Is Germany losing the political will to keep the Euro together?

         In the late 1990s when there was huge pressure on the UK to join the single currency, prominent Germans used to meet me to try to persuade me I was wrong in opposing the Euro.

           One of the arguments I used to put to  them was that a single currency needed a single country to back it. I was worried that not even the German people bought into the scheme. Around 70% of German electors wanted to keep the DM, their own successful post war currency.

           The German establishment figures politely but firmly explained to me that the views of the German people as a whole did not matter. 70% of the German elite, the politicians, bankers, senior businessmen and leading academics wanted the Euro, so the Euro they would have.

           They knew their country, and they were right. Germany went ahead with all the other states that wanted to join. They all overrode the very sensible rules over who could join. It was a political project. They would sort out all the economic differences over inflation, borrowing, growth rates and public budgets after they had all committed.

          Today it looks as if my worries about the attitude of the German public could have more force. The German people are still not reconciled to their single currency with the neighbours. There is a strong groundswell of opinion in Germany against common Euro area borrowing, against any bail outs, and against Germany paying more by way of transfers to help the poorer parts of the Union. Most  of  the German elite still think they are right to keep the Euro, but an increasingly reluctant people is going to make it difficult to put in place the transfers  needed to make it work. A successful single currency area requires people in the richer parts like Germany to send money to the poorer parts like Greece.

            In the last fortnight Mrs Merkel has had to rule out German support for any common Euro area borrowing, the favoured solution by France, the UK and others to the Euro’s main problem of sovereign debts. The German President has argued that the bail outs so far agreed are probably illegal. An important court case is pending on this issue. Mrs Merkel is having to move back to a position of not supporting the rest of the Euro area, as the pressure mounts from her own party against  the costs of Euro membership. The elected officials are beginning to reflect German popular  doubts about the wisdom of Euro integration. It is true she is astute at cobbling together too little too late packages to get through the German Parliament. She may well do so again, with promises that the bail out fund at EU level will need Germany Parliamentary approval for new countries and for extra money. That simply gets the last agreement through – it does not tackle its obvious inadequacy.

                Even Finland has added to the difficulty by refusing to put up her share of the Greek loan without full collateral, leading many Germans to say if one gets collateral they all need collateral. That would undermine the Greek loan, as Greece probably cannot find all the collateral that would be needed. If Greece does not get her loan soon state bills go unpaid and Greece ends up reneging on her debts. Work I read is now advanced on a compromise over this tricky issue.

            Mrs Merkel probably hopes she can use strong language against more bail outs and borrowing to steer her through, whilst facilitating back door means of doing it through the European Central Bank.  The show has been kept narrowly on the road in the dog days of August by the European central Bank buying the bonds of Spain and Italy so they can still afford to borrow in the market to pay their bills. This is meant to be a temporary measure, pending sorting out the problems of the big Euro bail out fund. No-one in the markets thinks they can agree a fund big enough to meet the needs of Spain and Italy.

               The truth is a very political project, the Euro, is running into serious political danger. If Mrs Merkel is unable to move her voters and her party to agree to major financial support for other Euroland countries when they need it, the markets will push and push for the removal of weaker countries from  the Euro by undermining  the sovereign debts of the weaker countries.

            I have always argued that because it is a political project the growing economic stresses and costs did not mean it was about the end. It is a different matter, however, if the political stresses for Germany become too great. The German people could at last have their views taken into account, after a couple of decades of being ignored on this central issue. I have no doubt the German government  -and the other political elites around Euroland – will do their best to find ways to repress the public’s   wishes or to find a less provocative way of lending and giving money around the union to keep it going. However, these are dangerous times for EU governments, and the German people now have a chance to be heard.

            Meanwhile, the European Central Bank has added £43 billion to its bond portfolio to prop up Italian and Spanish debt. Given that Italy has only raised E7.74 billion new debt at its last auction, this so far is an expensive way of borrowing on the cheap.

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  1. lifelogic
    September 1, 2011

    The choice for Germany is simple break the EU up or keep paying up through communal borrowing or aid – they can defer it much longer surely they understand this?

    1. lifelogic
      September 1, 2011

      I see BBC radio 4 was on yet again about the gender wage and “discrimination” yesterday and with a further program about “Class Ceiling” today with Polly Toynbee so I think we can assume the line that will take.

      Thank goodness for the sensible Ruth Lea who made the point that the pay gap is not due to “discrimination”. This can be seen by the fact that single women already earn more than men do.

      It is clearly due (and this can be easily shown) to the fact that on average different genders make different choices, have different interests, motivations, and skills and thus make different choices in the work place. A law which actually did make gender pay equal would thus hugely discriminate against men. No amount of the BBC endlessly seeking out and filming women engineers on say an oil rig will change this.

      We see these differences clearly in GCSE results where only in Additional Maths did boys out perform girls and the different A level subject choices they then make. Clearly if there were lots of underpaid, bargain female employees around (prepared to make the compromises needed) any company employing them would be at a huge advantage would clearly do so. Soon the gap would then close (if it were a real gap not an employee selected gap).

      If the BBC cannot see this obvious fact then why on earth are they so well paid and pensioned at the BBC. Or perhaps they do see it, but just like to stir up ill feelings of discrimination amongst a large part of the work force anyway (using our taxes to do it).

      1. rose
        September 1, 2011

        Polly’s programme held out a nightmare, worse than Lifelogic could possibly have predicted: – Why can’t we all be like Polly? A whole nation of Pollies! Who wants manual skill, or houskeeping? They can just be imported. Everyone must go to University and become a Polly!

