The IMF should not try to bail out the Euro

 

           It was good news to hear confirmed that the USA is not going to make more money available for the Euro. Apparently the US position, as reported again on today’s BBC, is that Euroland needs to sort its own problems out and pay its own bills. As the UK government has said it would only contribute to the IMF if all the main players do so, that looks like a helpful development. I guess China will also be reluctant to put money up for the Euro.

             Douglas Carswell restated the main arguments against IMF attempted bail outs of the Euro  well this morning on the Today programme. If the countries receiving IMF aid cannot devalue and default on some debt at the same time as cutting spending and borrowing more, the medicine cannot work. The IMF should stick to bailing out sovereign countries, not regions in a very badly constructed currency area that are being strangled by the very set up of the currency and the economic policy.

51 Comments

  1. lifelogic
    January 21, 2012

    Exactly:- Euroland needs to sort its own problems out and pay its own bills and anyway the expensive IMF medicine proposed will not work. Osbourne should, by now, have learnt the lessons from the vast amount of money he has already pointlessly thrown away together with Darling.

    1. lifelogic
      January 21, 2012

      Tax, borrow and tip down the drain is not a good policy for growth nor for any recovery – nor for winning elections three years hence.

      1. Acorn
        January 21, 2012

        LL, there is a lot more to go down that drain. It appears our financial sector still has debts of more than six times the size of our economy. Our currency has been debased by 21% in three years yet our net exports have not responded.

        http://theautomaticearth.blogspot.com/2012/01/january-16-2012-quo-vadis-britannia.html

        BTW. Last week I wanted five fence panels of a particular design to match existing fence. The company said that they did not keep stock anymore but would make some more when they had enough orders. When will that be I asked. Don’t know, perhaps a month or so, was the reply. I was going to ask if that company had a post crisis growth plan, but I didn’t bother.

        1. Sean O'Hare
          January 21, 2012

          I was going to ask if that company had a post crisis growth plan

          Problems with the posts as well as the panels eh?

        2. stred
          January 21, 2012

          Few keep stock now. The whole system is based on ‘Just in Time’ and and an eye on bankrupcy. This slows up any project which is well financed, and subsequencely the whole economy.

  2. Atlas
    January 21, 2012

    Cameron would do well to remember that “Charity starts at home” and in the context of the EU so does good-housekeeping. It is galling to see Billions being squandered on the EU and then have IDS sermonising that it is ‘good’ for the disabled in this country to be kicked off benefit whilst at the same time subsidising EU scroungers.

  3. Disaffected
    January 21, 2012

    Do not hold your breath. The anti-undemocratic does not take no for an answer. They keep asking until they get the answer they want or in some circumstances change the government ie Ireland, Greece and Italy.

    The Government should not throw away taxpayers’ money on saving a doomed currency designed to help construct a supranational state that undermines democracy. In fact we should not pay a penny into the EU, the money could be better spent in the UK on its citizens rather than a few EU elites who want to sustain their massive pensions ie Mandleson, Kinnocks etc and those who are in office at EU institutions wasting our money. The UK does not get value for money from the EU. Let us have the in/out EU referendum promised by both parties of the coalition.

    Ollie Rehn and Clegg might be like minded in creating their fanatical pan-European state dream, but they are an activist minority.

    1. Bob
      January 21, 2012

      Due to the BBCs news blackout on Croatia I googled the following news on the recommendation of regular commenter Peter van Leeuwen:
      FM says EU entry referendum very serious decision
      …Asked by the press what would happen if the majority voted against accession, she said the whole country would bear the economic consequences of such a decision.

      “Within the first week, it would probably be visible in the credit rating and the price of capital. After that, in the withdrawal of investments and layoffs. That effect would be evident very soon.”

      Asked if it was true that citizens could “forget about pensions” if Croatia did not join the EU, Pusic said the pension issue was difficult now and that it would remain difficult if Croatia did not start recovering…

      http://daily.tportal.hr/171235/FM-says-EU-entry-referendum-very-serious-decision.html

      1. Peter van Leeuwen
        January 22, 2012

        @Bob: Doesn’t this show that the global financial markets favor a Croation EU membership? Global fiancial markets rule the waves these days.

