Will Germany pay the Euro’s bills after all?

There is a big battle going on over the future of the Euro. If the easy money people win, the issue is will Germany stand behind all those bonds the ECB buys up? Will German taxpayers after all be expected to stand behind Greek and Spanish banks if they get into trouble? Will the Euro architects find a way of allowing newly created Euros to find their way, if indirectly – into financing the deficits of less fiscally prudent countries within the zone?

Indeed, the question is how can Germany avoid being dragged in to Quantitative easing if the zone as a whole decides on that route? By virtue of being the largest shareholder in the ECB, Germany will become the proud part owner of a wide range of government bonds from other countries in the zone as the ECB seeks to do what the Fed, Bank of Japan and the Bank of England have already done. If those bonds subsequently lose money, Germany surely loses as well.

Some say they have found a way round this dilemma. Why not, they say, empower the individual national central banks of the zone to simply buy up their own government debt, and to take the losses if losses there subsequently are. However, the individual central banks do not have the power to create euros. So presumably they will have to borrow the euros from the ECB to buy these bonds. What if they get into trouble? How do they repay the ECB? Surely there has to be recourse by the national central banks to the ECB, so in the end Germany will be pushed into supporting the whole edifice.

There is also the little problem of the Swiss franc. When the Swiss authorities wisely decided to quit their link to the Euro, their currency shot up. Markets revealed just how depressed the Swiss unit was by its forced association with the Euro. Imagine what the value of the DM would now be against the Euro if Germany had done what Switzerland did, and declined to actually join the Euro.

The Swiss event and the agony of QE reveal the continuing strains of the Euro project. If it is to work in the longer term Germany has to put her tax revenue and banking system behind it. She is still reluctant to do so. It is a bit like London refusing to stand behind the rest of the UK – an absurd idea which would damage the pound greatly if anyone tried it.


  1. Leslie Singleton
    January 21, 2015

    It is easy to think that something like this might work but once it is fully appreciated that the miserable, residual, vestigial, putative “National Central Banks” cannot these days create Euros and cannot create their old currencies either, the plan doesn’t look so clever. At least the Bank of England never bought Greek bonds–or at least I don’t think so. All this because the French fear the Germans and the Germans fear themselves. One day maybe Germany will shake off its guilt. That’s when it will hit the fan.

    1. Jerry
      January 21, 2015

      @Leslie Singleton; “One day maybe Germany will shake off its guilt. That’s when it will hit the fan.”

      That day might be very near, and indeed it will, and some might even suggest that it has already stared…

  2. Lifelogic
    January 21, 2015

    Germany has indeed to put her tax revenue and banking system behind the EURO or they have split the EURO up and leave. Osborne did not however have to make soft loans to the PIGS, nor to the IMF to save the EURO, so why did he choose to waste taxpayers money in this way?

    It seems the Coalition and Cameron (just as I expected they would) have decided to protect Bliar and the damaging war on a blatant lie merchants, by agreeing to further absurd delays in the Chilcot Enquiry. Now delayed until after the election when Labour will doubtless control the process and spin.

    1. Bert Young
      January 21, 2015

      Delaying the Chilcot report is an insult to the country . Its not often I agree with Mr. Clegg ; his response that it was “unbelievable” is a severe understatement . It is up to this Government to decide and not allowing the report before the election smacks of political manouvering .

      1. alan jutson
        January 21, 2015


        Ref Chilcot delay

        That is the legal profession for you, once they get involved it is time, expense, and delay, as anyone who has had the misfortune to use them will confirm

        6 years to produce a report seems absolutely extraordinary, and to what end, people may be blamed, but nothing will be done about it.

        Cameron/the Government should have been onto this years ago to speed it up.

        Absolutely no excuse whatsoever.

        Reply Mr Cameron could not interfere with the workings of an independent committee. Many here would have rightly complained he was interfering for Conservative political advantage had he done so.

        1. alan jutson
          January 21, 2015

          Reply – reply

          Aware it is a so called independent report, but surely when Gordon Brown set this up, he set some sort of remit with regards to timescale, or was this another one of his fiasco’s.

          Seems to me that those who may be named are doing exactly as you suggest, playing politics.

        2. Lifelogic
          January 21, 2015

          On the legal profession, lawyers per million of population:

          USA 281, UK 94, France 33, Japan 7.

          Lawyers are so often just another inconvenience overhead & liability (in addition to the bloated government) that the productive have to carry. Another liability that renders us less competitive like Davey’s absurd over priced religious energy.

          Why on earth does the UK need 13 times as many lawyers as Japan? Release them to get a real job by sorting out the legal system.

          1. DaveM
            January 21, 2015

            Nothing new about unnecessary lawyers. Shakespeare had it about right:

            Henry VI Part 2, Act IV Scene II. (About half way through, spoken by Dick.)

            One of my favourite WS quotes!!

          2. John E
            January 21, 2015

            You must have had a nasty run-in with some lawyers at some point given your frequent return to this topic?
            To make sense of the numbers you need to take into account the large overseas earnings of the legal profession based on London’s role as the home of global commercial law, contributing a positive £2.8 billion per year to our balance of trade. They aren’t all by any means engaged in purely domestic UK work.

          3. Jerry
            January 21, 2015

            @LL; “Why on earth does the UK need 13 times as many lawyers as Japan?”

            Probably because of the many differences in how our respective societies, political and business cultures work.

            The real question is surely, why is the UK going hell for leather attempting to catch up with the USA were litigation is concerned – when will a UK government (of any flavour) ban the “No win, on fee” type of solicitation by lawyers, no one wins other than the lawyers…

            Oh and before anyone suggests it, no I’m not suggesting that the legal profession should not be allowed to advertise their services in general, nor offer no win, no fee litigation.