        17th and 18th Century Spain declined, despite their former wealth and power, because they all wanted to be noblemen and no-one wanted to work. But at least they kept their manners and national identity, and a beautiful landscape to look at. Polly’s unsexed, unskilled, unclassed utopia of 100%graduates would be an uglier world; and with no more oil money either, to pay skilled foreigners to do the work, as Arabs do – just ever increasing squalor, disunity, and overpopulation. I suppose it could eventually be a sort of Liberia, but with bad weather and no fish. The pity of it was that David Willetts seemed to be going along with the nightmare.

    2. lifelogic
      September 1, 2011

      Also the non democratic EU today bans yet more of light bulbs so we all now have to live in dim monochromatic light for the winter. You may still drive a 6 litre Rolls Royce using about perhaps 100,000 Watts but you cannot have a cheap 60Watt light bulb that works gives, comes on straight away, does not contain mercury, give pleasant light, can be dimmed, comes on strait away (even if it does heat the room a bit too – thus saving on other heating).

      “Subsidiarity” again – you cannot even choose your own light bulbs for your own loo – it has to be done at EU level.

      The solution is halogen these are still available up to 150 w in standard fittings are a bit more efficient than tungsten give a very pleasant light, come on directly and can be dimmed and have a good life. Quite cheap on line too.

      Much better than the absurdly slow, dim, mercury containing, compact fluorescent lamps the EU want to saddle you with. I wonder if much was paid by the lighting industry in “consultancy” fees to EU “consultants” in relation to this issue.

      1. waramess
        September 1, 2011

        Surely, like others, you have purchased a large enough stock to last you for the rest of your natural. If not go and invest now and keep them in the loft. Bugger their ban on bulbs (at least).

        1. lifelogic
          September 1, 2011

          No I did not stock up – but the halogen ones are better and brighter anyway. I suppose they will have to start searching people for contraband bulbs imports at all the ports/airports soon.

          No doubt they will need extra staff, resources and yet more tax to cover this additional “public service”.

      2. Bazman
        September 1, 2011

        I have just bought a 46 watt florescent t spiral from Maplin. A bit big and cost a tenner, but much brighter than any 100 watt tungsten/halogen. A 23 watt spiral for a fiver is quite bright. I don’t see any problem with them and who can ignore the cost savings and lifespan? Upgraded, but haven’t changed a bulb since 1999. Modern ones can be dimmed and the mercury fears are unjustified. Never concerned anyone before with strip lights.

      3. Chris
        September 2, 2011

        I know shops that are still selling them….AND larger than 60Watts! So I bought more to add to my stock!

    3. lifelogic
      September 1, 2011

      Sorry I meant to say:

      The choice for Germany is simple, break the Euro up or keep paying up through communal borrowing or on going aid – they cannot defer it much longer. Surely they understand this?

  2. John Page
    September 1, 2011

    How effective can any German voters’ discontent over the bailouts be? The Social Democrat opposition apparently support them, so they don’t see them as a certain vote loser. And there is speculation that Ms Merkel might even manage a Bundestag majority from among her own side, without having to rely on the SDs.

    Of course the ‘bailouts’ are no good, just sticking plaster. But for the moment the German élite seem content to chuck away more of their compatriots’ money.

    If you’re a German against bailouts, just who can you vote for? It’s like being against EU membership in the UK.

    By the way, what’s the German President doing weighing in? Apart from adding to arguments for a constitutional monarchy with a family not gripped by such stuff.

    Reply: Indeed – but the fear of German public opinion has delayed the creation of the rescue fund and has limited its size.

    1. Andrew Smith
      September 1, 2011

      I suspect you know there is a choice in the UK and I invite you to take it.

      May I add to JR’s column by pointing out that the German President is not the only person to have noted that illegal acts have been done by the EU institutions during the Euro debt crisis. Christine Lagarde, now IMF President but then French Finance Minister, also said as much and also in plain terms.

      What does it tell us about the whole EU project when two committed supporters in high office state openly that the EU institutions have acted illegally.

      They continue so to do. Yet this is an organisation which all three old Westminster parties say we should continue to belong to. I am surprised there is not a UK criminal offense of supporting or facilitating illegal acts while in public office, or is that one of the old statutes Blair got rid of when “modernising” the law?

      1. Denis Cooper
        September 1, 2011

        There’s the common law offence of misconduct in public office, which carries a maximum sentence of life imprisonment:

        From time to time somebody gets done under that.

        Here’s a current case, although I emphasise that it hasn’t yet gone to trial:
        (reference to a redbridge case-ed)

        Going on from that to your “supporting or facilitating illegal acts while in public office”, when the Tory MP Damian Green was arrested the police said that was on suspicion of “conspiring to commit misconduct in a public office” and “aiding and abetting, counselling or procuring misconduct in a public office”:

        But, realistically, you could not expect to get Alistair Darling arrested in the same way if you went to the police and attempted to lay the charge that he “committed misconduct in public office, in that on May 9th 2010 as Chancellor of the Exchequer he conspired with others to unlawfully order and purport to authorise major breaches of the European Union treaties, contrary to the Acts of Parliament incorporating those treaties into law”.

        More likely, you’d get arrested for wasting police time, or they’d come and search your house and business to see if they could get you for some EU regulatory offence.