        Interestingly, the EU is also seen in a positive light. In your article, Mrs Pusic quotes the Swedes:
        “Pusic went on to say that Swedish Foreign Minister Carl Bildt told her earlier today that Sweden’s economic recovery had been the result of their efforts and reforms but that EU membership had provided the stability that made that possible.”

      2. Denis Cooper
        January 23, 2012

        Lucky old Croats, getting a referendum on whether they want Croatia to join the EU.

        (And under the terms of accession also join the euro, as soon as possible.)

        When do we get our referendum on whether we want Croatia to join the EU?

        (Answer, “never”, under Section 4(4)(c) of the European Union Act 2011.)

  4. alan jutson
    January 21, 2012

    Someone is seeing commonsense then.

  5. James Reade
    January 21, 2012

    That’s right, because devaluing solves all economic problems, doesn’t it John?

    Iceland found that, and so have we here in the UK.

    It might make things easier for some exporters (those that don’t import), but it will hurt just as much of the economy as it supposedly helps.

    Reply: No, devaluation does not solve all the problems, but the countries like the UK and US which have devalued recently have not fared as badly as the locked in southern states who cannot devalue within the Euro zone. The IMF usually wants a devalaution as part of its recovery package.

    1. APL
      January 21, 2012

      James Reade: ” … Iceland found that … ”

      Wouldn’t it be more correct to say that Icelands currency was dramatically overvalued as a result of the Banksters that took over its economy.

      When they were allowed to collapse, the currency reverted to a more realistic value.

      1. James Reade
        January 24, 2012

        But they still haven’t exactly grown like all eurosceptics believe any country would if allowed to devalue. I dont really care what the previous value was, how distorted it was, whatever – the point is a devaluation is not a panacea.

    2. James Reade
      January 24, 2012

      The US has devalued? The UK has? Last time I checked, the pound depreciated about 25% in 2008, but the US dollar hasn’t done much in the way of depreciating recently – http://research.stlouisfed.org/fred2/series/DTWEXM?cid=105 – it’s essentially at the level it was at in 2007 currently.

      What the IMF usually require is by the by, the point is that a devaluation hasn’t helped a number of countries recently, and for an obvious reason – you import inflation, hitting that competitiveness you supposedly gain.

      “As badly as”? I suppose you’ve done some serious counter-factual analysis here to think a little more about this, right? How about the counter-factual of Greece outside the Eurozone I’ve mentioned before. That Greece that borrowed heavily still (tho not as heavily as inside the Eurozone) but in foreign currency, that Greece that saw a dramatic depreciation once its house of cards fell in (entirely independent of its euro membership), whose debts then mushroomed as it suffered that devaluation you think it so badly needs.

  6. figurewizard
    January 21, 2012

    We got plan A last October when Sarkozy called Hu Jintao to discuss China stepping in to prop up the Euro. Klaus Regling, the head of the European Financial Stability Facility followed this up the very next day when he flew to Beijing only to come away empty handed.

    With this news that the US has set its face against further contributions to the IMF to enable a rescue of the Euro it looks like plan B is about to hit the buffers too.

    Plan C can only be that Germany steps in to enable the ECB to do the job instead. In the unlikely event of Merkel agreeing to this, the problem could then be the latest IPSOS poll reported in Bild last week, showing that 51% of Germans want the Deutschmark back. It’s beginning to look like plan D is going to be in the hands of the markets after all.

  7. Denis Cooper
    January 21, 2012

    The IMF should not try to bail out the Euro because by doing so it becomes a money-laundering operation for eurozone bail-outs which are illegal under the EU treaties.

    As Christine Lagarde, then French Finance Minister, openly admitted in an interview with the Wall Street Journal on December 17th 2010:

    http://online.wsj.com/article/SB10001424052748704034804576025681087342502.html

    “We violated all the rules because we wanted to close ranks and really rescue the euro zone.”

    “The Greek and Irish rescues – €110 billion and €67.5 billion, respectively – and the creation of the bailout fund were, Ms. Lagarde said, “major transgressions” of the Lisbon Treaty that is the European Union’s governing document. “The Treaty of Lisbon,” she says, “was very straightforward. No bailing out.””

