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Old 09-16-2011   #1
AdamG
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Default Poland warns of war 'in 10 years' as EU leaders scramble to contain panic

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Germany, France and the European Commission are scrambling to contain panic and "quash rumours" about a eurozone break-up amid repeated off-piste messages from other senior EU politicians.

But even amid their desperate efforts, the finance minister of Poland, the country that currently represents the EU to the world as holder of the bloc’s rotating presidency, warned of war on the continent within 10 years if the eurozone collapses.
http://euobserver.com/18/113625
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Old 09-16-2011   #2
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War in the European Union? Panic in the European Union? I do not see it. The Financial Times has a more sober explanation:

Quote:
Originally Posted by AdamG View Post
Rostowski, raised in the UK, does have a love for parliamentary thrust and parry
http://blogs.ft.com/beyond-brics/201...#axzz1Y5Ti66Wb

Could it be that the EUObeserver suffers from a eurocritical bias?
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Old 09-16-2011   #3
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People needlessly connect the EUR's fate to the fate of the European Union as a whole. It's just a currency.

The EU ought to be capable of reverting mistakes - THAT is critical for its long-term success and survival.

The EUR in its current shape was a mistake, and critics knew it back in the mid-90's. The economies are too different. Portugal and Greece did not belong into the common currency, and it would have been wise to set up a common currency (if at all) as a non-EU project. Maybe Germany should have stayed out of it, too. Germany, Northern Italy, Paris department and some other regions are the industrial centres of Europe and can be in a common currency with the less industrialised regions only with great adverse side-effects.

Actually, Italy and Germany would need two different currency zones each since even inside these countries labour mobility proved to be unable to balance the strains.
(In a simple theory monetary union theory moving labour solves a lots of common currency problems between dissimilar regions, but in practice many unproductive people stay behind and transfers from North Italy to South Italy or West Germany to East Germany are still necessary).
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Old 09-26-2011   #4
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Default EUCOM Economic Analysis - Part I

The European Union (EU) is the beating macroeconomic heart of European Command (EUCOM); unfortunately, today, that heart has opaque and clogged fiscal, monetary, and political arteries, which impede the flow of needed capital to and from the center and periphery of the global economy. (1) Nonetheless, Russia has attempted to emulate the organization and success of the EU’s combined annual GDP of 17.5 trillion USD, with a Eurasian Economic Community (EurAsEc) concept fielding a combined annual GDP of 2.1 trillion USD. (2) Turkey (annual GDP 735 billion USD) also attempts to follow the EU model, as exemplified by its participation in regional free trade agreements with nations such as Syria and by chairing the 57 member strong Organization of the Islamic Conference, all the while continuing to work towards a fading dream of eventually joining the EU. (3) (4) (5) Global economic failures have a history of releasing unpredictable social and political pressures which increase the cost of basic necessities, reduce living standards, increase demographic inequalities, destroy livelihoods, and reduce global financial predictability. (6) (7) (8) The struggles of EUCOM countries, in their attempt to maintain a sustainable macroeconomic equilibrium, are instructive as well as of financial interest to all stakeholders within the interconnected global economy.

The concept of Market Clearing, where the prices of goods and services are in equilibrium and can be visualized at the intersection of supply and demand curves, underpins many Macroeconomic models. (9) Modeling the long run or the short run impacts the equilibrium point of the macroeconomic model used. In the long run prices are seen to be flexible while in the short run prices are seen as sticky. We also need to consider that all macroeconomic models function within a framework of fiscal and monetary policies, applied by institutions within traditional Westphalian Nation-States as well as by transnational structures. Within this framework, institutions and supra-empowered individuals continuously compete for influence. Fiscal Policy is typically formulated and supervised by a fiscal authority such as a Financial Ministry while Monetary Policy typically originates from an independent Central Bank. Fiscal Policy variables of note include taxation, government spending and borrowing. Monetary Policy variables of concern include money (quantity theory), foreign exchange rates, inflation, and interest rates. Both the International Monetary Fund (with 187 member countries) and the US National Intelligence Council publish reports, which incorporate regional projections resulting from macroeconomic modeling efforts. (10) (11) (12)

