EUCOM Economic Analysis - Part I

[Fuchs]

Originally Posted by Surferbeetle

List of countries by tax revenue as percentage of GDP, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/List_of...centage_of_GDP

Such lists are rarely a good diea, for comparison is difficult.

For example, germany has multiple parafisci (social insurances) and the large churches have treaties which allow them to piggyback onthe tax system (you can opt oput, but then they stop beign ncie to you when you want something from 'your' church, no matter "christening is forever" or not).

Afaik U.S. social insurance revenues would appear in such a statistic, but would my two examples appear? Probably not. Yet, the social insurance spending is under control of the legislative, while church budgets are not. So should the latter apepar in such a statistic or not when you're itnerested in the share of the government in the economy? Then again, taxation causes distortion - which means you'd need them included for a proper statistical analysis.


In the end, even seemingly simple statistics oftene nd up beign no good for laymen.

[Surferbeetle]

Originally Posted by Fuchs

In the end, even seemingly simple statistics oftene nd up beign no good for laymen.

Appreciate the insights.

Some quick thoughts on taxation and how it fits into to the ongoing EU issues. I am a fan of recognizing and attempting to harmonize the 'technical', 'economic' and 'political' portions of a project and have found success more often than not when taking this route.

With respect to (taxation) data you bring up a needed cautionary point, the danger of taking a data snapshot solely on it's face. A range over time, for each nation, would be better with mention of the impacts of seasonal changes, political changes, demographic changes, and macroeconomic changes have upon the data (and this is not an all inclusive list). Statistics are fine, from where I sit, if one respects the strengths and limitations of the field (which implies that one has spent at least a bit of time practicing/problem solving in the subject, if not some formal classes). I would be interested in any references you would care to link to by the way.

With respect to the EU the range of taxation rates/economics, that I excerpted, is interesting to me in that it speaks to the priorities of a group of similarly minded nations - who value expenditures on social welfare more than on expenditures on military armaments. Do you know if the acquis communautaire speaks to economic ratios in way similar to, perhaps, Basel III does for banking?

Politically, the history and practice of governance across Switzerland's 26 cantons is of interest as compared to the 27 nation EU's current trials and tribulations...

No rest for the wicked...off to work.

[Fuchs]

First of all, let me put some unfair blame on my stupid keyboard for producing so many typos.


Second, I didn't understand your question.

Regarding preference for social welfare transfers; keep in mind that Iceland has no real military, Ireland has no real need for one and Germany has its social net largely organised in social insurances.

We don't have much talk about small government / big government or about how unemployment benefits come from government or something (which is partially untrue). The whole language about the social net is different than in the U.S. or the UK.

It's also my impression that the German news are very rarely about social nets; "Hartz IV" (benefits for long-term unemployed) is the only one that grabs headlines, and the term has become a derogatory term for what's essentially a subculture.

[davidbfpo]

A BBC News report ends with:

So two moments of truth are approaching.

Will Greece gamble that Europe will agree to easier terms on its bailout, or will it go along with a rescue package that brings with it years of painful austerity?

Secondly, will Germany - under relentless pressure - accept it will have to pay more to ensure the euro's survival? Angela Merkel believes there will have to be a political union in the eurozone, but will she tell the German people they will have to contribute much more to save the currency?

Link:http://www.bbc.co.uk/news/world-europe-18454429

If anything the European political establishment will once again fudge any decisions. So we await a decision by a faltering EU member, Greece, on whether a tipping point is reached. As for a political union that is a dream, best kept close to the hearts of Angela Merkel and her EU bureaucrats hearts. The EU was always a grand scheme that had no democratic mandate. When national voters do have a choice, such as in Ireland recently, the issue is rather heavily weighed to the "Yes" vote.

It is strange to recall the concept of a common currency was supposed to enable a better, prosperous Europe free of the costs involved in multiple currency transactions. I have no doubt the price paid is rather high today.

[Surferbeetle]

@Fuchs

You asked, more or less, 'what's the question'? To which i would respond, is there a EU-wide taxation framework, and how much cohesive force does it provide the EU?

@Davidbpfo

Geography (Pireaeus + Thessaloniki) + Probable Divided Political Coalition (PSAOK+New Democracy+Syriza) + Odious Debt (Escrow Account + Bailout # 3) = Muddle Through?

'Smart money' is also considering two additional scenario's just in case however, Grexit and GIIPS exit.

• Port of Piraeus, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Port_of_Piraeus
  
• Port of Thessaloniki, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Port_of_Thessaloniki
  
• Greek Political Parties Seeking Entry To Parliament On June 17, By Eleni Chrepa and Natalie Weeks - Jun 14, 2012 7:41 AM MT, Bloomberg News, http://www.bloomberg.com/news/2012-0...n-june-17.html
  
• Euro zone officials eye Greek escrow account: Fekter, VIENNA | Mon Feb 20, 2012 3:37am EST, Reuters, http://www.reuters.com/article/2012/...81J09D20120220
  
• Greek government-debt crisis, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Greek_g...nt-debt_crisis
  
• IFC Not Counting on Greek Exit From Euro Area, Ellena Says, By Gordana Filipovic on June 15, 2012, Business Week, http://www.businessweek.com/news/201...ea-ellena-says
  
• Wie ein Euro-Aus die Schweizer Wirtschaft gefaehrdet, SCHWEIZ 15.06.2012 | 11:52, Handelszeitung, http://www.handelszeitung.ch/konjunk...aft-gefaehrdet

[Fuchs]

There's a drive for a harmonised (all at about 20%) value added tax 8still national taxes).

