The eurozone’s terrible mistake. The FT is reporting today that the new fiscal rules for the EU “include a commitment not to force private sector bondholders to take losses on any future eurozone bail-outs”. If this principle really does get enshrined into some new treaty, it will be one of the most fiscally insane derelictions of statesmanship the world has seen — but it certainly helps explain the short-term rally that we saw today in Italian government debt.
Right now, the commitment is still vague: Ms Merkel agreed that private sector bondholders would not be asked to bear some of the losses in any future sovereign debt restructuring, as she had insisted this year in the case of Greece’s second bail-out. However, future eurozone bonds will still include collective action clauses providing for potential voluntary rescheduling of private debt.Ms Merkel said it was imperative to show that Europe was a “safe place to invest”. You can safely ignore the bit about collective action clauses. Eurocrise : qui sont les vraies cigales ? par Yanis Varoufakis. The Merkelization of Europe - By Paul Hockenos. Not so long ago, France was the political driver and Germany the economic motor of the European Union. "Now," remarked former European Commission president Romani Prodi in February, it is Merkel "that decides and Sarkozy that holds a press conference to explain her decisions.
" This searing image could be embellished with the 24 EU members cowering in the press room -- and Britain now watching through the window. Now that Britain has sidelined itself from the historic "fiscal compact" concluded in Brussels on Dec. 9, which provides the EU with new powers to enforce stricter discipline in national budgets, the community appears even more fiercely segregated within its own ranks. Pathetically, the Brits walked not because of the starkly deficient democratic procedure or the fact these governance changes wouldn't adequately address the euro quagmire, but rather to protect London's financial services industry from regulations that were part of the deal.
JEAN-PAUL PELISSIER/AFP/Getty Images. It's the (German) Banks, Stupid! It's the (German) Banks, Stupid! By Yanis Varoufakis Or what's behind Germany's hesitant statements on Greek debt restructuring, Ireland's move against subordinated bondholders, and the ECB's stance on interest rates. . . . Europe is at it again, trying to pretend that it has stemmed the tide of insolvency through its program of lending huge amounts of money (at high interest rates) to . . . insolvent member-states. The official line, currently, is that the rot has stopped with Lisbon. As at the advent of the EU-IMF €110 billion loan to Greece (almost a year ago, in conjunction with a nominal €750 billion fund, the European Financial Stability Facility, standing by for other fiscally stricken countries), which was meant to ring-fence the rest of the eurozone, inhibiting contagion from Athens, now we are being asked to hope (against hope) that Spain has "decoupled.
" It has done no such thing. This is not to say, of course, that the powers that be do not discuss the banking catastrophe. What really caused the eurozone crisis?