The European Union is not a fiscal union and it is an incomplete economic (common market and customs union) and monetary union; this distinction is at the center of its current macroeconomic troubles. In order to achieve a fiscal union, member states will have to cede a greater portion of national control over fiscal policy to the EU. This will require national voting on the proposed structural changes to the EU’s directly elected parliamentary institution, the European Parliament. Given the history of the Lisbon Treaty, the approvals process for structural changes are far from assured. (13) Since the EU does not have a centralized Financial Ministry (not withstanding the heroic efforts of Mr. Olli Rehn, the European Commissioner for Economic and Monetary Affairs) the union instead has 27 different financial ministries, who’s Fiscal Policies are not necessarily synchronized. This reality is seen in the unsustainable budget deficits of Greece and Portugal, which resulted from national fiscal policies, which were not synchronized with the requirements of Maastricht Treaty nor with other members of the union. Although comprised of 27 members, only 17 (the Eurozone) have ostensibly met the economic and monetary union requirements of the 1992 Maastricht Treaty. In return for the ability to participate in the world’s second largest reserve currency, these 17 members (Austria, Belgium Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain) of the EU follow Monetary Policy set by the independent European Central Bank. (14) The macroeconomic situations in Spain and Ireland however, which had low levels of government debt prior to the crisis, are indicative of the thesis that sovereign debt among Eurozone members is not risk free, and is in fact differentiable. As a result of this realization bank runs, on Eurozone banks, which hold suspect sovereign debt are increasingly seen as possible. (15) European political leaders are under incredible pressure to continue the integration process of the EU, with a short-term focus upon crafting an acceptable fiscal union, due to the interconnectedness of the global financial system. (16) Due to Germany’s position as the strongest economic member of the Eurozone, the buy-in of the German populace is seen as critical and, threshold criteria for any deeper integration of EU members are expected to be stringent. (17)

Russian dreams of financial strength and leadership as a unifying regional economic power, continually founder upon the hard realities of endemic corruption, xenophobia, weak institutions, arbitrary fiscal and monetary policy, and a cult of personality, all of which rest uneasily upon a narrow, commodities based economy. (18) (19) (20) This condition is no less a tragedy for the Russian people, than it is for the global community. (21) The Central Bank of the Russian Federation is constitutionally mandated to be an independent institution, setting national monetary policy and driven by technical concerns. The intent of this paper document is belied by the still unsolved 2006 murder of Andrei Kozlov, the first deputy central banker who fought for the rehabilitation of Russia’s more than 1,200 banks. (22) Banking corruption in Russia appears to continue unabated since his death. (23) The Russian Finance Ministry sets Fiscal Policy, and many foreign investors have hoped for positive changes in its policies since Russia’s 1998 default and its subsequent 2008 economic meltdown. (24) “This time is different, he adds, “are the four most expensive words in the English language.”” (25) The World Trade Organizations Working Party on the Accession of the Russian Federation was established in June of 1993 and efforts to meet WTO criteria continue. (26) (27) The EU-Russian relationship is a key one for Russia, and serves to influence Russian policy and actions. (28)

Turkey’s modern day economic rise, impacts members of the Middle East more than it does most members of EUCOM, nonetheless Turkey continues to follow many of the wishes of Ataturk in that it selectively continues to pursue compatible benefits of westernization. (29) (30) (31) (32) Turkey’s sovereign rating for foreign currency (provided by the S&P) remains at BB, two notches below investment grade, and 2014 forecasts for government debt/GDP ratios are trending at around 35%. (33) (34) Once Turkish sovereign debt reaches investment grade quality, it will be open to institutional investors. By Turkish Law, The Central Bank of the Republic of Turkey has an independent role in setting monetary policy. Turkey’s banking industry presently consists of approximately 45 banks, which have an average capital adequacy ratio of approximately 19% (higher than Basel III requirements – 4.5 % of common equity and 6% of tier I capital). (35) Since it’s economic meltdown in 2001, and subsequent three-year recovery, the Turkish Financial Ministry appears to have continued to follow the playbook drawn up by the Turkish Economist Kemal Dervis, to its benefit. (36) Turkish aspirations to join the EU are tempered with the knowledge of political realities present within the EU; yet Turkey realizes internal economic gains by continuing in the process. (37)