A more recent push is for a harmonised financial transaction tax, but the British don't go along with this.

The EU gets revenue only from the members, not directly through taxation.

[Fuchs]

FAZ interview with industrial economist Daron Acemoglu

http://www.faz.net/frankfurter-allge...-11787448.html

http://translate.google.de/translate...-11787448.html

[Surferbeetle]

It appears that the Kingmakers caught a wave today/Sunday 17 June 2012; we will see how long they can ride it. Out of the 300 Greek parliamentary seats in question, PASOK (center left - pro EU) appears to have clinched 33, while New Democracy (center right - pro EU) has claimed ~129 and Syriza (radical left - anti EU) ~71. In France, where an arguably just as important parliamentary election took place, Monsieur Hollande has firmly taken the mantle for the pro-growth southern European faction of the GIIPS countries and earned France further maneuver room. He has done so by securing a French parliamentary majority, consisting of ~300 out of 577 seats, which provides him (Socialists - center left) breathing space from the demands of the Left Front (left - Jean Luc Melenchon - ~10 seats), the Greens (left), the UMP (right -~ 304 seats), and the National Front (hard right - granddaughter Marion Marechal Le Pen - 2 seats). The largest Kingmaker of them all, Mr. Market, is starting to wake, with the EUR-USD initially rising to 1.2748 while the Euro bond markets have yet to open.

Will the past example of Jacques Delors, a member of the Madrid Club, inspire the drafting of a work-plan at the G-20 meeting and perhaps an unveiling at the upcoming European Council meeting in the interests of democracy, openness, and transparency? The calculus at a tactical level may not yet be entirely politically beneficial, but there are arguably some economic benefits to be gained...

• Kingmaker, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Kingmaker
  
• Panhellenic Socialist Movement, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Panhell...alist_Movement
  
• New Democracy (Greece), From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/New_Democracy_(Greece)
  
• Coalition of the Radical Left, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Coaliti...e_Radical_Left
  
• Socialist Party (France), From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Socialist_Party_(France)
  
• Left Front (France), From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Left_Front_(France)
  
• The Greens (France), From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/The_Greens_(France)
  
• Union for a Popular Movement, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Union_f...pular_Movement
  
• National Front (France), From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/National_Front_(France)
  
• Hollande party wins majority in French parliament, 17 June 2012 Last updated at 19:37 ET, BBC News, http://www.bbc.co.uk/news/world-europe-18471239
  
• Konservative koennten in Griechenland Regierung bilden, Erstellt am: 17.06.2012 | 18:58, Handelszeitung, http://www.handelszeitung.ch/politik...gierung-bilden
  
• Hollande secures parliamentary majority, By Hugh Carnegy and Scheherazade Daneshkhu in Paris, Last updated: June 17, 2012 10:28 pm, Financial Times, www.ft.com
  
• Mr. Market, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Mr._Market
  
• Euro Gains As Pro-Bailout New Democracy Wins Greek Poll, By Keith Jenkins and Emma Charlton - Jun 17, 2012 5:30 PM MT, Bloomberg News, http://www.bloomberg.com/news/2012-0...coalition.html
  
• Bloomberg, Government Bonds, Germany, http://www.bloomberg.com/markets/rat...bonds/germany/

• Jacques Delors, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Jacques_Delors
  
• G2012 Mexico, http://www.g20.org/en
  
• European Council Meetings, http://www.european-council.europa.eu/council-meetings
  
• G-20 Plans Push for Growth, Again, Leaders to Urge Euro Zone to Turn Focus Away From Austerity in Order to Stem Turmoil's Impact on Global Economy, By Sudeep Reddy, EUROPE NEWS, June 17, 2012, 7:31 p.m. ET, WSJ, http://online.wsj.com/article/SB1000...931805944.html

[davidbfpo]

Surferbeetle,

You have to be careful with Greek election figures, especially when using the numbers of MPs in parliament:

Out of the 300 Greek parliamentary seats in question, PASOK (center left - pro EU) appears to have clinched 33, while New Democracy (center right - pro EU) has claimed ~129 and Syriza (radical left - anti EU) ~71.

Votes cast are a more accurate guide:

With more than 99% of votes counted, interior ministry results put New Democracy on 29.7% of the vote (129 seats), Syriza on 26.9% (71) and the socialist Pasok on 12.3% (33).

The largest party gets a bonus of fifty MPs, a bizarre twist.

The BBC has a table showing the pro-bailout parties have in votes 42% and the opposition 52%.

Link:http://www.bbc.co.uk/news/world-europe-18482415

Hardly a ringing popular endorsement of what is reportedly needed.