        Similarly while in principle it might be possible for you to seek judicial review of Darling’s actions as a minister, this government would stand by him and use taxpayers’ money to oppose your application in the first place and then oppose you all the way up to the Supreme Court, which would in all likelihood decide that really it was a matter of the precise interpretation of the EU treaties which had to be referred to their final arbiter, the EU’s Court of Justice, which would eventually say that on balance it was OK because at that time it was imperative to ensure that the process of “ever closer union” should not be disrupted, see the first line in the treaties.

        By which time, you’d have sold your home to pay your legal expenses.

        1. A different Simon
          September 2, 2011

          You might become the subject of a European Arrest Warrant issued by European Policy force .

          Whose to say your family will even know anything about your disappearance and won’t end up filing a missing persons report .

          No doubt you’ll have plenty of time to comtemplate your foolishness whilst held on remand indefinitely in a country which does not recognise Habeous Corpus . The European Human Right Act won’t apply to you , an enemy of the Superstate .

          Is there any truth that EU Law’s exist which categorise severe criticism of the EU as a criminal act ?

  3. mitch
    September 1, 2011

    It just shows the contempt politicians have for voters.The German people didn’t want the Euro but they did it anyway.
    If you won’t listen why ask ?
    Also don’t complain when people don’t vote , they know its pointless.

    1. Alan
      September 1, 2011

      I strongly disagree with you: I think it is always important to vote. Every vote cast is a vote for democracy.

      In my view votes for minority parties are still worth making, even with the UK’s First Past the Post voting system, and are even more valuable with Germany’s proportional voting system. I think politicians do pay attention to what policies attract voters’ support and modify and shift their attitudes to try to attract votes .

      It is not really a matter of seeing the policies we ourselves support being carried through in detail, it is a matter of ensuring that the politicians do not stray too far from what is acceptable to people in general. By electing representatives we get people much like ourselves, but with the time to understand complex policies in detail.

      1. Steve Cox
        September 1, 2011

        Indeed. It took me many years as a rock-solid Conservative supporter to realise that the only voters held in less esteem by the Conservative leadership than people like myself were rock-solid Labour or Liberal supporters (and I’m still not 100% certain of that, to be honest). The only voters that most politicians really worry about are the floating voters, so always vote but do so tactically to make whatever point you feel is most important, rather than clinging on blindly to partisan loyalty like I foolishly did for so long.

        1. matthu
          September 1, 2011

          I definitely regard myself as a floating voter at the next election.

          No way will I support any party that is not fully 100% opposed to the Climate Act – or one that in any way countenances further cooperation with “ever closer Union”, illegal bail-outs, or further marginalisation of democracy.

          1. Vanessa
            September 2, 2011

            UKIP is the only party to have come out publicly against the Climate Change scam!! They know the science is not proved and if you use the evidence of your own eyes it obviously is a scam.

        2. A different Simon
          September 2, 2011

          It took me a while to realise that middle class socialists actually despise the working class .

          So many apparently congenial relationships are twisted when you really look at them .

          I’m a floating voter by the way , not a Conservative . Can’t see myself voting for LibLabCon next time .

      2. lifelogic
        September 1, 2011

        “Every vote cast is a vote for democracy” – Well perhaps, but perhaps just a vote for a “superficial democratic veneer or public pantomime show” which is then used by governments to claim justify their claims to be democratic and accountable?

  4. Mr. Green
    September 1, 2011

    Interesting to note that other countries have similar problems to the UK, where an ‘elite’ decides major policy issues and we peasants toiling at the work-face must just hope they get it right for the nation.

    The elite will make sure that their policies are developed to suit own interests, and shelter them from any directly negative effects of their policies. The rest of us have no such luxury. European elites assume that their interests ARE the national interest.

    Let us hope that there will now be a kind of European Spring, where social media can transmit information more openly and stop the elites hiding things from us. Like Ted Heath did when negotiating EEC access when he hid the Common Fisheries Policy from the British public, which led to the looting of our fishing grounds and the decimation of our fishing fleets.

    For the future of the Euro I would like to see more discussion of the different options and how these affect British interests. George Osborne seems to be pushing core Euro countries into ever-closer fiscal union. What is rarely publicised are the potential costs to the UK of peripheral Eurozone countries leaving the Euro. The UK seems to be relaxed about splashing billions here and there to Europeans (and further afield) while cutting spending at home. Example – UK carers have received an increase of £2.65 (taxable) per month in the money they receive for giving up their jobs to care for loved ones.

    Given the massive trade imbalance where EU countries sell far more to us than we do to them should not we make more in EU negotiations of our status as a milch-cow or zombie customer for their goods soaking up all the pain of EU membership while paying through the nose for the privilege. And accepting that our more efficient services industries do not get much traction in Europe, not yet anyway.

  5. Mick Anderson
    September 1, 2011

    In the unlikely event that the German people are given a say on the matter, if they vote against supporting the European project, they will be told to go away and keep voting until they return the “right” answer.

    As you say, it was always a political project, and is demonstrably purely to further the ambitions of politicians. The electorate are expected to pay for it, obey every diktat, and be grateful that they are allowed to be part of this dreadful Utopia.

    There will never be an end-plan, because it is assumed that the put-upon populus will just carry on funding the nightmare dream. So, what happens if the money markets rebel? Perhaps this will start after the holiday season – we can only hope. If collateral is offered, how is it going to be claimed on default, even if there is enough to go around?

    Reply: I do not for one moment think Germans will get a referendum, but I think they will have some influence on Frau Merkel who wants to be re-elected. Collateral is claimed on default by using the escrow or custodian arrangements which true collateral enjoys.

