Monday, November 21, 2011

Dear European Politician

Dear Mr/Mrs/Miss European Politician.

Nearly 13 years ago you implemented a system of monetary union in Europe which, you told us, would be the framework on which to hang future prosperity and cohesion, allowing Europe to take the next step towards unity. At the time we pointed out that a common currency should be the last piece of the merger jigsaw to fall into place and not the first. Analogies of putting a fence around 2 TGVs as they crossed each other in opposite directions assuming that the fence would hold them together were pooh-poohed as the sign of a lacking of understanding as to how Europe worked. Since the introduction of the Euro, you have maintained that nothing could or would rent the Euro asunder as it is at the heart of what IS Europe. Yet here we are, hearing that distinguished institutions are now planning for the break up of the monetary zone and watching confidence in your grand plan evaporate. Yet what are you doing to defend this beating heart of Europe? Nothing. In fact, worse, you have positively rejected any solution that has been suggested to you. As such we would be grateful if you would answer the following questions

1) What has changed to make you realise that the Euro may not work?
2) Why are you doing so little to make it work?
3) Whose fault is it that we are in such a mess and what will be done to those responsible?

With respect to your answer to no 3, we would imagine that despite your "Buck stops here" status, you will try to blame anyone apart from yourselves. We also suspect you will try to blame bankers, but we would advise you to think carefully about your response. The banks may well have taken ridiculous advantage of sets of rules they were given by you, the regulator and the accountants, but in the case of Europe the world is beginning to suspect that the arrogance of the political classes is at the core of the problem. So perhaps humility after your hubris would be a better recourse.

Yours Team Macro Man


Anonymous said...

I know this stuff goes down well with the City readership, but this contribution could be summarised as: "I did not conduct due diligence on who I was lending to. I will blame...the currency!"

Please write about trading.

ROFF said...

@ anon 6pm
And I suppose your, err, contribution could be summed up as "I canning conduct any due diligence, so I will blame the blog"? C'mon guy. Constructive comments please.

Polemic said...

thanks ROFF
and to anon 6.00

We aren't blaming the currency for anything. As a long time reader of this blog you no doubt will know that TMM has held out that their euroscepticism was nothing compared to the intensity and ferocity with which they expected the euro-politicians to defend their baby. However much we may have thought it the runt in the litter, as on some nature program, it's still pretty shocking when you see the mother just give it up for dead without making any effort at all. Or even eat it.

So who are we blaming ? Ourselves of course, for giving anyone the benefit of the doubt especially when it goes against our core beliefs in the first place. So what have we learnt? Probably that given the importance of the issue that the European politicians are screwing up, the U.S. lot are going to completely butcher any chance of an easy budget.

As for talking about trading.. I think it's fair to say that the last month's trading has been totally dominated by the actions of europoliticians, so sorry if you were after some "buy here sell there posts". You can go back and reread the one on SEK if you like

a pretty downbeat Pol

PS normally we'd say "Stuff what you want, we'll write what we want"!, but after your generous donation to our Xmas appeal we can hardly say that can we!

Corey said...

Cheer up Pol,
Just remember what a famous trader once said:

Bulls get slaughtered,
Bears get slaughtered,
PIIGS get bailedout...eventually

PON (printers on)

Polemic said...

Thanks Corey ;-)

Kerpal said...
This comment has been removed by the author.
Kerpal said...

Excellent post - I am using this Thanksgiving week to consider alternatives in life; I'm writing an excel programme to help me pick lottery numbers.

WellRed said...

It is pretty ironic how we all chided the Japanese for not having leaders bold enough to take (sustained) bold action in the face of a very serious crisis. Central bankers got off to a pretty good start, but politicians dropped the baton..

Ya think democratic "accountability" has anything to do with it?

gv said...

A pity! The article started so well, and ended with a paragraph that doesn't rise above kindergarten level.
Everyone seems to have caught the virus of 'blame the other' ... just like kids do.

You could have exposed the politicians because they do carry a lot of responsiblity for this financial charade, but you, as many others nowadays, give the impression that the main purpose of blaming the other is wash your own hands (pointing at the financial sector not you as a person) in innocence.

So what really goes on in your mind: an analysis of poor politics and their stake in the crisis or a kid's blame game (and I don't care which kid started the game)?

Martin Ghoul said...
This comment has been removed by the author.
Polemic said...

gv, That is NOT at all what I am saying.

I am saying that what we need in the cases of both bankers and politicians, and come to that everyone these days, is responsibility to be taken for failures (as well as successes). Bankers were indeed responsible for taking the pss and they rightly got it in the neck for it too. So in this case so should the politicians. I am not washing any hands in the blame game, I am trying to say that those with dirty hands should say "mea culpa" whoever they are.

gv said...


If that was on your mind, I couldn't agree more.
Did I read it wrong, or didn't you express it well ... let us skip a blame game :)

Alen Mattich said...

Could it be that Europeans are rediscovering they don't actually trust or even like each other much now that the free lunch of zero spreads has proven to be a mirage?

Anonymous said...