[Bill Moore]

It would seem misguided to read too much into this election. It will provide temporary confidence/hope to investors, but it doesn't solve Greece's economic woes. At most it appears the Euro may survive a little longer, but it is still on artifical life support.

http://finance.yahoo.com/news/greece...3Rpb25z;_ylv=3

The government must identify additional budget cuts by the end of June to comply with the terms of its bailout program. If it fails to do so, analysts say the European Central Bank could cut off funding to Greek banks, which have already been drained of cash as deposits flee the country. (Related: Euro 'firewall' not big enough)

In addition, Greece is facing a €3.9 billion bond redemption in August.

The nation's economy is in deep decline, and analysts say Athens is in danger of running out of the money it needs to pay for basic necessities, such as fuel and medical supplies.

[Watcher In The Middle]

The bigger (more important) stories (then Greece):

Monday, 06.18.2012:

1) Spanish 10Yr sovereign bond yield up 24bps to 7.12%. (There goes the 7.00% barrier).
2) Italian 10Yr sovereign bonds yield up 12bps to 6.05%

3) Spanish Banks May Need €150 Billion In Loan Loss Provisions.
Here's the Link

4) FRENCH SOCIALISTS WIN ABSOLUTE MAJORITY IN PARLIAMENT. Expect a bond market revolt in 5-4-3-2-1.... (weeks, if not days - maybe even measured in hours).

Too many issues are all coming together all at once for the Eurozone - and almost all in a bad way (at least for the Eurozone).

This is like having to deal with a raging forest file where they finally get 10% containment (Greece), but there's a forecast of 35-40 mph winds, no rain, and those conditions existing continuously for the next 2 weeks (everybody else).

Some place, some where, some of the CDS obligations are going to default. The effects of defaults in the CDS marketplace are going to impact everywhere at that point....

[Surferbeetle]

Relief, but little hope, At last there is a Greek government, but it faces immense problems, Jun 23rd 2012 | ATHENS | from the print edition, The Economist, http://www.economist.com/node/21557383

That Greece has a government at all is due to New Democracy’s better-than-expected performance in the June 17th election. It won 29.7% of the vote to 26.9% for Syriza, the radical left coalition led by 37-year-old Alexis Tsipras, a brash new political star whose claim that Greece could renegotiate its latest €130 billion ($164 billion) bail-out yet stay in the euro appealed to many voters. The PanHellenic Socialist Movement (Pasok) finished a distant third with 12.3%.

With 129 seats, New Democracy is much the biggest party in the 300-member parliament (thanks to an electoral law that gives the front-runner an extra 50 seats). By teaming up with Pasok’s 33 members and another 17 from Democratic Left, it will have a comfortable majority of 179 seats. Syriza has 71 seats in an otherwise fragmented house. Independent Greeks, the neo-Nazi Golden Dawn and the Greek communist party each have a handful of deputies.

Pour l'Allemagne, la Grèce doit arrêter de demander de l'aide, Par Les Echos | 24/06 | 19:43, Les Echos, http://www.lesechos.fr/economie-poli...ide-337043.php

Le gouvernement grec va demander un délai supplémentaire de deux ans, jusqu'en 2016, pour ramener le déficit budgétaire à 2,1% du produit intérieur brut (PIB). Il était de 9,3% en 2011. Ce nouveau délai coûterait 16 à 20 milliards d'euros supplémentaires en terme de financement international. « La balle est maintenant dans le camp de la Grèce », a ajouté Wolfgang Schäuble. « C'est à eux de regagner la confiance des populations en Europe. Ils n'y arriveront qu'avec des actes et des mesures concrets. »

Selon un sondage réalisé auprès de 4.000 personnes en Allemagne, en France, en Espagne et en Italie, 78% des allemands, 65% des Français, 51% des Espagnols et 49% des Italiens souhaitent une sortie de la Grèce de la zone euro. Une grande majorité dans les quatre pays, qui représentent 254 millions d'habitants, s'attend à ce que la Grèce ne rembourse jamais ses créanciers internationaux. « Ce sondage montre deux choses », a indiqué le ministre allemand. « Une majorité écrasante est en faveur de l'euro (...) et deuxièmement il montre à quel point la Grèce à perdu la confiance des Européens. »

Una operación del primer ministro griego retrasa el calendario de la austeridad, Actualizado domingo 24/06/2012 14:15 horas, El Mundo, http://www.elmundo.es/elmundo/2012/0...340527443.html

El nuevo gobierno griego, salido de las urnas del 17 de junio y formado la semana pasada, inicia su actividad obstaculizado por problemas de salud de su primer ministro y del designado titular de Finanzas, que impedirán a ambos asistir a la cumbre de la UE el 28 y 29 próximos.

Left bankers, A Socialist landslide, but trouble looms ahead, Jun 23rd 2012 | PARIS | from the print edition, The Economist, http://www.economist.com/node/21557386

OVER the past two months the French have been called to the polls four times: for two rounds of presidential voting, followed by two for parliament. On June 17th, at the fourth and last of these, voter turnout, perhaps unsurprisingly, reached a record low. But the result was far better than François Hollande could have hoped for. The French president’s Socialist Party took 314 parliamentary seats, well above the 289 it needed to secure a governing majority by itself.