  6. Richard Cooke
    September 1, 2011

    You were quite right about the Euro as you are with most things. The only exception being your blind support for a politically-inspired religion and lack of support for true freedom of worship in the UK which seems to run counter to all your instincts. When are you going to support the removal of laws banning Catholics from representing the UK at the highest level. The Catholic King Edward the Confessor didn’t do too bad a job. If the Royals had their way this law would have been scrapped long ago. Its the politicians that maintain it in an attempt to increase their power and control over King and country. Lets have true freedom of worship.

    Reply: I do not agree that politicians try to keep for control reasons. The prospective King hasd already made clear he wishes a change of religious status, which doubtless Parliament will grant. It just isn’t a live issue at the moment as we have an Anglican monarch.

    1. rose
      September 1, 2011

      Our present Queen took an oath. She intends to abide by it till she dies. Rather than attacking the bits which have been upheld, why not concentrate on the bits which haven’t?

    2. REPay
      September 1, 2011

      Edward the Confessor did a poor job in managing the succession which resulted in a bloody transfer of power to William I. You could have picked Henry VII or Henry II as monarchs who respectively managed public finances and the law well…Many Anglicans would like the church dissestablished so agree with your thrust and also JR’s that there are more urgent matters.

    3. Richard Cooke
      September 2, 2011

      Politicians beheaded a king and conducted an inglorous revolution to maintain their prefered religion, seating foreigners on the English throne to, as they said, keep Britain for the British. What kind of joke is that. I think the current Prince Charles had better watch his back as well.

      1. Richard Cooke
        September 2, 2011

        I agree that it is not a live issue at the moment and I don’t advocate a rush to change the constitution now. I just find it hard to reconcile your views on European (i.e. German/French) control of British affairs with your acquiescence to the bloody imposition on the British people of a German-inspired ‘religious’ reformation that ignores Apostolic tradition, alters the bible to suit its own ends and even repudiates important parts of the bible that it has retained (in my view). However I will support your right to have your own religious views. Will you and other parliamentarians do the same for others when the time is right?

  7. norman
    September 1, 2011

    You can only govern against the will of people for so long without resorting to violence, as dictatorships always do, but for it all its faults I don’t think anyone envisages the EU going that far to keep the show on the road!

    Elections act as a safety release valve for these tensions but when the fare from all the major parties on offer is a bland sameness it is inevitable that people will start to grumble.

    1. EJT
      September 1, 2011

      “for it all its faults I don’t think anyone envisages the EU going that far”

      I, for one, do not share your confidence. When (not if) things get really bad, there will be enough ambiguity. At what stage does rioting become justified? What level of state reaction, including transnational state reaction, is then justified ?

    2. Single Acts
      September 1, 2011

      “You can only govern against the will of people for so long without resorting to violence, as dictatorships always do, but for it all its faults I don’t think anyone envisages the EU going that far to keep the show on the road!”

      If I do not pay the taxes they demand, the state will resort to violence. This is the reality today.

  8. The Talking Clock
    September 1, 2011

    Nice to see a very complex situation explained so well as to the political situation in Germany.

    What is striking, however, is that the focus on the people of Germany finally getting a say.

    That, naturally, begs the question about the British and when do we get a say?

    It is all well and good arguing that we haven’t elected UKIP with a majority, but – irrespective of what happens to UKIP’s electoral fortunes in the future – the British people are, in poll after poll, opposed to the euro and opposed to the European Union.

    The British people have, until now, almost exclusively voted for the big three parties and these parties have colluded – in the same way as the ‘70% of German businesses’ – to make sure that the British people’s wishes are ignored.

    We can’t keep going on like this.

    As one of the Westminster politicians to take a more interactive approach to politics and the people, you cannot be unaware that the public sentiment towards our ‘pleases itself Parliament’ is at a chronic low and – with every single survey showing that the majority of British people are against the European Union and it’s undemocratic diktats – this is not going to be resolved until we are allowed the honest right to govern ourselves which was removed by stealth in the early 1970’s.

    Your regular readers will know that you argue ‘give us more Eurosceptic MPs’ but, in truth, you know that too few of the candidates up for election are genuine choices and have come through party systems, increasingly more imposed and – once elected – those politicians are constantly shown to be careerists who obey the party whip rather than acting in the interests of the constituents they were elected to serve.

    It would be lazy debating to bring in the rioting and looting that we saw in our streets at to make accusations of parallels.

    Where there is obvious room, however, is to suggest that a society that is governed dishonestly cannot expect to be honest and trustworthy at the bottom.

  9. Mike Stallard
    September 1, 2011

    This raises a question which is at the very roots of political theory: why obey the government? Today this has morphed into: why pay tax?

    So why?

    If it is to support very lazy people who do not like work and who expect hard working and decent people to pay their bills for them, then that is simply not good enough. Let me use the strongest word in the liberal vocabulary: it is unacceptable.

    And we, here in the UK, on a national scale, face the very same problem, do we not?

    PS – Superb Newsnight, well done. I loved the way Elder Statesman J. Paxman was in two minds, treating you half like Adolf Hitler and half like a valued colleague!

    1. Single Acts
      September 1, 2011

      No, it is because …….., they will use violence against us if we do not pay.

  10. oldtimer
    September 1, 2011

    My promised letter to my MP about retrieving powers from Europe refers to these same German doubts. I also ask: does the Coalition government have a strategy and plan to retrieving lost powers? On past form (using Mr Huhne as my guide) it will take between two and three months to get half a reply or no reply at all.

