Met de euro wordt Russische roulette gespeeld

Otmar Issing on why the euro ‘house of cards’ is set to collapse
Euro 'house of cards' to collapse, warns ECB prophet
16 October 2016 • 4:51pm

The European Central Bank is becoming dangerously over-extended and the whole euro project is unworkable in its current form, the founding architect of the monetary union has warned.

"One day, the house of cards will collapse,” said Professor Otmar Issing, the ECB's first chief economist and a towering figure in the construction of the single currency.

Prof Issing said the euro has been betrayed by politics, lamenting that the experiment went wrong from the beginning and has since degenerated into a fiscal free-for-all that once again masks the festering pathologies.

“Realistically, it will be a case of muddling through, struggling from one crisis to the next. It is difficult to forecast how long this will continue for, but it cannot go on endlessly," he told the journal Central Banking in a remarkable deconstruction of the project.


Prof Issing has lambasted the European Commission Credit: francois lenoir

The comments are a reminder that the eurozone has not overcome its structural incoherence. A beguiling combination of cheap oil, a cheap euro, quantitative easing and less fiscal austerity have disguised this, but the short-term effects are already fading.

The regime is almost certain to be tested again in the next global downturn, this time starting with higher levels of debt and unemployment, and greater political fatigue.

Prof Issing lambasted the European Commission as a creature of political forces that has given up trying to enforce the rules in any meaningful way. "The moral hazard is overwhelming," he said.

The European Central Bank is on a "slippery slope" and has in his view fatally compromised the system by bailing out bankrupt states in palpable violation of the treaties.

"The Stability and Growth Pact has more or less failed. Market discipline is done away with by ECB interventions. So there is no fiscal control mechanism from markets or politics. This has all the elements to bring disaster for monetary union.

"The no bailout clause is violated every day," he said, dismissing the European Court's approval for bailout measures as simple-minded and ideological.

The ECB has "crossed the Rubicon" and is now in an untenable position, trying to reconcile conflicting roles as banking regulator, Troika enforcer in rescue missions and agent of monetary policy. Its own financial integrity is increasingly in jeopardy.


Prof Issing slammed the first Greek rescue in 2010 Credit: Marko Djurica

The central bank already holds over ¤1 trillion of bonds bought at "artificially low" or negative yields, implying huge paper losses once interest rates rise again. "An exit from the QE policy is more and more difficult, as the consequences potentially could be disastrous," he said.

"The decline in the quality of eligible collateral is a grave problem. The ECB is now buying corporate bonds that are close to junk, and the haircuts can barely deal with a one-notch credit downgrade. The reputational risk of such actions by a central bank would have been unthinkable in the past," he said.

Cloaking it all is obfuscation, political mendacity and endemic denial. Leaders of the heavily indebted states have misled their voters with soothing bromides, falsely suggesting that some form of fiscal union or debt mutualisation is just around the corner.

Yet there is no chance of political union or the creation of an EU treasury in the forseeable future, which would in any case require a sweeping change to the German constitution - an impossible proposition in the current political climate. The European project must therefore function as a union of sovereign states, or fail.

Prof Issing slammed the first Greek rescue in 2010 as little more than a bailout for German and French banks, insisting that it would have been far better to eject Greece from the euro as a salutary lesson for all. The Greeks should have been offered generous support, but only after it had restored exchange rate viability by returning to the drachma.

His critique will exasperate those at the ECB and the International Monetary Fund who inherited the crisis, and had to deal with a fast-moving and terrifying situation.

The fear was a chain-reaction reaching Spain and Italy, detonating an uncontrollable financial collapse. This nearly happened on two occasions, and remained a risk until Berlin switched tack and agreed to let the ECB shore up the Spanish and Italian debt markets in 2012.

Many would say the crisis mushroomed precisely because the ECB was unable to act as a lender-of-last resort. Prof Issing and others from the Bundesbank were chiefly responsible for this design flaw.