This gives Mr Hollande a free hand to govern as he sees fit, without the need to turn either to the Greens, who took 17 seats, or to the Left Front, led by the fiery Jean-Luc Mélenchon, which got just ten. He has secured a bigger majority than those won by the Socialists in 1997 and 1988, although still short of the sweeping result achieved after François Mitterrand was elected president in 1981. The new parliament will be younger, more feminine and more ethnically diverse than the old one, which was dominated by grey hair and suits. Some 40% of deputies are first-timers.

Liste des sénateurs par groupes politiques, http://www.senat.fr/senateurs/grp.html

General election in France, http://www.elections-legislatives.fr/en/home.asp

Why Mario Monti needs to speak truth to power, WOLFGANG MUNCHAU, June 24, 2012 6:41 pm, Financial Times, www.ft.com

Just imagine it is this Thursday evening in the European Council’s gathering of Europe’s heads of state, and the Italian prime minister stands up and says this: “Mr President, dear colleagues. We are confronted with a simple choice: we can today either save the euro and build the foundation for a future political union, or we could flunk it and achieve neither. We all know what we need to do to save the euro. We require a banking union for Spain, a fiscal union for Italy and a political union for Germany.

“We can, of course, disagree on details. But we have to settle some of these differences this weekend, and take a decision on the steps that are needed right now. Our crisis resolution policies have failed time and again. We now need something that works fast. If we fail, I can assure you that I can no longer be part of this group, and my country can no longer be part of this project.”

Let me say first of all that I do not really expect Mario Monti to say such a thing, not even a more cryptic version. He is the leader of a technical government. His job is to fix things. Standing up to the German chancellor – grandstanding as some people might call it – let alone wagering Italy’s future is not part of his remit. Italy’s political parties appointed him because they needed a plumber to succeed the playboy, not a gambler. The last thing they wanted was a leader.

Berlusconi fällt Abschied schwer, NZZ, http://www.nzz.ch/aktuell/internatio...wer-1.17276928

Dem früheren italienischen Ministerpräsidenten Silvio Berlusconi, der im vergangenen November unter dem Druck der Schuldenkrise und immer peinlicherer Skandale zurücktreten musste, scheint der endgültige Abschied von der Politik weiterhin schwerzufallen. Wie hiesige Medien am Wochenende berichteten, soll der «Cavaliere» am Freitag während eines Jugendtreffens seiner Partei Popolo della Libertà (PdL) die Ambition bekundet haben, der künftige «Anführer der gemässigten Italiener» zu sein. Der «Cavaliere» soll etwa ausgerufen haben, «gebt mir 51 Prozent der Stimmen und ich werde unser Land aus der Krise führen». Zudem habe er die Schuld an seinem Scheitern Bundeskanzlerin Merkel zugeschoben; sie habe verhindert, dass die Europäische Zentralbank wie das amerikanische Federal Reserve funktioniere.

EU Ministers Clear Way For Transaction Tax In Some States, By Rebecca Christie, Zoe Schneeweiss and Rainer Buergin - Jun 22, 2012 10:58 AM MT, Bloomberg News, http://www.bloomberg.com/news/2012-0...me-states.html

European Union finance ministers cleared the way for a financial-transaction tax to move forward in at least nine member states after Austria said deadlock among all 27 could threaten the euro area’s rescue fund.

The European Commission’s tax proposal “does not, as required, have unanimous support,” Danish Economy Minister Margrethe Vestager, whose country holds the EU’s rotating presidency, said during a meeting in Luxembourg. Now that an impasse has been acknowledged, a smaller group of as few as nine nations can propose to coordinate a tax among themselves.

Germany and Austria today said a transaction tax needs to move forward in some form so their lawmakers will approve the the 500 billion-euro ($627 billion) European Stability Mechanism for it to start July 9 as planned. Austrian Finance Minister Maria Fekter urged nations to sign up to the next steps.

Maria Fekter, Wikipedia, http://de.wikipedia.org/wiki/Maria_Fekter

Maria Theresia Fekter (* 1. Februar 1956 in Attnang-Puchheim) ist eine österreichische Politikerin (ÖVP) und österreichische Finanzministerin.

ECB Said To Relax Requirements For Mortgage-Backed Collateral, By Jeff Black - Jun 21, 2012 2:54 PM MT, Bloomberg News, http://www.bloomberg.com/news/2012-0...ollateral.html

The European Central Bank will relax some rules on the collateral that banks can offer in exchange for ECB funds, said a central bank official.

The Frankfurt-based central bank’s Governing Council decided yesterday to lower the minimum rating threshold for mortgage-backed securities to BBB- from A-, said the official, who declined to be identified because the discussions were private. Spanish banks have been unable to use some securities as collateral because the rating is too low, the person said.

Banks Need ‘Push’ To Avoid Prolonging Crisis, BIS Says, By Boris Groendahl - Jun 24, 2012 8:00 AM MT, Bloomberg News, http://www.bloomberg.com/news/2012-0...-bis-says.html

“Public policy must move banks to adopt business models that are less risky, more sustainable and more clearly in the public interest,” the BIS said in the report. “Governments can give the banking sector a healthy push in this direction if officials make sure that newly agreed regulations are implemented universally and without delay.”