  11. Alan
    September 1, 2011

    I don’t think Mrs Merkel sees her choice being between supporting the euro with German taxpayers’ money and allowing the euro to collapse. In my view the choice is between supporting the euro with German taxpayers’ money and forcing the banks to accept the losses that they have incurred on loans to Greece and other countries.

    There seems to be a belief in the financial markets that forcing the banks to accept their losses will cause the European (including the UK) banking system to collapse. The ATMs will stop working, credit card payments will not be accepted, direct debits will not be paid, loans to businesses will cease. A depression would follow.

    Of course Mrs Merkel will realise that part of this Armageddon scenario is bluff, but she will not be sure how much is bluff and she will prefer to spin things out as long as possible. She seems to be good at that.

    If the choice ever does come down to being between ending the euro and forcing the banks to accept their losses, I expect Mrs Merkel to choose, without hesitation, forcing the banks to accept losses. I don’t think Germany will leave the euro or force others to leave.

    From the UK’s point of view I think that in the short term Mr Osborne is right to press for the introduction of eurobonds or some other method of ensuring that the banks do not have to accept their losses. That will save UK banks from the consequences of their errors. In the longer term however he may help to bring about the creation of a European superstate, which is probably not in the UK’s interest.

    1. Robert
      September 1, 2011

      Have you ever played blind man’s bluff – well the financial syatem would not collapse – it is simply another excuse not to face reality!

    2. Andrew Smith
      September 1, 2011

      It is not possible for Euroland banks to write off their Greek bond investments without state support because it would make them insolvent. Although London banks (the biggest banking center in the world, remember) has quite a lot of Greek and other worthless debt, they have been writing it down and could afford to clear it in most cases while remaining solvent.

      It is of interest that the International Accounting Standards Board has written to complain about poor provision accounting in French banks. I wonder why they need to put of bad debt costs?

  12. Patrick
    September 1, 2011


    I agree with your overview. In the end the Germans must pay up or the Euro must split. I am assuming that it will be politically unacceptable to the Germans to pay for Greece forever as there is no shared culture or nationhood. So break up it is.

    Maybe you could do a piece on the practicalities of a split. How? Who goes? Who stays? How are debts then calcualted? I suspect part of the desperation of some EU politicians is that they simply haven’t thought through the basic mechanics of how they should do what they may ultimately be forced to do.

  13. Peter van Leeuwen
    September 1, 2011

    Now for a view from the continent: on the continent the people’s representatives, whether in Bundestag, Dutch, Finnish or other parliament, do not always take the same line as people in the street. But they cannot afford to stray too far from public opinion.
    At least now there is a healthy debate about the EU and the often unloved euro. People realise that the euro is only partly a political project, the conservative Bundesbank estimates that the euro leads to 5% more trade is still valid, just as the 40% German export to other eurozone countries. (See )
    Another calculation that the people’s representatives have to consider is what would happen if the euro were to be abandoned. Dutch ING estimated quite a disaster ( see )
    British commentators (let me exclude Mr. Redwood) are usually not trusted, as they are too close to Mr. Humphrey’s (Yes Minister) perspective of aiming to disunite Europe.
    I put my money of the eurozone surviving this crisis. With the help of the markets, southern eurozone members will be forced to restructure and they will do it as they don’t want to leave the eurozone. Norther eurozone countries will be patient enough to see this through.

    1. javelin
      September 1, 2011

      I agree that the Euro results in more trade. But the down side for Germany is that it must now become the sugar daddy for the PIGS.

      In other words Germany must become the South East of England, and the PIGS must become Scotland, Cornwall and NI. We will have a new Barnett forumla for Europe and Germans will have to pay up. But this will have to be less than the 5% GDP they gain from the Euro to get political traction.

      It seems an impossible situation. The Germans will demand Governance over the PIGS – the PIGS will resist. The Germans will demand less than 5% GDP going to the PIGS – the PIGS will spend more and threaten to default.

      Eurobonds are just the start to full political union – so the question is what should the UK do. Simply sit on the side lines. The only way the UK can do that is to have, what John suggests, which is UK sovereign freedom. The UK politicians know this which is why Whitehall has been preparing for negotiaions when further European union becomes necessary.

      1. Denis Cooper
        September 1, 2011

        But I’ve read that the introduction of the euro had not led to anything like the projected boost to trade, and in any case an increase in trade is not the same thing as an increase in prosperity.

    2. Andrew Smith
      September 1, 2011

      Well they may say the Euro results in more trade; we have politicians here claiming that membership of the EU is overwhelmingly in our interest.

      Our politicians refuse to give us the data ion which their claim can be based. Having made such claims for 20 years one has to doubt if there are still net benefits, if ever there were, because our contributions have greatly increased, we have had a trade deficit with Euroland for all years bar two since joining the EEC and the costs of EU regulations have increased greatly here. Even if it were once in our interests, it cannot also be now.

      The fact is that the EU project has been promoted by deceit so all the words of the integrationists, especially in Britain, must be discounted. They lie and liwe (as some have admitted) because if the people had been asked and their views respected they would never have got away with the destruction of our democracies and, now also, our economies.

      When the EU regulations come into full effect in the City we will lose our biggest earner.

    3. norman
      September 1, 2011

      The weaker economies also help peg the euro back against other currencies which helps the likes of Germany. Look at what has happened to the Swiss Franc recently with even talk of them artificially pegging it to the Euro to try and stop it’s dramatic recent increases. Imagine what would have been happening to a DM recently if they had one outside of the Euro. As it is the Euro is pegging along almost level with our debauched £ and the equally debauched US$ and they haven’t had to resort to the printing presses as we have had to.

