Monday, September 10, 2012
A crude rule of thumb is that every $100 billion of deficit reduction will cost close to a million jobs in the near term. If that isn't a reason to move gradually, what is? But if you need another, just look at Europe.
Sent from my iPhone
'The ESM is not only patently in breach of the German constitution, it also violates every relevant provision of the EU treaties. Article 123 of the Treaty on the Functioning of the European Union (TFEU) – which replaced the EC treaty – forbids the use of the printing press to bankroll governments and public authorities, makes it unlawful for them to borrow from the ECB or the national central banks, and expressly prohibits the sale of government bonds to the ECB.
The ESM would create a parallel "bad bank", which would be allowed to do everything the ECB is ostensibly prevented from doing under the treaties: to buy government bonds directly, to lend to national government, to grant such loans without any prescribed limit, and to rescue insolvent banks. Once the ESM runs out of money, it can borrow directly from the ECB – which will print the funds needed.
Moreover, the ECB president, Mario Draghi, has already indicated that he would take bond buys by the ESM as a green light that the ECB is no longer bound by the restrictions of article 123. At present the ECB has about €220bn in sub-standard Greek and other southern European government bonds on its balance sheet, in addition to much a higher sum of "shaky" government debt instruments deposited by banks as "securities" for ECB loans. Draghi refuses to disclose the breakdown of government debt on the ECB's books or their credit rating. The ESM treaty effectively provides for the mutualisation of national debt within the EU with no upper limit. Save for eurobonds, there could be no more flagrant violation of the "no bail" clause of article 125…
Yet, despite the ESM breaching German law and EU treaties, few observers expect Germany's constitutional court to say so, although many think it may ask for minor changes.
If implemented, the ESM will reverse the greatest 19th-century political achievement in Europe: the transfer of the power to determine taxation and expenditure from unaccountable monarchical governments to formally accountable parliaments. The eurocratic transformation will have taken place through systematic disregard by the EU institutions and its member states of practically all legal and constitutional safeguards put in place to prevent precisely the disaster that has befallen the eurozone now.'
Wednesday, September 5, 2012
'After working six years as a senior executive for a multinational payroll-processing company in Barcelona, Spain, Mr. Vildosola is cutting his professional and financial ties with his troubled homeland. He has moved his family to a village near Cambridge, England, where he will take the reins at a small software company, and he has transferred his savings from Spanish banks to British banks.
"The macro situation in Spain is getting worse and worse," Mr. Vildosola, 38, said last week just hours before boarding a plane to London with his wife and two small children. "There is just too much risk. Spain is going to be next after Greece, and I just don't want to end up holding devalued pesetas."
Mr. Vildosola is among many who worry that Spain's economic tailspin could eventually force the country's withdrawal from the euro and a return to its former currency, the peseta. That dire outcome is still considered a long shot, even if Spain might eventually require a Greek-style bailout. But there is no doubt that many of those in a position to do so are taking their money — and in some cases themselves — out of Spain.
In July, Spaniards withdrew a record 75 billion euros, or $94 billion, from their banks — an amount equal to 7 percent of the country's overall economic output — as doubts grew about the durability of Spain's financial system.
The deposit outflow in Spain reflects a broader capital flight problem that is by far the most serious in the euro zone. According to a recent research note from Nomura, capital departing the country equaled a startling 50 percent of gross domestic product over the past three months — driven largely by foreigners unloading stocks and bonds but also by Spaniards transferring their savings to foreign banks.'