[davidbfpo]

Try this short video clip from the European Parliament, with Nigel Farage, the UKIP leader, who sums up the incredulous position:http://www.forexlive.com/blog/2012/0...tmare-is-back/

I don't hold with UKIP's policies; the Brussels machine certainly doesn't.

[Surferbeetle]

David,

Politicians are always trouble, but math is math....

Some unpleasant eurozone arithmetic, June 22, 2012 11:50 am by Gavyn Davies, Financial Times, www.ft.com

The next summit on June 28 and 29 will unveil a long term road map towards fiscal and banking union, which in better economic circumstances could appear highly impressive. But the market is currently focused on the shorter term. Unless there is some form of debt mutualisation at the summit, resulting in a decline in government bond yields in Spain and Italy, the crisis could rapidly worsen.

Debt mutualisation can come in many forms. The European Redemption Fund, proposed by the Council of Economic Experts in Germany (and discussed here) seems to have receded into the background this week but could still have an eventual role. More immediately, the main option on the table seems to be the use of the eurozone firewall (ie a combination of the EFSF and ESM) to buy secondary government debt, or inject capital directly to the banks. But the problem here is simple: a lack of money.

Perhaps I am outta line (no insult intended, just genuine curiosity), but I wonder why all of the media the pressure is on the Germans? There are 27 members of the EU (~16 trillion USD combined GDP) who can make structural changes and pitch in to pay the bills? The cost of the EU seems to be much cheaper than the summed cost of the wars we have seen on the continent?

[davidbfpo]

Surferbeetle asks:

I wonder why all of the media the pressure is on the Germans? There are 27 members of the EU...

Yes there can be coverage of other EU members, it is rare true. I've heard on BBC radio mention of Finland, Slovenia and the Czech Republic. Plus the recent converts to the Euro, IIRC a Baltic republic.

It also shows how little we, in the UK and maybe the USA, understand the European economy, but we both are happier to look at Germany.

Back to UKIP's Farage his speech highlights the "bad boys" have to contribute to rescues by borrowing more money and lend it at less than they have to pay.

[Surferbeetle]

TOWARDS A GENUINE ECONOMIC AND MONETARY UNION Report by President of the European Council Herman Van Rompuy, Brussels, 26 June 2012 EUCO 120/12 PRESSE 296 PR PCE 102, http://www.consilium.europa.eu/uedoc.../ec/131201.pdf

The report proposes a vision for a stable and prosperous EMU based on four essential building blocks:

§ An integrated financial framework to ensure financial stability in particular in the euro area and minimise the cost of bank failures to European citizens. Such a framework elevates responsibility for supervision to the European level, and provides for common mechanisms to resolve banks and guarantee customer deposits.

§ An integrated budgetary framework to ensure sound fiscal policy making at the national and European levels, encompassing coordination, joint decision-making, greater enforcement and commensurate steps towards common debt issuance. This framework could include also different forms of fiscal solidarity.

§ An integrated economic policy framework which has sufficient mechanisms to ensure that national and European policies are in place that promote sustainable growth, employment and competitiveness, and are compatible with the smooth functioning of EMU.

§ Ensuring the necessary democratic legitimacy and accountability of decision-making within the EMU, based on the joint exercise of sovereignty for common policies and solidarity.

Cour des comptes, http://www.ccomptes.fr/Nos-activites/Cour-des-comptes

La Cour des comptes a pour mission de s'assurer du bon emploi de l'argent public et d'en informer les citoyens (selon l'article 47-2 de la Constitution).

2012 Article IV Consultation with Italy- Concluding Statement of the IMF Mission1 May 16, 2012, AN AGENDA FOR REVIVING GROWTH IN ITALY, http://www.imf.org/external/np/ms/2012/051612.htm

I. Structural Reforms to Jumpstart Growth
5. The potential gains to growth from deeper structural reforms are substantial.
6. The labor market reform bill should be passed quickly to reduce uncertainty and encourage new hires.
7. More is needed to bridge the gap between permanent and temporary workers and address the high unemployment of youth and women.
8. In product markets, priority should be given to accelerating reforms in the energy, public and professional services sectors with the broadest impact on growth.
9. Helping small and medium-size enterprises (SMEs) grow would facilitate the shift of resources to new growth areas.

Everything flows? The future role of monetary policy, Speech at the 2012 ZEW Economic Forum in Mannheim, Dr Jens Weidmann
President of the Deutsche Bundesbank and Member of the Governing Council of the ECB, http://www.bundesbank.de/Redaktion/E...ry_policy.html

There is no doubt that the crisis has delivered important findings for monetary policy and for monetary union. However, my key message today is to make clear that the paradigms that have been valid to date have by no means suddenly lost their validity. On the contrary, given the challenges that we are facing today, we should not recklessly throw long-held principles overboard and turn our backs on the lessons from the past.