      It works both ways, of course, which is part of the problem with the stronger economies propping up the value of the currency for the weaker economies, which is dire for them.

      1. Javelin
        September 1, 2011

        If the DM was sperate then at least Germany could lower their FX rate by manipulating interest rates AND AND stimulate their own economy.

        As it is their first option seems to be to stimulate (or resuscitate) the PIGS economies – by threat of default.

        It sounds like a bad marriage.

  14. alan jutson
    September 1, 2011

    The answer is simple

    Mrs Merkel will tell the people what they want to hear to try and get herself re elected, and then do as she likes after an election.

    Now where have I seen that before ?

    Methinks many of Europes Politicians are at last starting to be found out, taxpayers are not happy to see a large proportion of their hard earned money, (TAX) being constantly spent abroad, for the sake of others who cannot resolve their own problems, when cuts are the order of the day at home.

    The EU is just like our own busted Welfare and Benefits system.
    The workers (richer Countries) pay for those who’s economies do not work, and who seem reluctant to even make them work.

    It will all end in tears , its just a question of how long we need to wait, and what damage will be done while we wait.

    They need to lance the boil now, before it poisons the whole body.

  15. Matt
    September 1, 2011

    It’s possible that the delinquent med countries cut their spending and get their house in order. That would ease the situation.

    The German public are resent propping up the Greek economy.

    On the other side of the coin the euro has been helpful to German exports to Greece and everywhere else. If the DM was still in place the currency would be going through the roof.

    Nature balancing the books.

    1. javelin
      September 1, 2011

      If the DM was still in place … their exports would be very expensive – as the world would pile into the DM as a “safe” currency and push up the FX rate. They would be in the same position as the Swiss.

      Having said that I would FAR rather choose a recession that’s a bit deeper due to a high FX rate than one that’s deeper due to throwing tax payers money at the Greeks. The simple reason being that if the DM was still around the Germans could use tax payers money on their own country for a stimulus, whereas at the moment they will be forced to spend taxpayers money on the Greeks to stimulate the Greek economy (or better described as stopping bankruptcy and supporting over spending).

  16. brian Tomkinson
    September 1, 2011

    A clear description of what is wrong, not just with the Euro, but with the whole EU. Politicians have lied continually to their electorates on the basis that they, the politicians, know best. They clearly have a version of democracy which goes along the lines that we, politicians, will do what we like and tell you, voters, whatever lies we like and you can have a vote once every few years after which nothing much will change. I wonder if that is what they are proposing for the people of Libya? Of course we shall never know because they will never condescend to tell us the truth; just as the military action was not about protecting civilians but regime change. One day the people in the countries comprising the EU will demand a change in the presently incorrect master and servant relationship between politicians and themselves. I sincerely hope that it will not take a situation like that in Libya to bring it about.

  17. English Pensioner
    September 1, 2011

    “Even Finland has added to the difficulty by refusing to put up her share of the Greek loan without full collateral,”
    So apparently are some of the other EU countries, Austria and Holland have been mentioned elsewhere.
    But what collateral can Greece put up?
    Are they going to mortgage the Parthenon? As none of the utilities are making a profit, no-one is likely to be attracted to them. Perhaps the Finns would fancy a few islands as collateral, although they do have plenty of their own, the Greek ones are a bit warmer!

    But it is a serious question even if I do joke about it, What collateral can Greece offer that anyone would be willing to accept?

    1. Denis Cooper
      September 1, 2011

      “Sources in eurozone finance ministries told this website the new deal is likely to see all 16 eurozone lenders get the option to ask for collateral if they want. The guarantees could be in the form of Greek Central Bank gold reserves or state-owned shares in banks.”

    2. Martin Cole
      September 1, 2011

      A report, given publicity by France24, is available from my blog, spelling out exactly this point in some detail.

      It was written by independent but official analysts in Greece, although almost immediately refuted by the Greek Finance Minister, also linked from my blog.

    3. backofanenvelope
      September 1, 2011

      What the Greeks can do of course, is decline to co-operate. Don’t work harder; don’t retire later and don’t pay taxes. In fact there is no sign that anyone outside the Greek political establishment is about to co-operate with their new German government.

      1. Martin Cole
        September 1, 2011

        Quite so, this is certain to be the case in Italy, indeed has already begun!

    4. Single Acts
      September 1, 2011

      According to wikipedia Greece has 111 tonnes of gold.

      So if there are 32,151 troy ounces per tonne then 111 tonnes at 1275 euros per troy ounce is worth about 4.5B euros.

      Small beer really.

  18. javelin
    September 1, 2011

    Its interesting to look at German politics in more detail.

    32% – Christian Democratic Union (Merkels party)
    7.5% – Christian Social Union of Bavaria (In coalition)
    9.5% Free Democratic Party (In coalition)

    30% Social Democratic Party (opposition)
    11% The Left (opposition)
    9% Alliance ’90/The Greens (opposition)

    A poll at the beginnig of August has moved the power to the left with CDU/CSU polling 32% and FTP 5%, with the SDP 27% and Greens 21% and Left 7% – who could form a solid Government. As a result the CDU leadership is facing criticism from inside their own party. Elections are still 2 years away.

    If the Euro Stablity Fund vote goes through Parliament it looks like it will need the help of the opposition. This could well put Merkel on the spot with her own party and with 2 years to go and her poor performance could result in a vote of confidence and possible leadership challenge.

  19. Javelin
    September 1, 2011

    It looks like the key dates are the regional elections on Sept 4th and 18th.