C says'
The problem is crisis attracts cohesion and failing that multiple parties fight a war of self interest. Amazing though it may seem though the major movers and shovers here understand this too well and also understand that at this time their self interest does not actually gel with an immediate non crisis solution.So here we have a market begging for a sohesive step in soltuion and the people who could supply that have a self interest that requires the opposite.
Whoever said life was simple.

Anonymous said...

They could still save Euro.

Short term: commitment by ECB to purchase bonds in unlimited amount, to drive yields down to where Italy and Spain can hang on - but not low enough for them to skip reforms. Also rates to 0%.

Intermediate term: stimulus by North European countries to boost demand

Long term: eurobonds so Germany can press the boot down on France, Italy and Spain to keep their reforms going and enforce fiscal discipline

But more likely it's going to be half-measures until the whole system breaks apart.

There have been newspaper articles in my country (Finland) suggesting the possibility for a Nordic monetary union with Finland, Sweden, Denmark, Norway and Iceland. While I think such a union should have been adopted instead of Euro, the thing is, we shouldn't be even entertaining that possibility and it's out in the open.

Seems like the elite is slowly giving up on the Euro project and moving towards the back door.

Anonymous said...

EU is dead, and the best the world can hope for is stagflation for 30 years.

The past 30 years of 'growth' was built on debt, which must be repaid.

Anonymous said...

Anon 10:55AM...

Speaking of Iceland, we are doing well, having defaulted on 85 billion and indicting the bankers.

via Bloomberg:

Iceland may hold new currency auctions within weeks as the island scales back its defenses against capital flight, central bank Governor Mar Gudmundsson said.

“We’ll begin the auctions as soon as we get applications from the intermediaries and when the amounts are sufficient to permit an auction,” Gudmundsson said in an interview in Reykjavik. “I’m hoping that it will be in the next weeks.”

The island, whose banks defaulted on $85 billion in 2008, is moving into the final stages of its resurrection plan as the last vestiges of crisis management are gradually removed. Iceland’s decision, taken together with the International Monetary Fund, to impose capital controls three years ago was key to surviving the bleakest moments of the crisis and helped prevent an all-out run on the island’s assets, Gudmundsson said.

“Without the capital controls it would have been much more difficult to ensure stability in the exchange rate, calling for much higher interest rates and an inability to shelter the domestic economy as well as we did,” he said. “With the turbulence in the international markets lately, the capital controls have sheltered Iceland considerably, since there’s no way of doing a run on the financing of the Icelandic state or the financing of the Icelandic banks.”

The auctions are part of a first phase to free up offshore kronur. A second phase will deal with foreign investors’ holdings of onshore kronur, according to the central bank. That phase will start when the offshore and onshore rates converge. Offshore kronur trade at about 250 to the euro, according to Reykjavik-based brokerage HF Verdbref. The onshore rate was 159.35 on Nov. 18.

Outperforming Euro Area

Iceland’s economy will grow faster than the euro-area average this year and next, the IMF estimated in September. The cost of insuring against an Icelandic default, using credit default swaps, is lower than the average for the euro area.

Iceland’s economy will grow 2.5 percent this year and next, versus 1.6 percent in the euro area this year and 1.1 percent in 2012, the IMF said Sept. 20. Next year, Iceland’s current account surplus will widen to 3.2 percent of the economy and unemployment will be 6 percent, versus 9.9 percent joblessness in the euro area, the fund said.

The stabilization of the island’s economy has allowed the central bank to press ahead with capital liberalizations that the government estimates won't be fully dropped until 2013. The approach allows foreign investors eager to offload their krona holdings to transfer them to foreign or local investors willing to commit long-term to the island, according to the central bank.
Foreign Direct Investment

“This will show how much interest there is in direct foreign investment in Iceland,” Gudmundsson said. “This step will help us considerably in reducing the amount of offshore kronur and transferring them from those, who might unwillingly hold them, into the hands of those who are willing to use them in Iceland. That will have a great effect on how we’ll be able to move on to the full abolishment of capital controls.”

The process is the second step of the first phase in easing controls. The first step had allowed investors, via foreign currency auctions, to place kronur in long-term government bonds. The second step broadens the terms to allow investors to place their kronur in assets such as equities and real estate. The bank isn’t progressing according to a timetable, and announces each step once the economic and financial conditions are in place.

“How many weeks” it takes before the currency auctions start “and whether it will be less than a month or more than a month is hard to say,” Gudmundsson said. “There are no guarantees that this will take place before Christmas, and if not, then hopefully we’ll be able to have a strong beginning in 2012.”

Leftback said...

Meanwhile, back in the US, the "Jackanory"* version of Q3 GDP has been downgraded from 2.5% to a more believable 2.0%. You may remember that we had given that one the collective eye roll when it came out. It is, as they say, already priced in, at least in the Treasury market.

A bit more equity weakness this morning before we have the traditional low volume run-up into the holiday, maybe even triggering a bit of short covering?

*BBC kids program. Rhymes with "tell a story".

Secret--Sauce said...

Hey Roubini - is the EU dead or deceased?

Sheesh. Crawl out of the basement a little more often buddy. Your skin (probably) won't catch fire.