Jacques Delors, the euro's "political" founding father, issued his own candid post-mortem last month on the failings of EMU but disagrees starkly with Prof Issing about the nature of the problem.

His foundation calls for a supranational economic government with debt pooling and an EU treasury, as well as expansionary policies to break out of the "vicious circle" and prevent a second Lost Decade.

"It is essential and urgent: at some point in the future, Europe will be hit by a new economic crisis. We do not know whether this will be in six weeks, six months or six years. But in its current set-up the euro is unlikely to survive that coming crisis," said the Delors report.

Prof Issing is not a German nationalist. He is open to the idea of a genuine United States of Europe built on proper foundations, but has warned repeatedly against trying to force the pace of integration, or to achieve federalism "by the back door".

He decries the latest EU plan for a "fiscal entity" in the Five Presidents' Report, fearing that such move would lead to a rogue plenipotentiary with unbridled powers over sensitive issues of national life, beyond democratic accountability.

Such a system would erode the budgetary sovereignty of the member states and violate the principle of no taxation without representation, forgetting the lessons of the English Civil War and the American Revolution.

Prof Issing said the venture began to go off the rails immediately, though the structural damage was disguised by the financial boom. "There was no speed-up of convergence after 1999 – rather, the opposite. From day one, quite a number of countries started working in the wrong direction."

A string of states let rip with wage rises, brushing aside warnings that this would prove fatal in an irrevocable currency union. "During the first eight years, unit labour costs in Portugal rose by 30pc versus Germany. In the past, the escudo would have devalued by 30pc, and things more or less would be back to where they were."

"Quite a few countries – including Ireland, Italy and Greece – behaved as though they could still devalue their currencies," he said.

The elemental problem is that once a high-debt state has lost 30pc in competitiveness within a fixed exchange system, it is almost impossible to claw back the ground in the sort of deflationary world we face today.

It has become a trap. The whole eurozone structure has acquired a contractionary bias. The deflation is now self-fulling. Prof Issing's purist German ideology has no compelling answer to this.
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Erg lang artikel, maar zeker eentje die de moeite van het lezen waard is. Is eigenlijk een goede samenvatting van al hetgeen wat hier boven gepost is.

quote:

"Quite a few countries – including Ireland, Italy and Greece – behaved as though they could still devalue their currencies," he said.

The elemental problem is that once a high-debt state has lost 30pc in competitiveness within a fixed exchange system, it is almost impossible to claw back the ground in the sort of deflationary world we face today.

Deze quote geeft precies aan waar waar de grootste ontwerpfout van de euro zit. Die landen (+ Portugal), zullen nooit meer (lees de komende 30+ jr) gezond concurerend worden ten opzichte van Noord Europa. Ergo : Die landen hadden nooit deel uit mogen maken van het Europese project. En daar gaan ze nu heel zwaar voor betalen.

quote:

It has become a trap. The whole eurozone structure has acquired a contractionary bias. The deflation is now self-fulling. Prof Issing's purist German ideology has no compelling answer to this.

[ Bericht 0% gewijzigd door Drugshond op 18-10-2016 06:52:26 ]

quote:

Op dinsdag 18 oktober 2016 06:14 schreef nixxx het volgende:
Niet alleen die landen gaan er zwaar voor betalen.. ik denk dat het, tegen alle gezond verstand, doorzetten van het europroject noordwest Europa ook heel veel gaat kosten.

Mjah, Beter ten halve gekeerd dan ten hele gedwaald.
Op vele van die Z-Europese junk leningen zit natuurlijk een default garantie van het ECB. Maar direct- of indirect is de nevenschade hetzelfde (voor de belastingbetaler).

Brussels warns Italy to cut public debt by April
European Commission also says Germany’s current account surplus ‘not healthy’

Brussels has warned Italy to cut its record public debt by April to avoid breaching EU budget rules.

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The European Commission said on Wednesday that Italy’s debt represented “a major source of vulnerability” as it urged Rome to meet its commitments to adopt pension reforms and other “structural measures” worth 0.2 per cent of gross domestic product.