        3. stred
          January 21, 2015

          Let’s hope it’s not costing as much as the Bloody Sunday one, where they managed to stretch it out from 1998 to 2010, at a cost of £190 million. Perhaps reports should be put out to tender, with a reducing hourly charge as time increases. Anyone know what the bill is so far?

      2. Andy
        January 21, 2015

        You are being unfair. It is not in the Governments gift to publish the Chilcot Report. It is entirely under the control of Sir John Chilcot to decide when to publish. He would not be able to do so after the middle of next month because of the General Election. It looks to me more like some of those named in the report are playing ‘ducks and drakes’ with their responses, thus delaying it.

        I have to say it does seem he has made rather a meal out of all of this.

        1. Lifelogic
          January 21, 2015

          So Sir John Chilcot might take another 15 years over it then taking him to 90 if he feels like it?

          A retirement hobby for him perhaps?

      3. Brian Tomkinson
        January 21, 2015

        Parliament, not the government, on behalf of the British people should demand that Chilcot publish this report before the general election.

    2. Richard1
      January 21, 2015

      It is a scandal that the Chilcott report has not been published yet. It ought to be available well before the people go to the polls so, if there are important issues raised, they can be debated at the election. At the very least Sir John Chilcott should make a public explanation as to the reasons for the delay. We have far too many instances in the UK where unelected officials run out of control. At least when ministers are responsible for something they can’t duck questions in public.

  3. Mark B
    January 21, 2015

    Good morning.

    This from the Link below:

    The EU’s nine non-euro area NCBs are required to contribute to the operational costs incurred by the ECB . . .


    Which currently stands at 13.6% for the UK, the highest, by a long way, of any non-Eurozone member. In fact, it is the third highest overall, with only Germany and France being higher.

    Could someone more nuanced with global financial matters please explain the significance of this ?

    Reply We did not pay up our shareholding and will not be responsible for 13% of the losses.

    1. alan jutson
      January 21, 2015

      Reply -reply

      Ref Operational costs.

      Is this actually the view of the other Countries John, or simply your view.

      I knew we were certainly on the hook for a period, because I thought we had signed to support in some way or another some Euro area bank bailouts..

      Can I assume from your comment that this agreement has now run out/expired.

      Reply That was a UK state obligation, not the result of the ECB

      1. Denis Cooper
        January 21, 2015


        “The EU’s nine non-euro area NCBs are required to contribute to the operational costs incurred by the ECB in relation to their participation in the European System of Central Banks by paying up a small percentage of their share in the ECB’s subscribed capital. Since 29 December 2010 their contributions have represented 3.75% of their total share in the subscribed capital. The capital paid to the ECB by the non-euro area NCBs amounts to €120,192,083.17 and breaks down as follows … ”

        For the Bank of England, it’s €55,509,147.81, to the nearest eurocent.

  4. Lifelogic
    January 21, 2015

    Off topic I do find it rather depressing to read how very many people still seem to believe in God and the after life reported in the Daily Mail today:

    Two-thirds of women have faith compared to fewer than half of men.
    Sixty per cent of women believe in afterlife, but only 35 per cent of men.

    It does however show once again the huge gulf between male and female thinking on some “emotional & belief” issues. I imagine a similar gender difference would be found on belief in the fake green warming (the huge exaggeration of) religion too. Perhaps also related to fact that so many more males than females seem to choose to study physics and STEM subjects at A levels and university?


    One can see why Cameron types and the left in general are so tempted to target female voters with his lefty, green religion, fake equality, emotional, irrational and anti-science approach to the world.

    I suspect it will not work though.

    1. Qubus
      January 21, 2015

      But more women than men now study medicine. So, what do you make of that?

    2. Denis Cooper
      January 21, 2015

      Far more worrying is this:


      “The findings also suggest that Muslims have by far the strongest faith in modern Britain, with Christians from smaller evangelical churches the only group coming close to the same levels of certainty.

      By contrast only one in six members of the Church of England or the other main protestant denominations say they believe without doubt in God.

      Just a third of Roman Catholics in the study said the same compared to 88 per cent of Muslims and 71 per cent of those categorised as evangelical Christians.”

      etc ed

      1. Denis Cooper
        January 23, 2015

        Reasonable comment missed for moderation here.

    3. fedupsouthener
      January 21, 2015

      Not this woman!! I can see right through the fake green crap. Just been reading a report from Australia where they seem to have conclusive proof that some residents living close to wind farms have had their health compromised. They were told it was a placebo effect but it turns out they could tell the acoustics expert exactly when the turbines were on even when they were blind folded and audible noise was not present. It is the low frequency infrasound that is the problem. I hope and pray that this is followed up by medical experts. Can’t wait for the lawyers to get in on the act and hope all wind farm developers eventually end up in the courts!

  5. Peter van Leeuwen
    January 21, 2015

    ECB announcements and press conferences are always less dramatic than the media stories beforehand.

    1. alan jutson
      January 21, 2015


      Ah yes, laws, regulation, and tax by stealth.

      We are very good at it here as well.

      That is until you read the fine print.

      1. Peter van Leeuwen
        January 21, 2015

        @alan jutson: Be it though that the independent ECB executes its mandate. Laws and regulations come from European Parliament and European Council and drafted by European Commission.

        1. Edward2
          January 22, 2015

          No direct vote by any EU citizen.

    2. John E
      January 21, 2015

      That has been their great weakness; too little too late, constrained by Germany without the ability to act decisively. But this time I think the result will be dramatic whatever they say.
      This is a moment of truth – either to move forward with a true currency union, or to prepare to unpick it. Strong words have worked so far but actions need to follow.

