Summary: Read today’s earlier post for an outline of events.
Quote of the day: “Euro-zone governments have effectively spent the past year making a departure from the euro zone ever more attractive, and therefore vastly more likely.” – The Economist
Quote of the day 2: “The real question is what will happen when one of the smaller nations thumbs its nose at France and Germany someday, over some EU agreement, and then claims exemption from the relevant penalties.” – Tyler Cowen / Marginal Revolution in 2003, after Germany and France broke the 3% budget deficit rule.
Ambrosetti Forum (Lake Como) earlier today, finance ministers, central bankers, economists, following points were tweeted from the event by a BBC journalist:
- Periphery nations now responsible for 74% of eurozone money creation
- Balance of payment deficits of Greece and other struggling European countries "entirely financed by central bank money".
- Periphery central banks "owe" the euro system €330 billion ($467 billion)
- Official vote: majority (49%) of the participants did not believe the euro system will remain in its current form in three years' time.
- "Senior European official" had pointed out that "orderly" currency break-ups are "perfectly possible", mentioning the example of Czechoslovakia in 1993.
Domenico Modugno - Nel blu dipinto di blu (Volare).
The 1958 Italian Eurovision entry. Just to keep the spirits up.
EURO CRISIS
German Constitutional Court delivers verdict on bailouts, ECB bond purchases 7th Sep:
“Court almost certain to approve bailouts, but could lay down constitutional red lines, hugely complicating moves to fiscal union, leaving everything again to ECB”.
(pdf) The Karlsruhe Factor: What will the German Constitutional Court ruling mean for the eurozone crisis? – Open Europe
Includes links to further reading and e-books, worth a look. Recommendations: immediately either 1) ECB continues backstopping bond markets, but with political mandate OR 2) Eurobonds. After that, either 1) nations adopt credible fiscal brakes OR 2) fiscal union
Welcome to phase 2 of the Eurozone (EZ) crisis – voxeu.org
U.S. tried a loose confederation of 13 states, and it failed. Europe has tried to solve the crisis for 18 months, and are learning the same lesson.
SocGen rates strategy team’s notes on Italian ratings. Moody’s will probably lower in coming days, S&P unsure and Fitch would have to put Italy “under review” first. Markets are ahead the agencies.
About the Italian downgrade rumours… - alphaville FT
“Euro-zone governments have effectively spent the past year making a departure from the euro zone ever more attractive, and therefore vastly more likely.”
Europe's debt crisis: Ready for the fall – Free exchange / The Economist
Interesting points: “The more the eurozone’s ineffective governance is criticized, the greater becomes the euro’s importance as a non-political currency that represents a secure store of value.”
The Eurozone’s Strength in Disunity – Project Syndicate
“Europe’s banking-sector liabilities are nearly five times higher than in the US, at 345% of GDP. Germany’s banks are leveraged at 32 times their assets. So, not only is bank recapitalization essential for financial stability, but so is a reformed euro, built on fiscal and monetary coordination and an enhanced role for the ECB in supporting individual governments (not individual banks) as lender of last resort.”
Divided We Fall – Gordon Brown / Project Syndicate
FINANCIAL CRISIS
30-year data sample: “Consistent with a conflict of interest in an issuer-pays compensation structure, ratings standards are inversely correlated with revenue generation among the asset classes.”
SocGen’s interesting research piece discusses the feedback between U.S. and euro crisis and argues there is a self-reinforcing negative feedback going on.
Must-read Washington Post-piece. The rich got richer, while everyone else remained the same.
WP: Special Report on “Breakaway Wealth” – The Big Picture