When one attempts to pass judgment, it is wise to remember that human lives are brief and that all human endeavors are flawed. (38) (39) (40) The combined population of the 51 EUCOM countries and territories exceed 500 million souls who generate in excess of 20 trillion USD in GDP annually (the population of the US is approximately 300 million souls generating an annual GDP of 14 trillion USD for scale). The spectrum of economic conditions within EUCOM display societal statements regarding the appropriate roles and responsibilities of the modern day state and, increasingly, that of transnational organizations and individuals. (41) The penetration of society, the regulation of social relationships, the extraction of capital, and the appropriation of the same are enduring capabilities used by each of these actors to varying success. (42) Furthermore these capabilities are set against a regional background of political fragmentation, heavy migration flows, select demographic declines, and an increased and widespread transparency regarding decision-making processes and resource allocation (aka the democratization of information). Ostensibly, an implied goal of just leadership is to set the conditions for a sustainable economy (which is supported by a minimal, transparent, predictable, and balanced regulatory framework) in which societies and individuals can navigate to generate growth and wealth, each according to his or her ability. (43) It is this author’s opinion that if the EU’s centralized macroeconomic heart fails, EUCOM countries, and more broadly the interconnected global financial system will struggle to avoid a global economic depression. But then, even though political successes may not always be explicitly linked to economic successes or failures, neither is political capacity always sufficient to meet the economic requirements of the times. (44)
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Old 09-26-2011   #5
Surferbeetle
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Default EUCOM Economic Analysis - References

(1) How to save the Euro, September 17-23rd, 2011, The Economist

(2) Buckley, Neil, Putin sets sights on Eurasian economic union, August 16th, 2011, Financial Times

(3) Pocket World in Figures, 2011 Edition, The Economist

(4) Gardner, David, Turkey’s newly faltering foreign adventures, August 15th, 2011, Financial Times

(5) Special Reports: Turkey 2011, Financial Times Special Report, June 28th, 2011, Financial Times

(6) Commanding Heights, The Battle for the World Economy, US Public Broadcasting Service, http://www.pbs.org/wgbh/commandingheights/lo/index.html

(7) Guiding Prinicples for Stabilization and Reconstruction, 2009, United States Institute of Peace, United States Institute of Peace Press, Washington DC

(8) Ghani and Lockhart, Fixing Failed States, 2008, Oxford University Press, New York, NY

(9) Mankiw, N. Gerogory, Macroeconomics Sixth Edition, 2007, Worth Publishers, New York, New York

(10) Regional Economic Outlook: Europe, May 2011, International Monetary Fund, http://www.imf.org/external/pubs/ft/...g/ereo0511.htm

(11) Communique of the Twenty-fourth Meeting of the IMFC: Collective Action for Global Recovery, September 24th, 2011, International Monetary Fund, http://www.imf.org/external/np/sec/pr/2011/pr11348.htm

(12) Global Trends 2025, National Intelligence Council, http://www.dni.gov/nic/NIC_2025_project.html

(13) Ireland and the Lisbon Treaty, Second Time Lucky?, October 2009, The Economist, http://www.economist.com/node/14573513

(14) Treaty of Maastricht on European Union, EUROPA, http://europa.eu/legislation_summari...stricht_en.htm

(15) Lex, Eurozone Banks, 23 September, 2011, Financial Times

(16) Giles, Chris, Eurozone: A nightmare scenario, 16 September, 2011, Financial Times

(17) Weder der Weg zu Eurobonds noch zur Transferunion, 21 September, 2011, Frankfurter Allgemeine Zeitung, http://www.faz.net/artikel/C30638/eu...-30690622.html

(18) Gaddy, Clifford G., Putin’s Plan, Spring 2008, The Washington Quarterly, http://www.twq.com/08spring/docs/08spring_gaddy.pdf

(19) Special Reports: Russia 2011, Financial Times Special Report, April 27th, 2011, Financial Times

(20) Gaddy, Clifford G., Will the Russian Economy Rid Itself of Dependence upon Oil?, June 16, 2011, Brookings Institution, http://www.brookings.edu/opinions/20...omy_gaddy.aspx

(21) The mood of Russia, Time to shove off, September 10, 2011, The Economist

(22) Buckley, Neil, Shooting of Russian Banker condemned as an ‘act of terror’, September 16, 2006, Financial Times

(23) Belton and Buckley, Russia’s Banks: Collateral Damage, September 22nd, 2011, Financial Times

(24) Weaver, Courtney, Russian equities: shock value, August 9th, Financial Times

(25) Weaver, Courtney, Russian market retreat highlights lingering risks, August 16th, 2011, Financial Times

(26) Accessions: Russian Federation, World Trade Organization, http://www.wto.org/english/thewto_e/...1_russie_e.htm