Valdis Dombrovskis, vice-president of the commission in charge of eurozone issues, said “as of today there would be a case to open an excessive deficit procedure for Italy”. Formal decisions on whether Rome has done enough to meet its obligations would be made in May, he said.

The warning came as the commission reported on the economic performance of EU member states, including on the politically contentious issue of Germany’s outsize trade surplus.

Brussels noted that Germany’s current account surplus, which is estimated to have hit a record 8.7 per cent of GDP in 2016, was “not healthy” for the euro area, creating “very significant distortions both economically and politically”. But the commission held back from applying additional pressure on Berlin to boost spending.

Driven largely by its export performance, Germany has helped drive the eurozone’s current account surplus to its highest since the start of the single currency area in 1999. A current account is a balance of goods and income with the rest of the world.

The warning to Rome is the latest chapter in a long-running saga that has seen Italy repeatedly fail to honour its commitments to rein in its debt, which is set to rise to 133.3 per cent of GDP this year. Last autumn, the commission was taken aback by Italy’s draft budget plans for 2017, which ran roughshod over pledges of fiscal discipline made only several months earlier.



Pier Carlo Padoan, Italy’s finance minister, has argued that Brussels should show the country more leeway given the challenges it faces from the cost of last year’s earthquake, the migration crisis and a sluggish economic recovery. The commission already takes such mitigating factors into account in how it applies the rules, although Rome says it needs to go further.

Brussels is well aware that the issue has become politically toxic in Italy, where the incumbent centre-left Democratic party is being hard pressed by the anti-establishment Five Star Movement which has called for a referendum on the euro.

Wednesday’s report cites high pension costs and delays in privatisation as two factors fuelling Italy’s stubbornly high debt, which this year is set to reach the highest level in the postwar era, more than double the EU ceiling of 60 per cent of GDP.

Brussels emphasised that Rome has a window to address the issue before it takes formal decisions on EU capitals’ budgetary compliance in May, and stressed that it was simply asking Italy to honour commitments it had already made.

“I sincerely hope and believe that this fiscal effort can be delivered on time,” said Pierre Moscovici, the EU economy commissioner.


Explaining why the commission did not take a tougher line on Germany, Mr Moscovici pointed to signs that Berlin had moved to boost “public investment and government investment, which is something we asked them to do”.

Brussels has tried various tactics to address the German surplus, which is resented in southern European countries as a trade juggernaut that stifles their own competitiveness. Last year, Mr Moscovici called on the euro area to back a fiscal expansion of up to 0.5 per cent of GDP — an indirect way of asking Germany to boost spending, which was rebuffed by Berlin.

Germany has celebrated its surplus and balanced budget as a key pillar of its economic performance, with economists in the country accusing Brussels of wanting it to apologise for success.

EU officials, along with the European Central Bank and International Monetary Fund, have long urged Germany to spend more to boost growth and inflation in its domestic economy that will spillover into the rest of the continent.

The commission also warned that while key economic data in the EU were improving, large stocks of non-performing loans weighed down the banking system.

Mr Dombrovskis said the EU would work on a strategy to deal with the problem of NPLs, which is set to be discussed by finance ministers in April.
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Nou, Hoelang zal het gaan duren voordat Italië Griekenland achterna gaat.
Nu wil Brussel het afdwingen dat Italië nu eens eindelijk gaat hervormen. De plannen zijn er de politieke daadkracht natuurlijk niet.
Wat steeds meer duidelijke wordt. Is is dat de Zuidelijke EU-landen gewoon niet mee kunnen komen met dezelfde euro.Kan M. Dragi printen wat hij wil,voor de zuidelijke EU-landen landen lost het gewoon niks op. Als Italië eruit klapt is het gedaan met de EU.

Italië zou wel willen devalueren maar kan het niet. Duitsland hoeft niet te devalueren en misbruikt de euro voor hun export.