    If the CDU/CSU poll really badly this might also force them to take an even tougher line with the Euro and the Euro Stablity Fund. The current position is already very difficult at the moment – that the German Parliament wants scrutiny over how the fund is spent, which means the fund cant react in a crisis.

    There is also a court case on Sept 7th where the legality of the Euro bailouts to date is being questioned. I presume Merkel would have to resign if they are deemed as illegal.

    1. sm
      September 1, 2011

      The Politicans do things which the electorate most probably do not support claiming they represent the people.

      They go as far to allegedly break their own EU rules and possibly their own written and unwritten constitutions. The legal system gets involved and we are at a constitutional crisis in all of Europe, most don’t recognise it.

      Will a politician resign, no they will try and subvert the ruling by controlling the legislature. The question is can the court force a general election or binding for period referendum.If they cant where is democracy.

  20. Acorn
    September 1, 2011

    Bit off topic. Libya has been through six months of civil war and total economic chaos. You would have thought that its banking system would have fell apart; including its central bank.

    Just like the global banking system during WW2, not a scratch. At the start of this year, the US Dollar would have bought 1.257 Libyan Dinars; now it buys only 1.204. There are plane loads of LDs on there way back to Tripoli as we speak.

    You can’t keep a good petro-currency down, light; sweet and crude baby.

  21. waramess
    September 1, 2011

    Just a question of time now and, so long as the Eurocrats hold firmly to their agenda, it only makes it more certain. Not only a question of time but also a very short period of time before Canute finds his (her) feet are getting very wet.

  22. Amanda
    September 1, 2011

    Mr Redwood, I really must thank you for your continued informed news on the euro and EU situation. I don’t know if the MSM don’tcare, don’t know, don’t understand, or deliberately hide information on this most important and crucial issue, but I do rely on you and a couple of other sources to update me on what is happening; with the added ‘professional’ opinion on what it means for Great Britain.

    1. Graham Cook
      September 1, 2011

      I support that too.

      1. Mike Stallard
        September 1, 2011

        Yes, thank you too.
        I waited for the whole report on the banking reforms for the word “EU” yesterday on the BBC.
        No luck.
        Without your expertise, life would be much more boring!

  23. Damien
    September 1, 2011

    The German voters are pragmatic and politically savvy, they know the weak euro is helping their economy and any return to a DM would necessarily revalue the new currency much higher than its export markets. I suspect they would also balk at the idea of the cost should euro countries default on their debt as a result of Germany refusing to accept eurobonds.

    As ever Mrs Merkle is playing for time. There is a lot of political chatter around hastily getting the Eurozone members to either change their constitution or finance code to incorporate the ‘golden rule’ of balanced budgets. This may reassure German voters as Mrs Melkle might hope.

    Germany has already incorporated the ‘golden rule ‘ into law as have Poland and Switzerland. France has proposed such a constitutional amendment and Spain looks set to amend their constitution. The Netherlands have agreed they would adopt any such provision but not amend their constitution. Ireland , Portugal and Finland have remained silent so far.

    It would appear that the EU is moving towards fiscal unification in a piece meal manner but nevertheless it may become fait accompli. If the decision by the German Constitutional court’s is favorable to Mrs Merkle other countries may agree with the EU adopting a eurobond. My own preference would be for the weaker peripheral countries to have their own euros devalued (as each countries euro can be identified by the national emblem on it). That would mean I would have to sort out my Greek and Irish euros left over from my last trip abroad!

  24. scottspeig
    September 1, 2011

    I hope the UK banks have got rid of all and any of the EU debt. The last thing we want is for the Euro debt crisis to collapse and implode our banks. It’d be bad enough without these losses!

  25. Denis Cooper
    September 1, 2011

    “In the last fortnight Mrs Merkel has had to rule out German support for any common Euro area borrowing”.

    It’s already been happening; the eurozone states have already been issuing a form of eurobonds, or more accurately “eurozone bonds”, through the illegal arrangement of the European Financial Stability Facility or EFSF:

    The EFSF issues bonds to borrow money from investors – so far, three issues totalling €13 billion:

    and those bonds are rated AAA because each of the eurozone states guarantees 120% of its pro rata share of the repayments due to the bondholders – a clear breach of Article 125 TFEU.

    The EFSF then lends money to the governments of distressed eurozone states – so far, €3.6 billion to Ireland, and €5.9 billion to Portugal.

    In this March 2011 paper from the European Parliament:

    it is recognised that these EFSF bonds are already a form of eurobond.

    The point of principle surely being that they are issued by the eurozone states collectively, and those governments are not only severally liable for their own pro rata shares of the repayments to investors but also jointly liable to the extent of the 20% extra each has guaranteed.

    Under the proposed amendment to the EFSF agreement, which is causing Merkel some problems:

    the limit on that joint liability would be raised to 165% of each state’s pro rata share.

  26. javelin
    September 1, 2011

    Of course an entirely different way at looking at the perilious German situtation is to see the EU as Germany’s third attempt at building an empire. And now the people feel they have been duped.

    Reading other peoples comments on this website it seems that people generally think the German people have been duped. And if I remember National Socialism claimed the Germans were “duped” after the WW1.

    So there’s a kind of interesting parallel happening.

    1. Mike Stallard
      September 1, 2011

      It all works both ways, remember.