Ultimately, monetary union in its current institutional form was created as a result of lessons learned from past errors. And by that, I do not so much mean German hyperinflation at the beginning of the 1920s, as is all too often assumed by foreign observers. Instead I mean the monetary policy experience gained in the 1970s and 1980s with the extremely heterogeneous development of inflation in Europe. Countries with politically independent central banks and a clear primary objective of price stability, such as Germany, had much lower inflation rates than countries in which central banks were obliged to follow politicians’ instructions and were additionally called upon to pursue fiscal and economic policy goals. This is one of the reasons why the Bundesbank, with its culture of stability, was chosen as a founding model for the Eurosystem.

An independent central bank is necessary for stable prices, but more than that is needed. Price stability is also jeopardised by unsound public finances. If public finances get out of hand, the central bank can come under overwhelming pressure to jump to fiscal policy’s rescue and, in so doing, can undermine its primary objective of price stability.

This lesson is not just derived from theoretical models, it has been evidenced time and time again in the past. A particularly good example from history is the Latin monetary union comprising Italy, France, Belgium, Switzerland and Greece. Even before the treaty of union came into force, Italy’s debt exploded owing to the war with Austria. On 1 May 1866, the government took out a loan with the Banca Nazionale to finance this debt for which Italy departed from the bimetallic standard and imposed an enforced rate of exchange for its banknotes. This enforced monetary financing of war debts triggered the first severe crisis of the Latin monetary union and fuelled a permanent mistrust between the member states.

[Uboat509]

Originally Posted by Surferbeetle

Perhaps I am outta line (no insult intended, just genuine curiosity), but I wonder why all of the media the pressure is on the Germans? There are 27 members of the EU (~16 trillion USD combined GDP) who can make structural changes and pitch in to pay the bills? The cost of the EU seems to be much cheaper than the summed cost of the wars we have seen on the continent?

Germany is the economic powerhouse in the Eurozone. It has maintained low unemployment, low inflation, low debt to revenue ratio and it will have to provide the lion's share of any bailout or rescue funds that are paid out.

[Surferbeetle]

Originally Posted by Uboat509

Germany is the economic powerhouse in the Eurozone. It has maintained low unemployment, low inflation, low debt to revenue ratio and it will have to provide the lion's share of any bailout or rescue funds that are paid out.

Uboat,

Perhaps all 27 nations on a leaking (accumulation of debt) boat should bail out (generation of income) the boat if they want to stay afloat?

The combined GDP of the EU-27 is approximately 16 trillion USD per year while their current combined public debt is estimated at around 10.3 trillion USD. Germany's GDP is ~3.3 trillion USD/year, France's GDP is ~2.7 trillion USD/year, UK's GDP is ~2 trillion USD/year, Italy's GDP is ~1.6 trillion USD/year, Spain's GDP is ~ 1 trillion USD/year, etc.. The EU has previously offered 30 year bonds at 3.75%. Even if the total existing EU-27 debt were to be mutualized there appears to be no way to control future debt accumulation rates nor to balance or offset them with income generation rates for the entire EU-27. There are also a number of significant differences between the responsibilities and obligations of the Eurozone-17 and those of various EU-27 members which serve to further complicate things...

In contrast to the EU-27 both Switzerland and the US levy taxes across all of their cantons (26) and states (50 plus territories), and have mechanisms available to maintain some sort of fiscal and monetary balance for the whole construct. Neither Switzerland nor the US rely upon a single canton (such as Zurich) or single state (such as Texas) to primarily or exclusively fund the remaining cantons or states needs/wants/desires without any (engineering-style) controls. Neither does the international media fixate on Zurich or Texas as descriptor/proxy for the whole. Comparing the EU-27 to Switzerland or the US is probably a step too far given the way things seem to be going...

Nonetheless I am currently wondering about what the possible effects of EU-27 wide/harmonized structural changes such as retirement ages, employment policies, retirement benefits, unemployment benefits, etc. would provide in terms of stabilizing this crisis and how the associated timelines would run when compared to market timelines.

Here are some links that I looked at when thinking about this:

• Eurozone, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Eurozone
  
• European Union, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/European_Union
  
• Multi-speed Europe, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Multi-speed_Europe
  
• Greenspan Says Europe Like A ‘Leaking Boat’ With Holes, By Caroline Fairchild - Jun 29, 2012 4:54 PM MT, Bloomberg News, http://www.bloomberg.com/news/2012-0...ith-holes.html
  
• Some unpleasant eurozone arithmetic, June 22, 2012 11:50 am by Gavyn Davies, FT, www.ft.com
  
• More questions than answers after the summit, June 29, 2012 4:55 pm by Gavyn Davies, FT, www.ft.com
  
• Understanding the European Crisis Now, Published: June 14, 2012, NYT, http://www.nytimes.com/interactive/2...html?ref=world
  
• Polarised prospects, May 10th 2012, 17:21 by The Economist online, http://www.economist.com/blogs/graph...-economy-guide
  
• Europe government's debts: how much do they owe?, 30.06.12 Updated 06.30, The Guardian, http://m.guardian.co.uk/news/datablo...s&type=article
  
• EU successfully issued long-term bond with 30y maturity, funding loans of € 3 billion for Ireland and Portugal, Brussels, 9 January 2012, http://europa.eu/rapid/pressReleases...ence=MEMO/12/4
  