      1. Peter van Leeuwen
        January 21, 2015

        @John E: “Too little too late” is certainly a view held by some (10 economists → 11 opinions) and even the QE instrument can be disputed. It is not that easy to agree with many around the ECB table. The currency union doesn’t just depend on the ECB. It also depends on keeping leverage over France and Italy to speed up their structural reforms, the success of the investment, and on carrots and sticks to be applied. I suspect the currency union will progress as always, but it will be a slow process with many obstacles to be cleared on the way

        1. John E
          January 21, 2015

          Meanwhile a generation in Southern Europe is condemned to unemployment or emigration.

          1. Peter van Leeuwen
            January 21, 2015

            @petermartin2001: In Spain, in 1992-95, youth unemployment already was above 40%. So, while it is very bad now, they have had bad situations before.

          2. Edward2
            January 22, 2015

            Apologist nonsense Peter
            The dreadful economic constrictions of the Euro is causing hardships for millions.
            I love Europe. I love Europeans and I have a particular love of the Dutch but the failing leadership in the EU must be recognised.
            The democreatic system of the EU is flawed.
            Just a few paying in and the majority taking out and each of 28 nations having only one vote is a recipe for dusater.

          3. Its that Jerry Again
            January 22, 2015

            I would like to make another post but I’ve run out of things to say

          4. Jerry
            January 23, 2015

            @PvL; Sorry but that is generalised nonsense, unless you wish to qualify your comments to a specific area of Spain?

        2. petermartin2001
          January 21, 2015

          ” structural reforms”

          Ah yes that word “structural” again! It’s odd how that word keeps creeping in! Just what does it mean I wonder?

          I suspect it’s code for making everyone like Germany. The world would be a fine place if everyone was like the Germans. Why can’t everyone be like them , work hard and export more that they import and build up their savings and surpluses through ‘export led growth’? If Germany (and the Netherlands, Switzerland etc) can run large surpluses then it must follow that everyone else could too if only they just listened to their advice.

          Mustn’t it?

          1. Peter van Leeuwen
            January 21, 2015

            I’m not sure you can call it: become like Germany. You might also have called it: Become like Britain. Making the labour market more flexible might be called structural reform, as one example.

          2. petermartin2001
            January 22, 2015

            Peter Van Leeuwen,

            I’m in favour of whatever can be seen to work. Yes, Euroland should copy the UK and revise its “growth and stability pact” rules. Surely there is a case for at least a name change, if nothing else, wouldn’t you agree?

            The UK has a 6% of GDP govt budget deficit at the moment. Largely because the trade balance is 5% in deficit – the private sector is 1% in surplus. (5+1 =6 !)

            These figures would not be allowed in the Eurozone. If the Govt deficit were constrained to 3% , to meet EZ rules, and the trade balance remained the same the private sector would be 2% in deficit. ie There would be a huge recession if Britain were in the Euro.

            Yes the trade gap would then narrow but that would be because the depressed state of the economy would mean that less imports, including those from the Netherlands and Germany, could be afforded.

            So if the Netherlands and Germany do well trading with Britain, why not relax the rules on the rest of the EZ?

  6. Narrow Shoulders
    January 21, 2015

    No doubt work is underway behind the scenes on a fiscal compact to ensure that any improving economy (resultant from increases in sex and drugs trading) within the EU to stand behind the Euro.

    Mr Cameron will veto such a compact and Mr Osborne will refuse to pay it so we need not worry.

    The EU members are only interested in measures which benefit them individually. A club of self interest should not be aiming for ever closer union as that aim is incompatible with self serving nations. A free trade area with limited (points based) free movement of individuals is more benefit as a whole

  7. Roy Grainger
    January 21, 2015

    An interesting article but in general I feel we should avoid dabbling in the affairs of other countries, we are not in the Euro so would do well to stand aside and let them get on with whatever fudged rule-bending scheme they want. The fact we aren’t in the Euro is actually entirely due to Gordon Brown so on this we have much to thank him for.

    Reply As a member of the EU and trading partner of the Euro area we do have to watch and understand what is going on and make sure we are not sucked into the losses and problems. Mr Brown only opposed the Euro because the British public were against, and Labour along with the Conservatives had promised a referendum. Those of us who led the campaign against Euro membership deserve some credit for a) getting promises of a referendum b) providing the public with the reasons why the Euro was a very bad idea for the UK.

    1. M Davis
      January 21, 2015

      Reply ro Reply

      … Those of us who led the campaign against Euro membership deserve some credit …

      Absolutely, give credit where credit is due. Thank you, JR and others.

    2. Brian Tomkinson
      January 21, 2015

      Reply to reply,
      Your party colleague, Lord Heseltine is still of the opinion that the UK will eventually give up the pound for the Euro. I doubt that he is alone in so thinking but others would rather keep quiet and proceed with the deliberate deceit of the British people, a process which has pertained since Heath first took us into the ‘Common Market’.

      1. Lifelogic
        January 21, 2015

        Indeed I suspect that nearly a third of the Tory party are in agreement with Heseltine on this.

        So many MPs are simply career politicians who do not give a dam so long as they get paid, good expenses, “consultancies” and a fat pension. Taxis for hire to the highest bidder so often. Be it the green industry wind lobby, the EU or someone pushing quack treatments “free” on the NHS what do they care.

      2. Jerry
        January 21, 2015

        @Brian Tomkinson; “Lord Heseltine is still of the opinion that the UK will eventually give up the pound for the Euro.”

        So do I…. IF the UK stays a full member of the EU, at some point in the future it will become increasingly problematic -both politically and economic- for full members to be “Full Members” if not within the EZ and even Schengen area.

    3. Andy
      January 21, 2015

      Sir John Major deserves the credit for securing the opt-out from this idiotic scheme in the first place.

      1. Denis Cooper
        January 21, 2015

        If he agreed with your characterisation of the scheme as “idiotic” then he for the sake of everybody he should have vetoed it. However he evidently did not think that; indeed he was prepared at least to contemplate that we would join it in due course, “wait and see”, and some would claim that he secretly wanted that to happen as soon as it became politically feasible, and quite possibly he still wants it now.