(27) Trade Policy and WTO Accession for Russia, The World Bank, http://go.worldbank.org/VJMFT8MXW0

(28) Lynch, Dov, Russia’s Strategic Partnership with Europe, Spring 2004, The Washington Quarterly, http://www.twq.com/04spring/docs/04spring_lynch.pdf

(29) Lord Kinross, The Ottoman Centuries: The Rise and Fall of the Turkish Empire, 1977, Harper Collins Publishers, New York, New York

(30) Kinzer, Stephen, Crescent & Star: Turkey Between Two Worlds, 2008, Farrar, Straus, Giroux, New York, New York

(31) Special Reports: Investing in Turkey 2010, December 7th, 2010, Financial Times

(32) Special Reports: Turkey 2011, Financial Times Special Report, June 28th, 2011, Financial Times


(33) S&P signals upgrade, warns of weakness, September 21st, 2011, Hurriyet Daily News, http://www.hurriyetdailynews.com/n.p...ses-2011-09-21

(34) Deliveli, Emre, The Turkish Ratings Comedy, September 25th, 2011, Hurriyet Daily News, http://www.hurriyetdailynews.com/n.p...edy-2011-09-25

(35) Boland, Vincent, Banking: Resilient sector faces different set of stresses, June 27th, 2011, Financial Times

(36) Doing it by the book: The Economy has had a big boost from much sounder management, October 21st, 2010, The Economist, http://www.economist.com/node/17276384

(37) Turkey’s EU membership talks deadlocked, FM Davutoglu says, April 20th, 2011, Hurriyet Daily News, http://www.hurriyetdailynews.com/n.p...ays-2011-04-20

(38) Osterhammel and Petersson, Globalization: A Short History, 2003, Verlag, Munchen, Princeton University Press, Princeton, New Jersey

(39) Duncan-Jones, Richard, The Economy of the Roman Empire: Quantitative Studies, 1971, Cambridge at the University Press

(40) Binnendijk and Kugler, Seeing the Elephant: The US Role in Global Security, 2006, Potomac Books Inc, Dulles, Virginia

(41) Mearsheimer, John J., The Tragedy of Great Power Politics, 2001, W.W. Nortin Inc, New York, New York

(42) Weldon and Nusser, Bundestag Election 2009, Solidifying the Five Party System, Vol. 28, No 3, Fall 2010, German Politics and Society

(43) Migdal, Joel S., Strong Societies and Weak States, 1988, Princeton University Press, Princeton, New Jersey

(44) Smith, Adams, The Wealth of Nations, iPod App – BeamItDown iFLOW Reader

(45) Machiavelli, Niccolo, The Prince, iPod App – BeamItDown iFLOW Reader
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Old 09-26-2011   #6
Fuchs
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Quote:
Originally Posted by Surferbeetle View Post
The European Union (EU) is the beating macroeconomic heart of European Command (EUCOM)

(...)

The European Union is not a fiscal union and it is an incomplete economic (common market and customs union) and monetary union; this distinction is at the center of its current macroeconomic troubles.
a) EU is not a part of EUCOM. EUCOM is merely concerned with an area in which the EU member states are.


b) I disagree on the fiscal policy thing.
Italy has the exact same macroeconomic problems between its north and its south as the Euro currency region has between its member states. Legal harmonisation and unification do not change the actual economic properties.

There are theories of optimal currency area, and one of them postulates that you need a high input factor mobility (capital, labour) inside a currency area in order to get a self-balancing effect.
An increase in Greek emigration hints that there is some labour mobility, but the past decade shows that it wasn't sufficient.
Furthermore, there is some theoretical work missing (or unknown to me) to reflect the fact that regions have fixed costs (pensions, government upkeep) and just draining them of input factors is an imperfect substitute for transfers in the case of imbalances.

There are proponents of further EU integration who continually sow the idea that problems are founded in imperfect integration into the world, but that are mere talking points. The actual macroeconomic analysis looks at different variables and finds different key problems.

Quote:
(...)27 different financial ministries(...)
Actually, more. Some EU members have a federalist structure. Germany has 17 financial ministries alone.

Quote:
Although comprised of 27 members, only 17 (the Eurozone) have ostensibly met the economic and monetary union requirements of the 1992 Maastricht Treaty. In return for the ability to participate in the world’s second largest reserve currency (...)
I disagree. At most 15 met the requirements. Greece lied its way into the club (and even after admitting it, continued to lie in the following years!) and Portugal was admitted despite failing to meet the requirements. It was deemed small enough to not hurt the other members significantly.

