Europe’s Transition From Social Democracy to Oligarchy

This appropriation of the economic surplus to pay bankers is turning the traditional values of most Europeans upside down. Imposition of economic austerity, dismantling social spending, sell-offs of public assets, de-unionization of labor, falling wage levels, scaled-back pension plans and health care in countries subject to democratic rules requires convincing voters that there is no alternative. It is claimed that without a profitable banking sector (no matter how predatory) the economy will break down as bank losses on bad loans and gambles pull down the payments system. No regulatory agencies can help, no better tax policy, nothing except to turn over control to lobbyists to save banks from losing the financial claims they have built up.

What banks want is for the economic surplus to be paid out as interest, not used for rising living standards, public social spending or even for new capital investment. Research and development takes too long. Finance lives in the short run. This short-termism is self-defeating, yet it is presented as science. The alternative, voters are told, is the road to serfdom: interfering with the “free market” by financial regulation and even progressive taxation.

There is an alternative, of course

S&P plays spoiler in the Euro crisis

What must the summit produce in order to address these and help solve the Europe crisis once and for all? The answer is very much in keeping with Wolfgang Munchau’s excellent take in his column in yesterday’s FT. Hopes have coalesced around the idea of a fiscal union. The budgetary surveillance that Angela Merkel and Nicholas Sarkozy now seem to be in agreement on addresses one side of that issue. But what about the other side of the coin? “A greater pooling of fiscal resources and obligations,” as S&P puts it. The current plans seem to be missing that special something that will inch European countries ever closer to joint and several liability, aka, the Eurobond. As Munchau states so well: Contrary to what is being reported, Ms Merkel is not proposing a fiscal union. She is proposing an austerity club, a stability pact on steroids

Debt and Democracy: Has the Link been Broken?

Debt and Democracy: Has the Link been Broken

Italian minister breaks down in tears over austerity budget

Italy’s government has come forward with an aggressive 30 billion euro austerity package to prevent the country’s bankrupcty and pave the way for the fiscal integration that Angela Merkel is pushing as the key to solving the European debt crisis. In the video below, Elsa Fornero, the Italian welfare minister, broke down in explaining the provisions. The package also increases taxes on housing, luxury items and via a 23 percent VAT, a measure Ireland is also taking. Approval is expected before Christmas

Europe is headed to a blood in the streets outcome

My takeaway from two days in DC is that Europe is headed to a blood in the streets outcome. While ECB funding remains ongoing even as it’s uncertain, in any case, the underlying theme remains austerity. There is no plan

More on what I think will happen in Europe

The prevailing view amongst euro area policy makers seems to be that saving Italy from default is necessary and that the only politically justifiable way to effect this rescue is to move to fiscal integration. All of the statements by leading euro area politicians now point in this direction. So now I build on prior analysis, reflecting what I think the latest information we have means for policy choices going forward

The ECB is Open to Extending Its Role in Debt Crisis

Mario Draghi has become explicit about what it will take for the ECB to have a more active role in the European sovereign debt crisis

“The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to its close”

Quote by Winston Churchill

France and Germany want the stability and growth pact hurdle to move to zero percent by 2016

According to Spanish website Cinco Dias, France and Germany want to move from a 3% deficit target to balanced budget by the year 2016. This aim points to a clear intention by the two countries to present a deal on fiscal integration and priorities in the coming days

Likely policy path for European sovereign debt crisis

Given the flurry of activity this past weekend in the euro zone, it seems clear that the Europeans have pushed the panic button. I anticipate that some sort of systemic response is likely in order to deal with Italy (and Spain), two large economies that cannot be supported by the existing European financial assistance programs already in place. Below are some of the details that have come to light and my assessment of what is likely to happen

More Thoughts on Euro Zone End Game Scenarios

The euro zone finance ministers meet today and tomorrow. Approval of the next tranche of aid to Greece and an agreement on EFSF leveraging is sought. Yet the real deal is still a week away and that is EU summit.

A year ago, we handicapped the likely end games to the European debt crisis. We attributed a 3% chance of a country leaving the union. Although there has been heightened talk of a country leaving and different systems have contingency plans or stress tests to ensure the ability to cope in such an event, no country has left and the knock-on effects of a country leaving, possibly sinking the entire project, do not appear to have been thoroughly thought through by the advocates

Why the IMF thing works for the euro

Editor’s note: the IMF musings would be difficult politically, especially in the US. And any deal for Italy would also have to involve Spain too. However, Perhaps most important, operationally, the ECB lending to the IMF, which then lends to euro member nations, doesn’t count as ‘printing money’ in the Teutonic monetary bible