    In the eyes of right-thinking people that admission alone should have disqualified her from becoming the head of the IMF, which has its own rules to be violated in major transgressions of its own governing document.

    But of course the opposite is true, and disgracefully the UK government actively supported the appointment of a self-confessed law-breaker to that position.

    I point out again that Parliament has passed Acts to incorporate the EU treaties into our national law, and that unless Parliament has expressly authorised him to act in contravention of the EU treaties a UK government minister who breaks any part of those treaties is also breaking our national law.

    I also point out again that the European Communities (Amendment) Act 1993 to amend the European Communities Act 1972, the 1993 Act through which the Maastricht Treaty including the “no bail out” rule was incorporated into our national constitutional law, must supersede the International Monetary Fund Act 1979, both because the 1993 Act is the later and because the EU treaties are superior to the IMF Articles of Agreement.

    I wonder if at some point the worm will turn and MPs will finally object to ministers holding Parliament in contempt by flouting the law it has passed, refuse to pass any further Orders, secondary legislation, under the 1979 Act, and insist that any further contributions to the IMF would instead require primary legislation, an Act of Parliament which expressly stated that the payments were being authorised “notwithstanding the European Communities Act 1972”.

    1. Robert Christopher
      January 21, 2012

      Christine Lagarde: “We violated all the rules because we wanted to close ranks and really rescue the euro zone.”

      This isn’t very law abiding, is it?

      Surely, “violating” should be considered a serious offence.

      Has anyone seen this reported on British TV?

      And then the EU expect us to obey all their directives!

    2. stred
      January 21, 2012

      When one has risen to the top, who worries about law?

  8. Mark
    January 21, 2012

    I posted these links on the views of China’s Dagong yesterday (two parts):

    http://www.dagongcredit.com/dagongweb/english/pr/show.php?id=176&table=web_e_zxzx

    http://www.dagongcredit.com/dagongweb/english/pr/show.php?id=175&table=web_e_zxzx

    The EU and IMF’s ideas on solving the European debt crisis have not changed, which are saving the troubled sovereign governments and banking sector through the EU’s temporary and long-term rescue schemes and the credit expansion of the ECB. The fiscal rescue measures in 2012 will possibly rely on the EFSF with a capacity of 440 billion Euros. The IMF will continue to provide some but limited amount of funds and the available funds in the EFSM has already been exhausted. The ESM will take effect in June 2012, which is one year earlier than originally planned with only 500 billion Euros available. Compared to the potential rescue tasks for the crisis countries and the banking sector, these rescue schemes are far less than sufficient.
    In terms of the 2012 and long-term rescue plans in the future, merely relying on the ECB will make the European debt crisis become more persistent and complicated, and may turn the debt crisis to a currency crisis. The ultimate solution can only be relying on the ECB, and it will become clear in 2012.

    In 2012, the risk aversion sentiment caused by the deteriorating debt crises in the euro zone will push up the demand for the government bonds of developed countries such as the U.S., Japan, the UK, and Switzerland, which is conducive to maintaining the financing ability of the governments. However, this does not imply the improvement of solvency in these countries, but rather the only solution under the current international monetary system. The U.S. and the UK governments also have implemented quantitative easing monetary policy to depress the long-term debt interest rate, which is disguised as a way to finance their fiscal deficit. The U.S. Fed has purchased Treasury bonds amounted to 7.5% of its GDP, and the Bank of England and the Bank of Japan has purchased government bonds which are 11.5% and 1% of GDP respectively. The economic growth in the U.S., Japan and the UK benefits from the monetary policy of depressing interest rate, which prevents the bubble of real estate and consumption credits from bursting and the fiscal policy of sustaining huge deficits. The temporary growth is just an illusion and greater risk of bubble burst is underway.

  9. Bob
    January 21, 2012

    The more they try to prop it up, the longer and more painful will be it’s demise.
    The chickens are here and they want to roost…

  10. Martyn
    January 21, 2012

    John, ou said yesterday “The UK government has made two caveats about possibly increasing funding…. it has said the UK should not commit more funds unless China, the US and other non EU G20 members are going to do so as well”.