Quote:
In order to achieve a fiscal union, member states will have to cede a greater portion of national control over fiscal policy to the EU.
The German federal constitutional court has pretty much written in stone by now that further integration would violate the constitution and be repealed by this court's rulings. There is not going to be a major step towards EU fiscal integration without replacing the German constitution.
Afaik amending or changing it won't suffice, for the articles in question are among the 20 first, definite ones that cannot be changed in their meaning.
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Old 09-26-2011   #7
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Default The EU: economics without politics and the public

An alternative view

The idea of a European Union (EU), which is far more than the Euro and a fiscal union, is a concept that is IMO not shared by many of the EU electorate, even less now with the debt crisis. Those who shared the concept, mainly national-level politicians and bureaucracies, failed to articulate what it actually meant, partly out of fear. Now the electorate are expected to "bail out" southern members, partly on the claimed basis it makes sense.

The EU ignored its own rules over the Euro, for political reasons and partly as Germany was distracted by the huge support costs of reunification.

Look at the Schengen Zone's weakening after the Libyan and Tunisian refugee exodus. Let alone the Common Foreign & Security Policy (CFSP) left in disarray after the Libyan intervention.

The EU appears to have attempted a politics-free economic union and then looked surprised when the markets and people have expressed concern over the state we now fin ourselves in.
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Old 09-26-2011   #8
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Quote:
Originally Posted by Fuchs View Post
a) EU is not a part of EUCOM. EUCOM is merely concerned with an area in which the EU member states are.
Thank you for this observation, you are right; I incorrectly give this impression in several places within this document. I will rework it.

Quote:
Originally Posted by Fuchs View Post
b) I disagree on the fiscal policy thing.
Italy has the exact same macroeconomic problems between its north and its south as the Euro currency region has between its member states. Legal harmonisation and unification do not change the actual economic properties.

There are theories of optimal currency area, and one of them postulates that you need a high input factor mobility (capital, labour) inside a currency area in order to get a self-balancing effect.
An increase in Greek emigration hints that there is some labour mobility, but the past decade shows that it wasn't sufficient.
Furthermore, there is some theoretical work missing (or unknown to me) to reflect the fact that regions have fixed costs (pensions, government upkeep) and just draining them of input factors is an imperfect substitute for transfers in the case of imbalances.
Studies by the northern league in Italy, and on some of the poorer US states immediately spring to mind…I’ll have to do some further reading and get back to you.

Quote:
Originally Posted by Fuchs View Post
There are proponents of further EU integration who continually sow the idea that problems are founded in imperfect integration into the world, but that are mere talking points. The actual macroeconomic analysis looks at different variables and finds different key problems.
I incompletely visualize the many, many possible permutations of EU integration as a binary tree, and as an American I think about the possibilities of a ‘United States of Europe’ or of Germany going it alone and becoming a sort of counterfactual German version of the Republic of Texas (1836 to 1846 - but with a *lot* more ordnung and way better infrastructure? Perhaps it was simply too many Lucky Luke comics when I was younger )

I also think about traveling around Europe in pre-Schengen days, noting the differences in customs, dialects, languages, dress, and architecture. Back in the day German’s never wore tennis shoes outside of sporthalle , that was just for tacky Ami’s. Today when I visit I consider the cost of the barriers and delays to the free flow of capital (human and otherwise) of the pre-Schengen zone days and wonder about the effects of cultural homogenization.

Short answer is that I am unable to cut the Gordon knot on this one…

Quote:
Originally Posted by Fuchs View Post
Actually, more. Some EU members have a federalist structure. Germany has 17 financial ministries alone.
Solid point, thanks. I’ll edit…

Quote:
Originally Posted by Fuchs View Post
I disagree. At most 15 met the requirements. Greece lied its way into the club (and even after admitting it, continued to lie in the following years!) and Portugal was admitted despite failing to meet the requirements. It was deemed small enough to not hurt the other members significantly.
I went with the word ostensibly to be polite. From a purely technical standpoint it appears to me from this armchair that the accessions criteria were not met in some instances. Political successes are not strictly linked to technical successes however, which of course results in future costs or benefits depending upon how the dice fall....complicating this gamble is the observation that world's ratio of statesmen/women to politicians is not what it should be

Quote:
Originally Posted by Fuchs View Post
The German federal constitutional court has pretty much written in stone by now that further integration would violate the constitution and be repealed by this court's rulings. There is not going to be a major step towards EU fiscal integration without replacing the German constitution.
Afaik amending or changing it won't suffice, for the articles in question are among the 20 first, definite ones that cannot be changed in their meaning.
Will have to review the Grundgesetz again, it’s been a while.