        1. Andy
          January 21, 2015

          I think, to be fair, that the whole idiotic scheme had gained a momentum of its own and it was very difficult for Major to have vetoed it. Lets face facts here: the French and the Germans were determined to create this, seeing it as a development from the ERM, which of course didn’t work. All part of the ‘building Europe’ claptrap. The best critic of this is probably Bernard Connolly who has been spot on. QE is not going to work because what they are proposing is small beer to say the least, and it is probably now far too late anyway as John says. Chucking a bit of invented money at this won’t alter the fundamental flaws in the Euro.

          1. Denis Cooper
            January 23, 2015

            I don’t agree: if he was really opposed to the EEC/EC/EU starting to issue its own currency then he could have said that he would not agree to the necessary treaty changes; if some of the other EEC/EC/EU countries wished to go down the path of sharing a currency then he would allow a treaty amendment to clarify that they were at liberty to do that, but not as part of the EEC/EC/EU treaty arrangements.

      2. Lifelogic
        January 21, 2015

        Sir John Major deserved no credit at all for anything other than perhaps managing to become leader of the Tory party, Sir John and PM etc ed.

        He took us into the ERM (as chancellor) and never even apologised for the predictable mess. Then he signed Maastricht (against the clear will of the voters & without their consent). He went on the bury the Tory party for four terms (so far).

        Cameron is alas trying his best to bury them for another four terms with his similar wrong headed & pathetically wet approach.

      3. Jerry
        January 21, 2015

        @Andy; John Major had every intent on joining the Euro, hence the ERM barcarole of 1992, had that not happened then Major would not have securied the opt-out (he would not have wanted it…) and thus the UK would now be a part of the EZ.

    4. ian wragg
      January 21, 2015

      I think you are being a bit disingenuous John. The only reason Calamity Brown didn’t join the Euro was because B liar was all in favour. Fortunately for us it was good but still the law of unintended consequences.
      80% of the current Parliament are pro Europe and would sign us up in a flash if they thought they could get away with it.

      Reply He could only get away with opposing the Euro because of the referendum and the state of public opinion.

      1. Jerry
        January 21, 2015

        @JR reply; “[Brown] could only get away with opposing the Euro because of the referendum and the state of public opinion.”

        It never got that far, Brown stopped any possibility of a referendum and thus a check on public opinion by constantly changing the requirements of his five economic tests that would trigger said referendum.

        1. Lifelogic
          January 21, 2015

          Indeed similar to slippery Cameron’s long grass referendum after the renegotiation is settled strategy. It will never be settled and anyway Cameron will not have a majority.

      2. Alan Wheatley
        January 21, 2015

        Andy, as to securing the opt-out, John Major signed for the UK what was agreed.

        But as to who should take the credit for recognising the disaster that awaited the UK should we join, and carrying out all the negotiations to ensure that opt-out was was achieved, the credit goes to Norma Lamont. At least, that is what he says in his autobiography, and I have yet to hear John Major dispute it.

    5. Jerry
      January 21, 2015

      @JR reply; “Mr Brown only opposed the Euro because the British public were against”

      I think that is a little disingenuous, at the time both the UK and the wider EU economises were booming, and Blairism was popular (remember the 1997, 2001 and 2005 election grubbings for the Tories John?…), an awful lot of people in the UK, especially then Labour voters, were either in favour or ambivalent [1] to the UK joining the Euro – even more so those who frequently travelled either on business or pleasure within the EU and for the same reasons many were in favour of joining the full Schengen area too!

      [1] either through disinterest or ignorance

      Reply The polls against the Euro were always clear and strong

      1. Jerry
        January 21, 2015

        @JR reply; “The polls against the Euro were always clear and strong”

        Opinion polls are one thing, and their result is quite often affected by what questions are asked and to who, the ballot box on the other hand gives the real wish of the nation (and in the case of Euro, an as yet untested question) – but if you want it your way John, seeing that you put so much faith into the clear wish of opinion polls, I trust you will join the calls for the renationalisation of the railways – ho hum!…

        1. miami,mode
          January 22, 2015

          @JR reply; “The polls against the Euro were always clear and strong”

          I tend to agree with Jerry as William Hague got nowhere with his ‘last chance to save the pound’ slogan.

      2. zorro
        January 21, 2015

        Reply to reply – I doubt that Brown would have been able to cope with losing the ability to control his currency whilst Chancellor, and that was one of the reasons he was against adopting the Euro and came up with his convoluted ‘test’….


        1. Jerry
          January 22, 2015

          @zorro; Of course Brown could have seen exactly the same errors and risks in joining the Euro as many on here but could not explicitly refuse the possibility of joining and keep his job within the very pro-EU Blair government. Of course I know I will likely be flamed for daring to suggest that Mr B perhaps wasn’t as many would wish to paint him, even within his own party, never mind within the pages of the Daily Maul etc. so flame away if you wish…

  8. formula57
    January 21, 2015

    As for Eurozone national central banks and ” How do they repay the ECB?”. surely all that would be needed would be the smoke and mirrors trick of receiving bonds issued by their own governments and hypothecating those to the ECB.

    Tomorrow will not be a day for soundbytes but let us all rejoice, rejoice that at long last German wealth is going to be spread around where it might temporarily do some good.

    1. Jerry
      January 21, 2015

      @formula57; “Tomorrow will not be a day for soundbytes but let us all rejoice, rejoice that at long last German wealth is going to be spread around where it might temporarily do some good.”