    So now that the US has and possibly soon China will say ‘no more money to the IMF to bail out Euroland’ can we realistically expect Mr Osborne and Mr Cameron to stick to their word and save the UK money for something worthwhile?

    Well, so very keen to demonstrate their total commitment to the EU, I fear that the government will find some specious and misleading reason to justify throwing yet more of our money into the leaking Euroland ship of state. It is said that no country has ever lost the money that it has invested in the IMF. Maybe so, but if the IMF, for the first time in history is about to be used to rescue a currency instead of a country then all is lost. How wise of the USA so say no….

    Reply: Time will tell. Whatever they decide there remain those of us who oppose the bail out money in principle.

  11. Norman Dee
    January 21, 2012

    George Osborne can only learn a lesson if he is completely blind to what is going on, but he’s not, otherwise he would have raised a stink about the 88% increase we paid last time. No, we are in the hands of a trio of hardened pro Europeans, the 2 prime ministers and Osborne followed by the tail they wag.

  12. Peter van Leeuwen
    January 21, 2012

    January 21, 2012, 8.03 am (Singapore time)
    G20 consensus on need to increase IMF resources.
    MEXICO CITY – The G20 group of powerful economies agrees on the need to boost IMF resources but has not yet discussed figures, according to a meeting of deputy finance ministers and central bankers Friday.

    Mr. Carswell’s political agenda doesn’t seem to gain that much support globally.

    Reply: We also hear reported that the US will not be approving a new contribution.

    1. Peter van Leeuwen
      January 21, 2012

      Could China be lured into partly compensating for a US shortfall in exchange of more power within IMF? It has some money, it wants more influence in IMF and IMF is a very safe investment.

    2. lojolondon
      January 21, 2012

      Not long now Pieter, not long now. I would love to hear your excuses when the Euro is no more. More than that I want the UK to stop putting £50 million a day into the wasteful sewer, and see how they do then!!

      1. Peter van Leeuwen
        January 22, 2012

        @lojolondon: I actually expect that in about two years, Anglo-American attempts to defeat the euro will have run out of steam, and global speculators may look for new targets. Not that I’d wish that on the pound sterling (it’s certainly not in my or my country’s interest), but it has happened before, and if the UK coalition achievements were to disappoint, who know what might happen?

  13. A.Sedgwick
    January 21, 2012

    This is better news. Unless I have missed her comments I would thought that Madame Lagarde should be saying precisely and clearly that for the integrity and long term support of the IMF. It would appear as if there is a definite attempt to channel IMF funds into bailing out the Euro, perhaps with an oops later.

  14. Bob
    January 21, 2012

    A SECRET plot to give the European Union sweeping powers to impose crippling tax rates on Britain was exposed last night.

    Google EU PLOT TO LAND BRITAIN WITH CRIPPLING TAX RATES

    1. Peter van Leeuwen
      January 21, 2012

      Paying 0.1% in tax, isn’t that like 1 penny for each 3 pins of beer? Sounds cheap to me.

      1. Robert Christopher
        January 21, 2012

        Britain doesn’t need another tax!

        However, if it sounds cheap to you, please encourage the Franco-German block to apply it to their financial transactions.

        We won’t stop you, or them!

      2. Bob
        January 21, 2012

        @Peter,
        Don’t you think that once established, they might just keep increasing it, like practically every other tax that’s been ever been imposed ?

        It’s also quite obvious that this is an attempt the raid what is left of the British economy, and finish the job so that our military can finally be disbanded to reduce the UK to an EU dependency.

        If the Eurozone needs to sort out their financial mess why don’t they look to their membership, to which the UK does not belong!

        1. Peter van Leeuwen
          January 22, 2012

          @Bob: If this is an attempt to harm Britain, why would the UK agree if the tax were to be applied globally?

          1. Bob
            January 22, 2012

            Because socialists believe in continuously inventing new taxes.

  15. Bob
    January 21, 2012

    Is there a news blackout on the anti EU demonstrations in Croatia?

    1. Peter van Leeuwen
      January 21, 2012

      Try googling for “Clashes in Zagreb on eve of Croatia EU vote” – and you’ll find that Euronews (not even an extremely eurosceptic broadcaster) reports it in 12 languages, including yours!