Speaking of laws I note that timeline wise:

September 27th ,the Greek Parliament is scheduled to vote on property taxes
September 28th, the Finnish Parliament is scheduled to vote on the European Financial Stability Facility (EFSF)
September 29th, the German Parliament might ratify the EFSF
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Old 09-26-2011   #9
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Quote:
Originally Posted by Surferbeetle View Post
Will have to review the Grundgesetz again, it’s been a while.
http://www.spiegel.de/international/...4506-2,00.html

The first 20 constitutional articles cannot be changed or contradicted in their meaning.
https://www.btg-bestellservice.de/pdf/80201000.pdf

Quote:
Article 20
[Constitutional principles – Right of resistance]
(1) The Federal Republic of Germany is a democratic and social
federal state.
(2) All state authority is derived from the people. It shall be exercised
by the people through elections and other votes and
through specific legislative, executive and judicial bodies.
(3) The legislature shall be bound by the constitutional order,
the executive and the judiciary by law and justice.
(4) All Germans shall have the right to resist any person seeking
to abolish this constitutional order, if no other remedy
is available.

Last edited by Fuchs; 09-26-2011 at 09:28 PM.
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Old 09-26-2011   #10
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Originally Posted by davidbfpo View Post
An alternative view

The idea of a European Union (EU), which is far more than the Euro and a fiscal union, is a concept that is IMO not shared by many of the EU electorate, even less now with the debt crisis. Those who shared the concept, mainly national-level politicians and bureaucracies, failed to articulate what it actually meant, partly out of fear. Now the electorate are expected to "bail out" southern members, partly on the claimed basis it makes sense.

The EU ignored its own rules over the Euro, for political reasons and partly as Germany was distracted by the huge support costs of reunification.

Look at the Schengen Zone's weakening after the Libyan and Tunisian refugee exodus. Let alone the Common Foreign & Security Policy (CFSP) left in disarray after the Libyan intervention.

The EU appears to have attempted a politics-free economic union and then looked surprised when the markets and people have expressed concern over the state we now fin ourselves in.
Hey David,

I appreciate the comments. Working with my police friends in Iraq was a very interesting exposure to experiencing the on the ground reality of population demographics and ways of approaching things.

It would indeed seem to logically follow that if a fiscal union were to occur, some sort of political union would eventually appear upon the horizon.

My copy of The Economist, The World in 2011 quotes Herman Van Rompuy in the article: Europe in the new global game, as follows:

Quote:
Historians will interpret the period we are living in as the transition from the economic phase of globalisation to its political phase. Economic globalisation came into full swing after the events of 1989, which ended communism and united Europe, and the West was proud of the universal attraction of its lifestyle. The number of democracies rose. Global trade and technology lifted hundreds of millions out of poverty, all over the world. Negative effects, such as growing inequalities, were brushed aside. This phase is now over.
Know that you enjoy the BBC and I do attempt to keep up with it's reporting on this topic and others.

A good book regarding the activities of The Treuhandanstalt or any other references that you would care to share would be most appreciated.
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Old 09-27-2011   #11
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Beetle:

Thanks for the great post, which has obviously inspired much discussion and debate.

I guess I am getting too old when, after reviewing many of these articles and ideas, I am taken back to the De-Industrialization issues of the mid-1990s, wherein we referenced backward to Drucker, etc... and the Marshall Plans, and the older industrial systems and structures. Not much new in the macro-world except re-arrangements of assets, and re-assessments of what makes which assets important at the moment.

Rare Earth? Re-opening the Inland Silk Road? Russia having resources on which Europe is critically dependent? Oil empires fighting for nuclear technology so that they can free up export capacity by generating domestic power from something other than oil?

Manufacturing chopsticks in Georgia (USA) for the chinese market due to availability of wood, minimal mechanization, cheap labor and cheap transport (empty reverse haul containers). Go figure?

Comparative advantage is in real-time flux, and the dynamic and interactive market complexities remain beyond the limits of command planning at the macro level.