      Only in a (semi) federal EU/EZ do the member states have a problem with the concept of “Your wealth is our wealth, your debt is our debt”, not even in that federalised bastion of capitalism that is the USA – were, whilst a State might well in effect be bankrupt it will still be supported by the other 49 States…

  9. agricola
    January 21, 2015

    If the zone as a whole decides on quantitative easing, why not call it printing money, then as a way forward Germany could avoid being dragged in by reverting to the Deutsch Mark.
    Their electorate might opt for this given the opportunity but their politicians would not. They would rightly fear the strength of the DM affecting the success of the economy. However if they did, and knowing something of the German mind set, they could go for even higher productivity.

    A more sensible solution might be for the Mediterranean countries including France to become associate members of the EU with their own currencies. Bit like overseas members of a golf club. Then when their economies were proved to be holding their own against the full membership countries they could re-enter. This I can see is too simple a solution to be entertained, so look forward to greater chaos in Europe and increasing civil unrest.

  10. Ian wragg
    January 21, 2015

    With Angela in charge Germany will stand behind the Euro
    It is the prime tool for ensuring German hegemony. By bankrupting the rest of Europe and taking over the failing industry cheap they can continue to dominate the scene. After they have achieved their goal they will probably walk away from the Euro and leave the rest to it.
    I see your beloved windmills get a slating in today’s papers, only generating less than 1% of demand on Monday. AND lo there is a planning application in our local paper for a 1.5 mw. monstrosity on the green belt. You couldn’t make it up

  11. Alan Wheatley
    January 21, 2015

    Another event in the long running saga of what is wrong (at least from the UK perspective) with the EU, and the eurozone in particular. True, true, agreed.

    We need a new relationship with the EU. Yes please.

    But when are we going to discuss that new relationship. When are we going to define what we want, what will work for the UK, how we can get rid of all that we don’t want, how it is to be done and when?

    What is the alternative? Are there several alternatives? What are the various merits and weaknesses between these alternatives, and with remaining in the EU? Are there future alternatives for the UK that would be better than any relationship within the EU, no matter how different from the present “in”?

    When in this sage can we move on from the chapters of gloom and negativity and turn the page that begins the positive thinking and hope that the future can and, indeed, will be better?

  12. Bert Young
    January 21, 2015

    The time of reckoning has arrived for Germany . If they do not support QE for the eurozone they will experience a limitation on their exports . Keeping the Euro at a low level has maintained employment and production levels ; the consequent boost in their wealth has a knock-on effect to the well being of its citizens and to their cost of living . I cannot believe that Angela Merkel who has put her weight behind the unity of Europe so often will back down now ; she will face enormous opposition but she will face up to the challenge .

    Of course Angela Merkel will not last forever and when the change in leadership occurs in Germany it is almost bound to shift away from its traditional moderation . If the EZ has not broken up by then it will surely do so afterwards . No matter what gloss is put on the philosophy of a Europe united economically and politically it will not change the inherent differences between the North and South of it .

    1. oldtimer
      January 21, 2015

      The sharp upward revaluation of the Swiss franc, following the decision to decouple it from the euro, will have concentrated minds in Germany. It has given the ECB a powerful lever vs German opposition to ECB QE. No doubt we can expect another EU confection of eurofudge to, wrapped up in fancy paper.

  13. English Pensioner
    January 21, 2015

    It would be more interesting to know what these events are likely to cost the UK. Even though we are not in the Euro, everything that happens withing the EU seems to end up costing us billions of pounds.
    From a British point of view, I have little interest in what happens to the Euro as such, but it would be interesting to know how the various options and scenarios would affect this country. It would also be interesting to know where one could find a list of all those MPs and businessmen, etc, who wanted Britain to go into the Euro, implying that this country would be in enormous difficulties if we didn’t join. As far I am aware, none of the businesses that threatened to leave the country if we didn’t join the Euro actually left!
    One can’t but suspect that the very same people are amongst those now saying we shouldn’t leave the EU and predicting the same dire consequences.

  14. petermartin2001
    January 21, 2015

    When Germany and the other Euro countries had different currencies, in the same way that the UK and Germany still have different currencies, Germany would always buy the treasury bonds of the customer country to facilitate its trading surplus. Just the same as Switzerland still does. They have built up vast amounts of foreign reserves. Gilts in the case of the UK. Switzerland does, and Germany did, lend back money to its customer countries so they can continue to be good customers.

    Its rather like you or I being a regular customer at Tescos. 9 weeks out of ten we can pay our bill. But on the tenth we’ve no money. Tesco doesn’t want their sales figures to suffer so they lend us some!

    So if Germany could lend its surplus back to the Euroland countries when they had different currencies, why can’t they now they have the same currency? That’s what needs to happen to make Euroland work.

  15. Aatif Ahmad
    January 21, 2015

    Actually the national central banks do have the ability to create euros. That is how the eurosystem works. It is on the balance sheets of national central banks that the assets and liabilities of the eurosystem work. National central banks can understand Emergency Liquidity Assistance by creating new euros to lend to banks or buy their assets but they must have the permission of the ECB. The ECB itself is used to settle transfers of money between individual central banks. Due to the current account deficits of Club Med countries, the ECB is a net debtor to the Germanic central banks and a net creditor to the Club Med central banks.

    1. Denis Cooper
      January 21, 2015

      As I understand the national central banks require authorisation from the ECB to create euros; that is certainly the case for euro banknotes and coins.

      Article 128 TFEU:

      “1. The European Central Bank shall have the exclusive right to authorise the issue of euro banknotes within the Union. The European Central Bank and the national central banks may issue such notes. The banknotes issued by the European Central Bank and the national central banks shall be the only such notes to have the status of legal tender within the Union.

      2. Member States may issue euro coins subject to approval by the European Central Bank of the volume of the issue. The Council, on a proposal from the Commission and after consulting the European Parliament and the European Central Bank, may adopt measures to harmonise the denominations and technical specifications of all coins intended for circulation to the extent necessary to permit their smooth circulation within the Union.”