• How to calculate accrued interest, THURSDAY, DECEMBER 21, 2006, http://accruedint.blogspot.com/2006/...erest.html?m=1
  
• Europe’s Counterproductive Economic Policies Proceeding as Expected, FRIDAY, MARCH 23, 2012, Naked Capitalism, http://www.nakedcapitalism.com/2012/...-expected.html
  
• ECB May Need To Buttress Bond-Market Respite Leaders Made, By Simon Kennedy and Rebecca Christie - Jun 29, 2012 5:01 PM MT, Bloomberg News, http://www.bloomberg.com/news/2012-0...-buttress.html

[Surferbeetle]

Der Teufel steckt im Kleingedruckten, Eine Kolumne von Wolfgang Mnchau, 04.07.2012, Der Spiegel, http://www.spiegel.de/wirtschaft/wol...-a-842488.html

Montis Triumph, Merkels Demtigung? Von wegen! Auf dem EU-Gipfel am Freitag hat die Kanzlerin in Wahrheit keine entscheidenden Positionen preisgegeben. Was auch bedeutet: Die Wahrscheinlichkeit, dass die Whrungsunion zerbricht, ist weiter gestiegen.

France Raises Taxes On Rich, Companies To Narrow Budget Gap, By Gregory Viscusi, Helene Fouquet and Mark Deen - Jul 4, 2012 5:19 AM MT, Bloomberg News, http://www.bloomberg.com/news/2012-0...udget-gap.html

Frances two-week-old Socialist government unveiled 7.2 billion euros ($9 billion) of tax increases to meet deficit-reduction goals and avoid bond-market punishment.

The 2012 measures, approved at a Cabinet meeting today, presage even larger tax increases and spending cuts next year in an economy thats barely expanding.

Situation et perspectives des finances publiques 2012, Cour des Comptes, http://www.ccomptes.fr/Presse/Commun...publiques-2012

La France sest engage sur une trajectoire de retour lquilibre de ses comptes publics dont le respect est essentiel pour assurer sa crdibilit, la matrise de son destin et pour continuer de peser dans le concert europen. Ce redressement indispensable est exigeant mais possible. Les annes 2012 et surtout 2013 sont des annes charnires.

Pour lanne 2012, laudit dtaill men par la Cour la demande du Gouvernement montre que le respect de lobjectif de dficit public fix 4,4 % exige sans tarder des mesures correctrices, afin de compenser le risque de manque gagner sur les recettes que la Cour value ce stade dans une fourchette de 6 10 Md.

Leffort fournir en 2013 sera beaucoup plus important : dans lhypothse dune croissance de 1%, la Cour lvalue 33 Md de mesures nouvelles, qui devront tre partages entre conomies sur les dpenses et recettes nouvelles. Ces conomies ne pourront tre ralises que si toutes les administrations publiques y contribuent, ltat mais aussi la scurit sociale et les collectivits territoriales, dans le cadre dune nouvelle gouvernance densemble. Les dcisions qui devront tre prises appellent une volution en profondeur des modalits de laction publique, afin de clarifier les responsabilits et de remettre en cause les trop nombreuses dpenses publiques inefficaces.

La Cour publie chaque anne un rapport sur la situation et les perspectives des finances publiques en vue du dbat dorientation que doit tenir le Parlement. Cette anne, ce rapport inclut des dveloppements spcifiques pour rpondre la demande du Premier ministre du 18 mai 2012 dvaluer les risques pesant sur le respect des objectifs pour 2012 et de mesurer les enjeux du redressement pour les annes suivantes.

Libor affair shows bankings big conceit, By Dr. Gillian Tett, June 28, 2012 7:25 pm, FT, www.ft.com

Sometimes in life it feels sweet to say “I told you so”. This week is one such moment. Five long years ago, I first started trying to expose the darker underbelly of the Libor market, together with Financial Times colleagues such as Michael Mackenzie.

At the time, this sparked furious criticism from the British Bankers’ Association, as well as big banks such as Barclays; the word “scaremongering” was used. But now we know that, amid the blustering from the BBA, the reality was worse than we thought. As emails released by the UK Financial Services Authority show, some Barclays traders were engaged in a constant and pervasive attempt to rig the Libor market from 2006 on, with the encouragement of more senior managers. And the British bank may not have been alone.

What’s in a Number?, Donald MacKenzie on the Importance of Libor, Vol. 30 No. 18 · 25 September 2008, pages 11-12 | 4012 words, London Review of Books, http://www.lrb.co.uk/v30/n18/donald-...ts-in-a-number

On 23 October, Donald MacKenzie writes: My article on Libor went to press just before Lehman Brothers filed for bankruptcy and governments in the US and Europe had to intervene to avert the collapse of much of the global banking system. As the article explains, Libor anchors contracts totalling about $300 trillion, the equivalent of $45,000 for every human being on the planet. It is calculated from banks’ reports of the rates of interest at which other banks are prepared to lend them money. This interbank lending has come close to drying up at each of the peaks of the credit crunch, and the failure of Lehman Brothers and the subsequent banking crisis caused it to do so almost entirely. Libor has therefore been attempting to capture conditions in what has become nearly a non-existent market.