      1. Bob
        January 21, 2012

        So, if we want the news, we have to guess what it is and then google for it.

        So what is the BBC for?

        1. Peter van Leeuwen
          January 22, 2012

          @Bob: You have a point here. I guess that this small (1000 people) demonstration wasn’t considered significant news, whereas for a broadcaster specialized in European affairs it just met the threshold to be reported.

          1. figurewizard
            January 22, 2012

            In October last year and again in December, polls conducted in Germany showed that half of those questioned were calling for the abandonment of the Euro and a return to the Deutschmark. Do you suggest that this is also “insignificant news” which can plausibly explain why it has not received the exposure here by the BBC that a majority of people in this country would expect?

    2. Robert Christopher
      January 21, 2012

      No!

      http://rt.com/news/croatia-anti-eu-protest-371/

      Oh, you meant the BBC! Words like “anti-EU protesters ” do not pass their spell checker.

  16. Geoff
    January 21, 2012

    Not only should the IMF not bail Euroland out, it shouldn’t bail any country out. When it “assists” developing economy the result is usually far worse than simply letting them default. The bail out simply reinforces the systemic corruption and impoverishes the population. The IMF has always been an extension to US foreign policy not a saviour of the poor.

  17. lojolondon
    January 21, 2012

    On a totally unrelated note – I thought it would be cool to find a photo of the Costa Concordia, beached on it’s side, with the giant EU flag showing on it’s side – Captain (van Rompuy) having tea at home with his mum, and passengers (EU taxpayers) struggling to save themselves. But I think there may be a blackout on such photos – if you google for the ship, every pic of it afloat shows the flag, every pic of it sunk fails to show the flag – conspiracy or co-incidence??

  18. Mark
    January 21, 2012

    An interesting analysis and warning from London Banker:

    http://londonbanker.blogspot.com/2012/01/survivor-bias-and-tbtf-tyranny.html

    Which central bankers are trustworthy today?

  19. Anne Palmer
    January 21, 2012

    Further to the legitimate point Denis is making above. If those that actually ratify EU Treaties can ignore the contents they know are IN the Treaties and so lodged with the Vienna Convention on the laws of Treaties and have quite deliberately encouraged others also to act contrary to the Treaties, an act which all involved know is absolutely contrary to the ratified Treaties, having got away with that once, and now deliberately attempt to do the same again, surely this then makes the ratification of those Treaties worthless? If they can ignore parts in those Treaties, then can we all? All acting the same makes those Treaties worthless.

    I have just gone through the Convention and there are a number of Articles that could or may be sited as of use. Failing that, other countries surely could ignore certain parts of the Treaties THEY do not like? The EU fines countries that go against their rules, so why isn’t the Commission stepping in this time?

    I fear-yes fear that if our Government has to borrow any more money to give to others-putting us deeper and deeper in debt, just to save a foreign currency that is past its “sell by date” in a Union very few British people want to remain in, it may cause more damage to this Country and the Government of it than has even been known before. The people in this Country are ‘hurting’, but they are angry too.

    Many are losing their jobs, many more will lose their homes. Many of the young people that wanted to go to University will not be able to afford to go, which may, no WILL rob this Country of the expertise its so much needs and will need more in a few years time. Surely it is indeed time for our own Government to Govern this Country completely and according to its long standing Constitution? Every Country in the Union is deeply in debt because they too are paying their own politicians and paying billions and billions and have done for years to strangers to do the jos their own Politicians should be doing. Enough is enough!

    Reply: Member states often break the letter of the Treaties, and can do so if the Union authorities agree or allow it. These matters are adjudicated in a federalist court.

    1. Denis Cooper
      January 23, 2012

      Officials and national ministers are prepared to act unlawfully within the EU, not only turning a selectively blind eye to breaches of the EU treaties but actively conniving at such breaches, but that’s no reason why MPs should do the same.

      What is the point of MPs (and peers) going through the rigmarole of passing Bills to approve EU treaties, if they’re then going to passively allow unauthorised breaches of those treaties, and therefore of their own Acts, without raising any objection?