      1. Aatif Ahmad
        January 21, 2015

        The actual issuance of the notes is done by the national central banks. If you know how note issuance is done by central banks, you’ll know that central banks give notes to commercial banks in satisfaction of the liabilities of central banks to the latter (i.e. the reserves that commercial banks hold with central banks).

        Also, when creating money to buy new assets (i.e. quantitative easing), banknotes are not involved as the money is created by crediting the commercial banks’ reserve accounts. This is done in the eurosystem by the national central banks and on their balance sheet. So when the Greek Central Bank engaged in Emergency Liquidity Assistance, the euros were created on its balance sheet (by an accretion to the reserve accounts of the relevant Greek banks) and the asset acquired (govt bonds or loan claims on the beneficiary banks) sits on the Greek central bank’s balance sheet.

        The only time the ECB’s balance sheet is involved is when transfers occur between central banks. For example, if Piraeus Bank wishes to transfer 100m Euros to Deutsche Bank Frankfurt and assuming they don’t have a correspondent relation or don’t wish to undertake the transfer using correspondents, what happens is that the Greek central bank will debit Piraeus Bank’s reserve account with the Greek central bank. Simultaneously, the German central bank credits Deutsche Bank’s reserve account with it. Finally, a claim is established on the books of the ECB: a liability (debit) owed by the Greek central bank to the ECB matched by an asset (credit) owed by the ECB to the German central bank.

        1. Denis Cooper
          January 23, 2015

          You’re missing the essential point that the national central banks require authorisation from the ECB for the creation of new euros, whether physical or electronic.

          It would be absurd for the EU treaties to prohibit national central banks from issuing euro notes and coins without the authorisation of the ECB while allowing them free rein to issue as many euros as they wanted in electronic form; and moreover it is the physical money which still remains the foundation of the monetary system, a credit in a bank account being no more than a record, previously in a paper ledger and now in an electronic ledger, that the holder of the account is entitled to receive euro banknotes to that value if he so wishes, such physical notes being the only legal tender.

          Furthermore if the Greek central bank had been free to create as many euros as it saw fit without authorisation from the ECB then no doubt in the latter part of 2009 or in early 2010 the Greek government would have induced the central bank to follow in the footsteps of the Bank of England and create euros to buy up the bonds previously issued by the government and so help fund its budget deficit, rather than having to turn to the EU and the IMF for assistance, and now it would be the Greek central bank which owned 85% or whatever of all the Greek government bonds rather than EU institutions and the IMF.

      2. Andy
        January 21, 2015

        Correct. They are basically just branch offices of the ECB.

    2. Stephen Berry
      January 21, 2015

      So, at the end of the day it will be about who owes what to whom. And how much they owe.

      When the Swiss National Bank abandoned the peg against the Euro, it had cost approximately ten per cent of Swiss GDP. With a further weakening of the Euro in prospect, this would only have grown and so it was decided enough was finally enough.

      How big a net debtor to the Germanic central banks and a net creditor to the Club Med central banks will the ECB be allowed to become? People have been assuming that the Euro will be threatened by withdrawal of a Club Med country. But Club Med gets a good deal from the Euro by an increase in purchasing power. It is the northern Europeans who, like the Swiss, stand to gain purchasing power if the Euro crumbles. The Germans can also say enough is enough and be richer on the morrow.

  16. ChrisS
    January 21, 2015

    Tomorrow’s announcement from the ECB is very likely to be another in a long line of fudged proposals, too little, too late to solve any of the problems or to make any real difference to the eventual outcome.

    There is the strong possibility that it will be yet another breech of EU law or at least ECB banking covenants. Then the German Constitutional Court will have to rule that the consequences for Germany are within German Law.

    The root of the problem with the Euro is that German tax payers/voters remain implacably opposed to taking on the debts of the Club Med countries. At the same time, French politicians and voters will not countenance the transfer of ultimate control of the French economy and budget to Brussels. Voters in many other Eurozone countries are not ready for such drastic changes either.

    Without these two interlinked issues being resolved the Euro cannot be sustained indefinitely.

    The Brussels bureaucrats and political dreamers responsible for the whole sorry mess have only one hope now : That things will get so bad and the consequences of a breakup will be seen to be so awful that the German and French voters will change their mind.

    We’ have seen the Swiss Franc soar by 30% when freed from its link with the Euro. Four years ago, I received a copy of an internal report from a major UK bank predicted that the outcome would be a Northern Euro built around Germany which would appreciate by 20% against the pound. A Southern Euro would also emerge built around Italy and would fall by 20% against the pound.

    The report said that their economists had been surprised that their research showed that the difference between competitiveness of the economies within the Eurozone would result in two currencies as much as 40% apart.

    They suggested that France should join the Southern currency but for reasons of pride ( always a French failing ) it would want to stay with Germany.

    Four years on, that situation will now have worsened substantially and I am sure we could see two Eurozones with at least a 50% difference in exchange rates. The economy in France has now deteriorated markedly and there would now be no possibility that they could survive in a German-led currency zone.

    Nevertheless, it’s wishful thinking to expect voters to pool sovereignty to the extent required for the Euro to work : despite 50 years of having Europe rammed down their throats, deep down they still feel very much that they are German or French rather than European citizens.

    Ultimately that is what will finish off the Euro project.

    1. Denis Cooper
      January 21, 2015

      Although I don’t think it would be particularly desirable I could visualise a much reduced northern euro centred on Germany and only including countries which could fairly comfortably share a currency with Germany in the long term, in fact in perpetuity; however I don’t see much point in also having a southern euro, and least of all one relying on Italy to hold it together.

      1. petermartin2001
        January 21, 2015

        I don’t see much point in also having a southern euro

        Germany and Holland, as net exporters, need to deliberately reduce the value of their currencies to maintain that status. When they had their own currencies they could create as many DM and Guilders as they liked to do that.

