks, some economists warn billion target risks in the balance sheet of the Deutsche Bundesbank as part of the payment system. Now a lawyer has notified the board of the Bundesbank because of infidelity.”

    “Target 2″ is the name of a clearing system for cross-border payments in Europe, which was until recently even in the narrow circle of central bankers at best known in broad terms. The German Bundesbank as part of the payment system claims on the ECB now has more than 600 billion €.”

    “For weeks, warns economist Hans-Werner Sinn from these billions of risks in the balance of the Bundesbank. If in the near future a country should withdraw from the euro or the euro will break that Germany would lose a fortune. Even at the Bundesbank, it rumbles so for some time: In a letter had Bundesbank President Weidmann against ECB President Draghi shown great concern.”

  39. javelin
    April 19, 2012

    What follows from Target2 if the EZ collapses is that Germany is left with a debt of 800 billion dollars.

    Of course if the EZ does break apart this would leave Germans with huge debts and take Germany back to square one after benefiting for years from the EZ.

    Who knows where this will leave Germany? Possibly isolated? Not for the first time.

    Of course if the EZ does not break apart then the PIIGS taxpayers will be indebted to Germany for 800 billion for years to come as part of the EZ.

    Who knows where this will leave Germany? Possibly isolated? Not for the first time.

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