      In Greece the Germans are sometimes still remembered as the Wehrmacht which behaved abominably. Also Greeks have a long history of unfair taxation which goes back to ancient Rome. They also can remember the Turks who flayed people alive and whose Balkan atrocities were never forgotten. Muslim Turks also taxed Balkan people by taking their children hostage, remember. The hills in Crete are alive with bandits who are seen as heroes.
      When Yugoslavia broke up, we saw those historic memories come to the surface with appalling results.
      I do not think they will take kindly to being ordered around by German bankers.

      Italy, Greece and Ireland are all relatively recent creations. There may still be the original spark of independence there. Spain and Portugal can remember in people’s lifetime the Fascist Dictatorship. They value their freedom and do not need to smart under other people’s decisions.

      1. Single Acts
        September 1, 2011

        Greece is a recent creation ?

  27. Andrew Webster
    September 1, 2011

    The proposed ESM treaty (European Financial Stabilisation Mechanism) seems to overcome some of these political problems for Germany / France by giving them effective long term control over a European-wide taxpayer funded €700bn fund if the Eurozone does not implode first.

    Incidentally, it unilaterally amends the Lisbon treaty, providing genuine opportunity for the UK to renegotiate…

    1. Denis Cooper
      September 2, 2011

      No, the ESM treaty doesn’t amend the Lisbon Treaty, instead it depends upon the radical amendment to the Lisbon Treaty already agreed on March 25th:

      to provide a new legal base in the EU treaties.

      So the opportunity to renegotiate came and went in March without being used.

      Unless MPs block the Bill to approve that EU treaty amendment, and tell the government to go back and negotiate a proper deal.

      1. Denis Cooper
        September 3, 2011

        Seems to have been missed in the moderation!

  28. BobE
    September 1, 2011

    The third Eueropean war is being fought with money

  29. davidb
    September 1, 2011

    Interesting piece in Spiegel the other day,1518,783281,00.html

    Perhaps not everyone in the elite persists in burying their head in the sand.

  30. Dr Dan Holdsworth
    September 2, 2011

    A little while ago something happened which nobody here seems to have picked up upon, yet which is very, very important. Like most of Europe, the German Government is firmly wedded to the “Carbon Dioxide emissions affect global climate” hypothesis, and as such doesn’t want to use CO2-emitting technologies if possible. Germany is also a major industrial nation whose wealth is built upon taking in raw materials and turning these into finished products, using vast amounts of energy along the way.

    It is therefore extremely peculiar and rather worrying that this very nation’s government should publicly vow to end the use of nuclear power generation over a period of years, especially in the light of how abysmally inconsistent and useless the alternatives are. Phrases like “Shooting themselves in the foot” and “Gibbering idiots” come to mind.

    What appears to be going on is this: the German government is a coalition (their electoral system is a form of proportional representation), and of late it has been difficult for the main party therein to command a consensus. They have therefore entered a Faustian pact with the Green Party for votes, to top up this consensus. The deal came at a price: renounce nuclear power.

    If Germany renounces nuclear power and scales back its coal-fired generation, then a once-proud industrial nation will be forced to become a miserable, backward agrarian pest-hole. Much more likely, these promises will be kicked into touch and the Greens vilified as gibbering morons; the point is that this won’t take long to happen (Green politicians have some quite astoundingly idiotic political doctrines).

    Angela Merkel is therefore working to a fairly short-term time-scale. She needs the extra voting support for only a short time longer before the lack of consensus no longer matters, and this is worrying indeed.

  31. Martin
    September 2, 2011

    The other thing that anyone lending to Italy could ask for is security in the form of its gold reserves. All 2400 tons of it. As for Greece and Spain I guess its artworks and scupltures.

  32. Javelin
    September 2, 2011

    Interesting reading a Citi bank report today – basically saying that Equity vigilantes’ want bailouts and to push the problem of debt to the North Europeans. The Bond vigilantes’ want the austerity packages to be implemented by the PIGS.

    So this has come down to a Sumo contest between equity holders (i.e. risk favourable investors) and bond holders (i.e. risk adverse investors). It looks like the problem is going to pushed through the Germans banking system (their throat). The only stop loss in the Germans favour is they need a referundum to get Euro Bonds through their courts. In the mean time the German Government can keep passing laws giving money the ECB and Euro Stability fund. In two years the elections will come and the damage will be transparent.

    This is a quote from the report …

    “In fact, we believe the closer that the equity markets can move the EMU crisis to the core countries then the more likely we are to see an equity-friendly resolution. So this stops being a Greek or Irish problem, or even an Italian problem. It starts to become a French and German problem. “

    1. Denis Cooper
      September 3, 2011
  33. Javelin
    September 5, 2011

    Late but interesting

    S&P say a joing Euro Bond would have the same rating as the weakest link … Germans will love that.

  34. Darren
    September 5, 2011

    Maybe we should just keep voting UKIP until we finally get an in / out referendum?

  35. Gerald de la Pascua
    September 16, 2011

    The Eurozone faces the same challanges that the UK has faced and the US,
    both of these countries have printed huge amounts of money (200BN in the uk’s case), and pretended this was QE, what it really was, was a way of financing overspending, without having to go to the bond markets for it. (ok, buying up old gilts, and selling new gilts, same difference). The German experience with money printing means this isn’t politically acceptable, but that is one way out for them. They should accept greece is bust, print money to buy bonds from other eu countries while they get their budgets in order, and use some of the money to help the countries that lent money to Greece. All this waiting and dodging the issue is just imposing a huge uncertainty tax on the eurozone economy. Do we really have to wait until 24 hours before there is no money in the cash machines to address this problem too ? Has nothing been learnt over the last few years ?

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