        They cannot do that with the Euro. It’s not their currency. They therefore need the net importers of the Eurozone to depress the value of the Euro.

        The stupidity of it all is that the Euro rules don’t allow countries to be net importers! How is it possible that highly paid economists working for the ECB and German governments fail to see that Germany can only be a net exporter if other countries, like the UK, are willing to be net importers?

      2. ChrisS
        January 21, 2015

        I tend to agree with you, Denis

        A “Northern” Euro makes some sense but it could really only include the economies of Finland, Netherlands and Austria. ( A second Anschluss ? ).
        Sweden would probably be more inclined to join that group than the current currency but I doubt it. The whole project is so tainted with failure.

        With such a small and disjointed area would it be worth doing ?

        As for the Southern Euro, remember the research for the bank report I saw was based on the economies as they existed 5 years ago. Things have now deteriorated so much around the Med that a Southern Euro would be a basket case from day 1.

        They members of the Eurozone would surely be far better off going back to individual currencies ?

        Businesses can agree a fixed or restricted range for the rate of exchange for contracts.

        Travellers are now making far more widespread use of electronic banking, Debit and Credit cards than when the Euro was designed. I already drive right across Europe seven or eight times a year paying Autoroute tolls electronically via a transponder and buying fuel, hotel rooms and meals by card. I only use cash to buy a cup of coffee. What’s the problem ?

        New smartphone Apps would let you know exactly what you were about to spend in your own currency anywhere, anytime. The EU could ensure that phone data and credit card charges were kept at rock bottom in return for the huge increase in business the phone and card providers would gain.

    2. peter davies
      January 21, 2015

      This is a good summary and lines up roughly with how I see the situation as a non economist layman.

      If a financial institution can come up with this sort of analysis I struggle to understand how all the countries that joined the Euro with the Civil Service and economic modeling behind them did not foresee any of this?

      Especially as they had a working example of the UK crashing out of the ERM due to differing economic circumstances in the early 90s. Painful at the time which cost a lot of livelihoods but no doubt was still fresh in UK minds when deciding not to go into the Euro. Imagine where we would be now had we joined.

      Yet we still have John Major spouting this “losing influence” crap in the Telegraph without yet again quantifying what that means. I would have thought being a leading member of NATO, having the world’s 5th largest economy, Perm Member of UN Sec Council, leading Commonwealth amongst many other things is a lot of influence in itself.

      Saying you gain more influence by allowing a supranational organization to oversee most of your domestic affairs and make laws in place of elected officials is like saying to India “you will gain more influence if you allow your country to re attach itelf to the British Empire and all your administrative state functions will be taken on by the UK Civil Service”.

  17. Denis Cooper
    January 21, 2015

    A couple of chaps have produced an analysis of this new tweak for Reuters, which has been reproduced in the Daily Mail, and their general conclusion seems to be that it will create as many problems as it solves:


    There are a number of interesting points in that article which I don’t have time to go through, but I note:

    “Over the past years, the vicious circle between commercial banks and sovereigns has done much to destabilize the euro area. It would be extremely unfortunate if another diabolical loop were created between national central banks and their own governments. The spirit of the European Treaties is pointing exactly into the opposite direction, namely towards a separation of monetary policy from the problems that national fiscal policy might create.”

    And arguably not just the spirit of the EU treaties, but the letter as well; however the eurofederalist lawyers sitting on the ECJ will always seek to interpret them in ways which will promote the process of “ever closer union”.

  18. Martyn G
    January 21, 2015

    I well recall how the the carefully structured regulations set for nations applying to join the Euro were bent or ignored (e.g. Greece, Italy and I suspect France also). The Euro is a currency based from the start on very creative accounting and rule-bending, which seems about to be repeated in another attempt to make it work.
    Interesting times we live in and although we did not (mercifully for us!) join the Euro, when the EZ sneezes the UK gets a bad cold so we cannot rejoice in what is currently going on there.

    1. peter davies
      January 21, 2015

      That’s precisely why the UK needs the freedoms to go and find its own markets, strike FTAs with them without the dead hand of the EU impeding them.

  19. Atlas
    January 21, 2015

    So the Germans “Want to have their cake, eat it, and still have their cake” Who would have thought it !

    January 21, 2015

    Much of the discussion on British TV and via international websites in regard to the EU and ECB takes it as read that Germany is first of all strong. Strong politically, strong economically.We all seem to have a stereotypical image of Germany and her people as being “industrious and proud ” and since the 1960s as having almost uniquely a world beating economy.
    But if one knows everyday people there one learns they are in denial and strike down what actually is myth after myth. We seem to have believed our very own propaganda about them.
    The truth is, in my opinion, their welfare system including healthcare has not been a match for ours in the UK for several years and is deteriorating rapidly despite it parasiting medical workers from poor EU countries just as our own NHS does, much to our disgrace as a civilized people.

    Its engineering and pharmaceutical industries face the same problems with a manipulated high US dollar as every other country including ours.

    One could go on citing examples of sectors and companies in Germany which do not shine as brightly as we imagine but which they freely admit.

    So away with our superstitions! Germany cannot support the whole of the EU on its own. It’s willingness to import workers from poorer nations has proved a double-edged sword. Economically and socially these measures have reached the limit of its people’s endurance. The game is over bar the shouting.

    And there is likely to be rather alot of shouting unless Britain and others renegotiate the relationships between member states allowing each and all leeway to govern their own economies appropriately.

  21. Ex-expat Colin
    January 21, 2015

    Money juggling…and on and on.

    Think the Chilcot report needs issuing PDQ. And the signed pre-versions !

  22. peter davies
    January 21, 2015

    Well you reap what you sow. The German political class obviously have agreed at some point (like many other EU states) that the direction of travel for the EU is 28 and rising vassal states controlled from the centre with one currency thereby becoming a federation of states which means that the strongest have to stand behind the weakest (or did they forget that bit).

