A Deep Seated Hostility Towards European Construction?

The British decision to veto the proposed new EU treaty is not surprisingly provoking an avalanche of commentary this weekend. Among journalists, at least, there seems to be a consensus that David Cameron committed some kind of major diplomatic blunder.

Possibly this is so, but given the difficulties presented by having to take this agreement forward outside the formal structure of the EU, it is hard to not reach the conclusion that both Angela Merkel and Nicolas Sarkozy have been guilty if not of a similar blunder, then at least a major error of judgment

March to Folly: Underestimating Germany and the ECB

The probability of a German-led fiscal union in Europe is greater than the consensus suspects given its arguments that only an ECB backstop and a European bond will prevent the end of the greater experiment. In addition, the argument is that such actions will not resolve the underlying problem of fiscal sustainability and restoring competitiveness. Recognizing that Germany is pursuing its self-interests which is perfectly understandable under a rational actor and realist framework, this argument warns that the consensus may be exaggerating the likelihood of German and ECB capitulation

Foreign News: France and Germany are still miles apart on agreement

Foreign news for 1 December 2011 focuses on Europe, and in particular Spain

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

Last Days Of Pompeii?

What is becoming clearer to almost everyone is that this is now no longer simply a Euro periphery sovereign debt crisis. It has become a full blown crisis of confidence in the Euro itself

Foreign News: The missing 20,000 Greek pensioners

Foreign-language news for 27 November

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

Caught Out by Reality in Europe

The rumour mill is grinding particularly fast at the moment. Germany and France seem to be working on the famous nuclear solution, Spain plays tough on outsiders, the IMF is rumoured to be preparing an aid package for Italy not to mention Hungary and Austria (just like Belgium) has entered the rating agencies’ cross hair.

So, what to believe

Chart of the Day: The Future of the Euro

A decision tree on what the future of the euro would look like based on different policy responses

Weekend Developments and Their Significance Going Forward

There have been several important developments over the weekend which are likely to support the euro at the start of the week, after falling for the past four consecutive weeks and recording a 7-week low before the weekend. However, I continue to expect corrective gains in the euro will be short-lived and subject to headline risks. I still think that the $1.29 year end target for the euro is reasonable

Franco-German secret negotiations for new euro contract

Boxed in by the ever-worsening sovereign debt crisis, the Franco-German euro zone axis is trying to formulate a policy that both adheres to the German economic orthodoxy without worsening the crisis any further

Officially Eurobonds are taboo but behind the scenes nothing has been ruled out

Almost exactly one year ago I wrote the following: In practice, you could have sovereigns conduct a ‘sovereign debt swap’ whereby the ECB buys an agreed-upon portion of the existing debt from the sovereigns and then uses these funds to back the supranational debt. In future, the same agreed upon percentage of debt would be