Promises of massive infusions of government capital, and government guarantees that those who lend to banks will get their money back, seem now to have stabilised the international banking system somewhat, although no one imagines the crisis is over. One of the government’s priorities is to get banks lending to each other again, and if they succeed that will help repair the foundations of Libor. There are indeed signs that lending to banks is resuming, and Libor rates have gradually been edging downwards. On 13 October, for example, three-month US dollar Libor was 4.75 per cent; a week later it was down to 4.06 per cent.

The widespread state intervention in the banking system will, however, pose new questions, such as how to treat, when calculating Libor, those interbank loans that are guaranteed by governments. The interest rate on such loans will be lower (perhaps much lower) than loans without that guarantee, and that could affect the value of Libor considerably. For many years Libor was part of the unnoticed infrastructure of financial markets. Now, I expect, it will remain in the spotlight for some time to come.

Banker to the Bankers Knows the Numbers Are Lying, By Jonathan Weil Jun 28, 2012 4:30 PM MT, Bloomberg News, http://www.bloomberg.com/news/2012-0...are-lying.html

he Bank for International Settlements, which acts as a bank for the world’s central banks, should know fudged numbers when it sees them. What may come as a surprise is how openly it has been discussing the problem of bogus balance sheets at large financial companies.

“The financial sector needs to recognize losses and recapitalize,” the Basel, Switzerland-based institution said in its latest annual report, released this week. “As we have urged in previous reports, banks must adjust balance sheets to accurately reflect the value of assets.” The implication is that many banks are showing inaccurate numbers now.

BIS Annual Report 2011/2012, 24 June 2012, http://www.bis.org/publ/arpdf/ar2012e.htm

The global economy has yet to overcome the legacies of the financial crisis to achieve balanced, self-sustaining growth. In different ways, vicious cycles are hindering the transition for both the advanced and emerging market economies. After reviewing the past year's economic developments (Chapter II), the 82nd Annual Report addresses fundamental aspects of these vicious cycles: unfinished structural adjustments (Chapter III), risks in the current stances of monetary (Chapter IV) and fiscal policy (Chapter V), and the ongoing challenges of financial reform (Chapter VI). Chapter I underscores the themes and policy conclusions of the latter four chapters, and in a special section examines them in the context of problems in Europe's currency union.

[Firn]

Originally Posted by Surferbeetle

Uboat,

Perhaps all 27 nations on a leaking (accumulation of debt) boat should bail out (generation of income) the boat if they want to stay afloat?

The combined GDP of the EU-27 is approximately 16 trillion USD per year while their current combined public debt is estimated at around 10.3 trillion USD. Germany's GDP is ~3.3 trillion USD/year, France's GDP is ~2.7 trillion USD/year, UK's GDP is ~2 trillion USD/year, Italy's GDP is ~1.6 trillion USD/year, Spain's GDP is ~ 1 trillion USD/year, etc.. The EU has previously offered 30 year bonds at 3.75%. Even if the total existing EU-27 debt were to be mutualized there appears to be no way to control future debt accumulation rates nor to balance or offset them with income generation rates for the entire EU-27. There are also a number of significant differences between the responsibilities and obligations of the Eurozone-17 and those of various EU-27 members which serve to further complicate things...

The EU is quite a chapter on its own, with its powers very diverse from one area to the other. There is a lot of talk about "more Europe" but the healthier states seem to want quid pro quo, while the nations in crisis want the quid but hate the quo. The German-Greek conflict shows it in stark contrast.

We already discussed the issues of debt and there are some ways to handle it over the long term, from the haircut to inflation. Currently the spread makes it harder for nations like Italy to handle debt with the conventional means which increases the still remote likelyhood on unconventional ones.

To be honest I was rather shocked by the news in this article.

I FINANZIAMENTI - Succede la stessa cosa anche per altri settori come l'arredamento, l'elettronica, gli elettrodomestici, per cui i finanziamenti sono diminuiti sia nel 2011 (-5,8%) che nel primo trimestre 2012 (-11%). «In un contesto caratterizzato dalla perdurante incertezza derivante dalla crisi economica e finanziaria ancora irrisolta e da un clima di fiducia che resta su valori minimi - si legge nel rapporto dell'Osservatorio - le famiglie italiane hanno limitato i consumi e si sono dimostrate molto prudenti nell'accensione di nuovi finanziamenti. In particolare i consumi di beni durevoli, per l'acquisto dei quali più frequentemente si ricorre ad un finanziamento, hanno registrato una netta contrazione, mostrando una flessione in linea con quella rilevata per i flussi di credito al consumo».

It is the old story, the economy is bad and people are cutting back which makes the situation even worse. Keep in mind that Italy has little private but high public debt which makes, or would make, a stimulation of the economy difficult. Spain has also a debt problem but with high private and (formerly) low public debt. With more talk now about crescita/growth but never ending flow of "austerity", with cuts here and there and new taxes planned or confirmed combined with a bad job market it is absolutely no surprise that many people have become careful.

The mutui for houses are most likely hit that hard because it is such a big investment and painful new taxes concerning housing.