    I remember years ago reading a pamphlet from the precursor to UKIP explaining in simple terms that giving up your currency is the first step to merging states – i.e. if you don’t have your own currency you are not an independent state.

    They need to either honour this or pull out and accept that a federated EU is unworkable and allow every country to admit that this is a failed experiment and change the EU to a loose free trade EFTA type structure.

    …..And pigs might fly!

  23. Gary
    January 21, 2015

    This is not a problem of the EU per se, this could be a problem(or soon will be) of global bancruptcy reorganization.

    How big or how small must a unit be ? Just as Scotland’s RBS was our problem. (financially stretched ed) Arkansas is America’s problem.

    Personally I would prefer that private enterprises are never wards of the state, and states cannot spend beyond what they can tax, and they can only tax as per their govt manifesto, by law.

    ALL western nations have the same bankruptcy problem. Labelling it a EU problem is short sighted.

  24. Terry
    January 21, 2015

    QE for the Euro zone, what will it achieve? Nowt.
    The original concept of QE was to create more credit and not to specifically to devalue a currency. It was based on the fact that 95% of the money supply was derived from Private Bank lending and not cash, so it was essential to get the banks lending.
    The creator of QE, Professor Werner recommended that Government enter long term agreements with the banks to borrow from them and NOT issue any Government debt. The QE system adopted by our Government and the BoE was NOT the QE plan he had laid down in Japan. That did not involve the lowering of interest rates or expanding the CB reserves -quite the contrary. So why did the BoE AND Mr Osborne continue with this poor strategy?
    That is a question for ex Guv. Mervyn King who has recently stated that QE failed. That’s mind boggling because so many expert financial individuals and institutions came to that conclusion some 4 or more years ago, so why did he not believe them, then? Government influence?

    The very thought of a Government being able to print it’s own currency at will should have sent off alarm bells all over the country but it did not. That is because no on knew what to do But they all believed they should be seen to be doing something. So they jumped into the hole and commenced digging.

    It can be no different for the Eurozone and probably will have less effect because they do not have a viable currency to start with. It is dominated by Germany who will not sit by as idly as we have done because they do remember the Weimar Republic and have no wish to re-visit those horrors.

    And thank goodness Mr Brown saved us from the Euro currency aspirations of EU President-in-waiting, Blair.

  25. forthurst
    January 21, 2015

    No mention of the Greek General Election on Sunday, in which Syriza, currently surging in the polls might possibly win a majority of seats; yet another headache for the ECB, Germany and an opportunity for the vultures of the IMF whose main source of lending capacity is the private secret bankster-owned FED and its confetti-money printing press. How can anyone run out of a currency which is backed by no more than cost of paper and printing ink?

  26. petermartin2001
    January 21, 2015

    A simple solution would be for the EU/ECB to work with the National Governments in Euroland by setting an inflation target (I’d suggest 3%) for each national economy. The ECB would do whatever was necessary, QE or money creation (whatever you want to call it) to provide each government with enough Euros to meet that target.

    That should come with a few conditions of course.

    Give it a year or two and see what happens. It can hardly make things worse. There’s no direct costs to German or Dutch taxpayers. In fact they would benefit because their customers in Euroland would have money to spend that they didn’t have before. I suspect there is so much unused capacity in the depressed economies that it would be difficult to create 3% inflation.

    But I’m sure there’s plenty of help available in the UK. We used to be good at creating inflation. Surely there’s enough people around who can remember how it was done!

  27. Nfl
    January 21, 2015

    I’ve attempted to work with, however it will not operates in any respect.

  28. petermartin2001
    January 22, 2015

    If the easy money people win…

    Hang on a minute! Who exactly are “easy money people” ?

    The correct approach would be to make money easier when recession, high unemployment and deflation, is the main problem and harder when inflation is the main problem.

    So it’s quite possible that the “easy money” people now, later, if circumstances change, become “hard money” people!

  29. Lindsay McDougall
    January 23, 2015

    There are meant to be fiscal rules for Eurozone Member States – annual deficit not to exceed 3% of GDP, State debt not to exceed 60% of GDP. If these were being observed, Germany might be happier.

    1. petermartin2001
      January 24, 2015

      Germany might be happier is their own State debt weren’t over 20% higher than Euroland rules say it should be:


      Might be, but shouldn’t necessarily be. That State debt is largely owned by German citizens who are prodigious savers. If they didn’t save, German Sate debt would be less. Governments cannot control the savings or spending patterns of its citizens therefore cannot control their own debt.

      It’s a pity that German economics expertise isn’t at the same level as its engineering expertise. Even an old East German Trabant runs a lot smoother than the German designed Euro currency zone!

  30. PaulDirac
    January 28, 2015

    Greece was put into an impossible debt position by greedy socialist governments, starting with the PASOK which cheated its way into the EZ (2000) and then during the ensuing financial crisis when ……. EZ commissioners ruled Greece (Papademos).

    The EZ was tottering on the brink and a Grexit would have caused the Euro’s collapse, instead of using this leverage for fair terms, they folded and accepted punishing terms.
    Recall that Papandreou tried to have a referendum and was immediately replaced by an EZ commissioner Papademos, (it’s funny but this man’s name, who is largely responsible for the current situation is translated as “father of the people”).
    Greece’s “rescue” was in fact an EZ rescue, with the Greek people paying the price.

    What are the options now?
    There is no way the Greeks can work their way out of this mess and they can’t stay as slaves to the EZ.
    Due to their criminal elite a Grexit now is harder and costlier.
    The world and that includes the Germany, must see that we can’t let them starve even if this was their fault.
    The best way is to allow them to default on most of their debt, get back to their own currency with an initial loan from the IMF.

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