The downfall of all this stuff is not the failures of complex market systems to track, control and project past activity into the future, but their inability to grasp what the actual future will be defined by.

Thanks for making me rethink about this stuff.
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Old 09-27-2011   #12
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Beetle:

Thanks for the great post, which has obviously inspired much discussion and debate.
Hey Steve,

Thanks; a long motorcycle ride followed by a couple of cold beers somehow always seems to help with the writing process on this end.

Quote:
Originally Posted by Steve the Planner View Post
I guess I am getting too old when, after reviewing many of these articles and ideas, I am taken back to the De-Industrialization issues of the mid-1990s, wherein we referenced backward to Drucker, etc... and the Marshall Plans, and the older industrial systems and structures. Not much new in the macro-world except re-arrangements of assets, and re-assessments of what makes which assets important at the moment.
It sometimes seems that I regularly hit the airport just so that I can catch a copy of the latest HBR. Drucker is good, and a staple of HBR articles. Speaking of HBR did you catch the Jan-Feb 2011 Double Issue Creating Shared Value: How to reinvent capitalism, and unleash a new wave of growth by Michael Porter & Mark Kramer?

From the idea in brief rollup:

Quote:
The concept of shared value-which focuses on the connections between societal and economic progress-has the power to unleash the next wave of global growth.
Quote:
There are three key ways that companies can create shared value opportunities:

*By reconceiving products and markets

*By redefining productivity in the value chain

*By enabling local cluster development
...and deeper in the article:

Quote:
Strategy theory holds that to be successful a company must create a distinctive value proposition that meets the needs of a chosen set of customers. The firm gains competitive advantage from how it configures the value chain, or the set of activities involved in creating, producing, selling, delivering, and supporting its products or services
Quote:
However, companies have overlooked opportunities to meet fundamental societal needs and misunderstood how societal harms and weaknesses affect value chains
It's interesting to compare his latest concept with his five forces model.

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Rare Earth? Re-opening the Inland Silk Road? Russia having resources on which Europe is critically dependent? Oil empires fighting for nuclear technology so that they can free up export capacity by generating domestic power from something other than oil?
Reminds me of talk I was able to attend regarding the British East India Company; if we were to ignore the technological changes, how much have the underlying business models really changed?

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Comparative advantage is in real-time flux, and the dynamic and interactive market complexities remain beyond the limits of command planning at the macro level.

The downfall of all this stuff is not the failures of complex market systems to track, control and project past activity into the future, but their inability to grasp what the actual future will be defined by.
Perhaps along similar lines, from another talk that I was able to attend:

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'The Globalization Engine' consists of:

*The production of change

*New conditions for the creation of value
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Old 09-27-2011   #13
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The Porter stuff, too, all harkens back to the Structure of Scientific Revolutions: First, there is a new technological driver; Second, the implementation and dispersion.

So many technological drivers emerge from that Toynbee-esque challenge/challenge-faced stuff: sign companies in Iraq, Syria and Turkey that made a living changing out signs while the Arabization movements in the 1990s eliminated Kurdish, Aramean and Christian town names.

Otherwise, who could imagine that anyone could make money making new signs for ancient areas.

I keeping hearing about local clusters, and creative urban centers as if they were something new and magical, but its all just Jane Jacobs and David Bowie (Ch-ch-ch-changes...): that marvelous interaction that occurs between people, communities, ideas, problems and their interactions.

Hanover, MD c. 1995. We built a business park near NSA and BWI Airport, attracted a lot of defense contractors, which attracted more defense contractors, which attracted techno headhunters, then restaurants, hotels, retail, college satellites, which led to Arundel Mills Mall and a new casino under construction. Go figure?
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Old 09-27-2011   #14
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Default London Trader Says Euro Market Will Crash

Link to a BBC interview of a market trader......Euro will crash no matter what because governments do not control the world, big financial institutions like goldman sachs do


http://www.youtube.com/watch?v=aC19f...ayer_embedded#!
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Old 09-27-2011   #15
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Link to a BBC interview of a market trader......Euro will crash no matter what because governments do not control the world, big financial institutions like goldman sachs do


http://www.youtube.com/watch?v=aC19f...ayer_embedded#!
Hey Slap,

Good news and bad

For my 0.02 cents Goldman Sachs is the most formidable investment bank on the planet and perhaps in history. 38,300 employees generated 44.28 billion over the trailing twelve months. Their tangible book value [(total tangible assets-liabilities)/# of shares)] is $132.26 vs todays share price of $99.14. This share price is partially indicative, IMO, of the social penalty for crafting investment tools which have exited the investment arena (where it's a no holds barred fight to the death) and into the retail arena (civilians saving for retirement, weddings, and getting car loans, mortgages, small business loans, etc).