  20. Tim Jonson
    January 22, 2012

    What I wouldnt give to learn how you got your design to be so amazing! I mean it. Besides the blog just being awesome this page is too sweet! Its not too flashy. It doesnt do too much with colours and things and the videos you use are perfect for this topic! Really awesome blog.

  21. David G
    January 22, 2012

    The involvement of the IMF in the Eurozone bailout is brazenly flouted when it is apparently considered acceptable for Christine Lagarde to be a member of the cabal known as the ‘Frankfurt Group’.
    I have not seen any references to her membership being challenged.

  22. Derek Emery
    January 22, 2012

    The unelected elite who run the EU are in effect the party for minimising EU economic growth. They knew (because they had their own experts analysis) that the Eurozone was bound to fail after around a decade or debt-gorging by the PIIGS as substitute for their lack of growth guaranteed by being locked to a common currency with high productivity Germany.

    The experiment has utterly failed as expected but the elite are hoping to continue with the failure, hopefully funded by the rest of the world.
    Another of their new policies to minimise EU economic growth is the Tobin tax which their own experts have told them will reduce EU economic growth by around 1% pa see http://www.cityam.com/latest-news/allister-heath/britain-right-oppose-tobin-tax.
    Endgame for the eurozone cannot be too far aware as the elite’s policy of guaranteed negative growth bears fruition see ‘Staring into the Abyss’

  23. Barbara Stevens
    January 22, 2012

    Well, Mr Redwood, there appears some MPs from all sides of the house ready to speak up but none will really stick their heads above the parapit and tell it as it really is. What we need is a decisive action amongst sitting MPs from all sides of the house to nail this idea on the head once and for all. Its like throwing money down the drain giving to these nations, for they have a bail out and then, three months later are in the same position. The IMF was not introduced for this reason, and is being used and abused by the EU for the eurozone crisis, we should have a Chancellor and government that tells us the truth about why the IMF, where it is investing our money, whom is having it and what areas it’s going to. We should be treated with respect over this, and be told the truth. I for one believe no more money should be given at all, we have given far to much now in comparison to other nations. The USA and China can see the folly of continuing such a policy so why should we, although they are not in Europe as such, we are asking them to invest in it, if they assume its failed we should now think the same and act accordingly. Where will it all end? That’s the question we should be asking, are we to continue to be dicatated to by the Germans and the French, they are obsessed with the euro and won’t accept failure at any cost. We should not be drawn into their obsessions, but we should now withdraw lock stock and barrel.

  24. P R Pennington Legh
    January 25, 2012

    Today’s inability of Petroplus to refinance the £1.12billion of debt is another example of what I referred to in a note on a friends cash raising arrangements. I called it a tsunami of expiring debt waiting to crash upon the shores of capitalism.

    There are trillions out there – national, commercial and domestic- primary loans, mezzanine finance, bonds, as well as larger sovereign debt than the world’s combined GDP- which will not be/can not be rolled over. The world’s revalued collective assets are mortgaged many times over and our financial institutions are more concerned with meeting virtual ratios, hoarding cash and meeting discredited accounting hurdles (like ‘mark the market’) than saving the system and thereby proving Gresham’s Law.

    This goes well beyond the mutualisation of the Eurozone fiasco. Huge economic disruption is inevitable in the short term- caused by generations of uncontrolled government deficits. In the medium term there will be global QE with most new paper capital ( secured on toxic rubbish) being rotated incestuously within the financial and fiscal systems. Creditor nations, faced with this spiral, will be forced to look after themselves rather than balance the deficits in the debtor economies. Massive write offs, defaults and engineered inflation is the only political answer in the long term. The effect upon the business and private sector is to compel a restart with corrected asset values balanced with new debt.

  25. Ingrid
    February 4, 2012

    Global Debt Crisis

    The greatest private fraud of human history.
    (etc etc-ed) How does the economy “illness” threaten Democracy and the freedom of people.
    ———————————
    By knowing what happened in indebted Greece, where loan sharks created “bubbles” and the current inhuman debt, one can understand the inhuman plan in total …understand where this plan started just to bring all states at the same end …understand how this type of plans are established…

    Authored by PANAGIOTIS TRAIANOU

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