Jamie Dimon's complaints about how, that one time when he was walking to his limo from the bank lobby and that snow flake almost hit him and he thought he was going to freeze...uh, I mean about Basel III and the Vickers report are worth watching. These two particular items might be enough to keep the investment banking soldiers from fighting in the retail banking neighborhoods of the civilians. We will see...

Quantum physics (atom bombs) vs newtonian physics (civil engineering) is similar to investment banking vs. retail banking. Gotta have both, but it's generally not a good idea to mix the two...
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Old 09-28-2011   #16
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Quantum physics (atom bombs) vs newtonian physics (civil engineering) is similar to investment banking vs. retail banking. Gotta have both, but it's generally not a good idea to mix the two...
Yep, we made a big mistake by getting rid of the Glass-Steagall act
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Old 09-28-2011   #17
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Slap:

That was the beginning of the end.

Steve
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Old 09-28-2011   #18
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Default Backgrounders from our friends at the BBC

What is a rating agency?, By Rebecca Marston Business reporter, 18 April 2011, BBC News

Quote:
AAA, Ba3, Ca, CCC... they look like some kind of hyper-active school report.

They are, indeed, a marking system, and one that is designed to inform interested parties.

The letter formations are given to large-scale borrowers, whether companies or governments, and tell the buyers of this debt how likely they are to be able to get it back.

The score card also affects the amount that should be charged by way of return on that borrowing.

These letters have been all over the coverage of the financial impact of the crisis besetting the eurozone.

A change to the score means a change to the amount a borrower must pay its debt-holders, something that can make it more expensive to borrow as investors demand a higher rate of return for taking on more risky debt.
Timeline: The unfolding eurozone crisis, 20 September 2011, BBC News

Quote:
To join the currency, member states had to qualify by meeting the terms of the treaty in terms of budget deficits, inflation, interest rates and other monetary requirements.

Of EU members at the time, the UK, Sweden and Denmark declined to join the currency.

Since then, there have been many twists and turns for the countries that use the single currency.
Economy enters 'dangerous phase', By Kabir Chibber Business reporter, 20 September 2011, BBC News

Quote:
Three nations in the eurozone - the 17 nations that use the euro - have been recipients of bailouts as attempts to solve the crisis keep stalling.

Italy became the latest to feel the domino effect of the markets when its debt rating was lowered, the latest in a series of downgrades.

Greece, Spain, the Irish Republic and even Cyprus have also had their ratings cut this year. The future of the euro is being questioned in a way it never has since 1999.

Which countries have fallen, and which are feared to be next?
EU 'faces its greatest challenge' - Jose Manuel Barroso, 28 September 2011, BBC News

Quote:
The head of the European Commission has told Euro MPs that Greece will stay in the eurozone, but warned that the EU was facing its "greatest challenge".

Appealing for patience over the Greek debt crisis in his annual State of the Union address, Manuel Barroso said: "This is not a sprint but a marathon."
Quote:
A key obstacle to the payment was removed on Tuesday when the Greek parliament passed a controversial new property tax bill, first announced earlier this month, that aims to boost revenues.
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Old 09-29-2011   #19
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Default Binomial Tree Example, and more...

Greece's debt crisis odyssey, 22 September 2011, BBC News

Binomial tree methods are taught in business school, as an investment tool, for the valuation of options.

Exchange Traded Funds are evolving from simply tracking/replicating a specific index to including leverage.

These tools and others are just like a rifle or pistol in that it's good to keep in mind that they are always loaded, are not toys, and need to be used responsibly.

Financial Engineering TTP's used by 'Quants'

A good, positive, and fun to read, book regarding the world of banking and finance is Against the Gods: The Remarkable Story of Risk, by Peter L. Bernstein

There are also plenty of examples to keep in mind of how things can quickly go wrong:

TARP

Long Term Capital Management

Kweku Adoboli

Jerome Kerviel
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Old 09-29-2011   #20
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Link to the blog naked capitalism which has an interview with Dr. Michael Hudson on the situation in Europe and USA.



http://www.nakedcapitalism.com/2011/...n-america.html
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