The European Union must reform before it's too late

At the Bank of England's Open Forum in London's Guildhall on Wednesday 11th November, an increasingly desperate-sounding Mario Draghi said this:
As the majority of money is issued by private banks - bank deposits - there can only be a single currency if there is a single banking system. For money to be truly one, it has to be truly fungible, independent of its form and independent of its function.
This is far from being the first time that Signor Draghi has pushed the case for common supervision of banks, common deposit insurance and a common resolution mechanism. He has warned repeatedly that fragmentation of the monetary system along national lines undermines the fabric of the common currency and threatens its very existence.

But in reality, Europe does not have a common currency. Indeed it has never had one. The price of money is different in the various nations of the Eurozone. The "Euro" in Greece does not have the same value that it does in Germany, and this is reflected in the higher cost of borrowing for households and businesses in Greece over Germany. There remains a noticeable wedge between borrowing costs in the Eurozone periphery and borrowing costs in the core.

Between the Euro's creation in 1999 and the 2008 financial crisis, the price of money gradually converged across the Eurozone. Market participants believed that risk sharing was a current reality, and full union was inevitable. Money in weaker countries still carried a higher price than money in stronger countries, but the gap was narrowing and, it was believed, would eventually disappear completely. This belief was fostered by the ECB, which treated all Eurozone sovereign risks as equal for the purposes of collateralised lending to banks, and Basel capital adequacy rules which weighted all sovereign risks at zero.

Market participants flooded into the narrowing gap to take advantage of what was seen as a relatively short-term profit opportunity, secure in the belief that risks were effectively shared across the Eurozone and the ECB would act as backstop. They borrowed cheaply in core countries and lent at higher rates in the the periphery, creating bubbles in consumer credit, household and business mortgages, construction lending, commercial lending and sovereign debt. In short, they created what was possibly the world's largest carry trade. These enormous flows of credit were facilitated by the EU's principle of free movement of capital: nation states, deprived of control of monetary policy and locked into an EU-wide paradigm of light financial regulation, lacked effective means of slowing or reducing them.

The utter inadequacy of light financial regulation was exposed in the financial crisis of 2007-8. In his speech at the Guildhall, Mario Draghi went on to explain the terrible consequences for the Eurozone:
Trust was weakened by the crisis, causing finance to retreat behind national borders. This manifested in some countries as a "sudden stop" of capital flows, and the resulting fragmentation led to the transmission of the single monetary policy being impaired. 
We can summarise this as Balkanisation of the financial system and fragmentation of the single currency.

As the financial bubble burst, the illusion of risk-sharing and mutual support in the Eurozone was shattered. Far from backstopping each other, the member states blamed each other for the crisis. The cost of preventing the European banking system from collapsing was disproportionately borne by the states that had experienced the "sudden stop" of capital inflows, to the considerable detriment of their populations. As Paul McNamara of GAM said at the FT Alphaville conference earlier this year, "the Greek bailout was intended to prop up the European banking system and make the Greeks pay for as much of it as possible". Even more could this be said of Ireland.

Since then, there have been moves from EU institutions promoting integration and eventual union. There is a fledgling banking union, an underdeveloped bank resolution mechanism and the beginnings of a mutual backstop for distressed banks. There is an action plan for a capital markets union. The "Five Presidents" plan issued at the height of the Greek crisis earlier this year proposed further mutualisation, including Eurozone-wide reinsurance for national deposit insurance schemes. As a result of these moves, market participants are starting to believe, once again, that there will be risk sharing and mutual support. Sovereign bond spreads over Bunds are falling, and the wedge between the price of money in the core and periphery is narrowing.

But I'm afraid this is another illusion. Despite the efforts of the institutions, there is no more political commitment to risk sharing and eventual union than there was in 2012. Even though President Juncker's plan for deposit reinsurance still left the first losses falling to the sovereign, envisaging support from the rest of the Eurozone only when national deposit insurance was exhausted, it was too much for the Germans. On 5th November, the Bundestag rejected President Juncker's reinsurance scheme.

The present situation is untenable. We have a "single currency" in name, but not in reality. The price of money in the Eurozone depends not on the creditworthiness of businesses and households, but on the creditworthiness of the sovereign in the country in which they happen to be located. So businesses and households in Germany can obtain finance at lower rates than businesses and households in Italy. This gives Germany an enduring credit advantage over weaker countries, making it all but impossible for weaker countries to close the competitiveness gap. The Eurozone monetary system is a simply massive "postcode lottery".

Despite their fine words about breaking the toxic link between sovereigns and banks, the Eurozone authorities have abjectly failed to do this. Indeed, at times the actions of Eurozone institutions have actually strengthened this link, rather than resolving it: the ECB's LTROs, for example, were openly used to finance bank lending to governments in Spain and Italy. The failure to mutualise the costs of resolving failed banks leaves individual sovereigns on the hook for Europe-wide, and even global, financial disasters: while the principle of creditor bail-in simply exposes sovereigns in a different way. In 2012, the Greek PSI blew large holes in the balance sheets of Greek banks and pension funds, holes which were plugged by the Greek sovereign at a cost of yet more unsustainable borrowing, because the welfare costs to the Greek population of allowing the banks and pension funds to fail were far too great.

It is an insult to genuine monetary unions, such as those in the US, Canada, the UK and Switzerland, to call this a "monetary union". The Euro is a common name for member state currencies, not a common currency. Politicians pay lip service to the idea of a common currency, insisting on independence of monetary policy and free flows of capital - when it suits them. But when it no longer suits them, they impose capital controls and pressure the ECB into doing their bidding. Successive crises have demonstrated that the coherence of the union comes a very poor second to national interests - along with notions of fairness, justice and social cohesion.

Perhaps understandably, the Eurozone institutions have persistently used smoke and mirrors to conceal the lack of political unity among the nation states. But the smoke is clearing, and the mirrors are cracking. We now can see this monetary union for what it really is: a fair-weather alliance. When conditions are calm, we pull together: but when the storm comes, it is every nation for itself.

And storms are coming - storms big enough to overwhelm not just the fragile "common currency", but the entire EU. For the EU, too, is not really a union.

The Schengen agreement suffers from the same problems as the Euro: it works well in good times, but when the pressure is on, the razor wire goes up. The refugee crisis is worsened by the expectation that "gateway" countries such as Greece and Italy - already weakened by financial and fiscal crises - will single-handedly police the EU's external boundaries and manage flows of migrants from outside the EU; while the standoff with Russia over Ukraine, and the inadequate response to the Syrian disaster, has exposed the EU's lack of a coherent foreign policy.

The EU not only lacks coherent policy, it lacks leadership. Currently, everyone looks to Germany to provide leadership: but this is to forget the post-war consensus that Germany should never again be hegemon in Europe. The weakness of France, the political chaos in Italy, and the UK's abdication forces Germany's Angela Merkel into an EU leadership role for she was not elected, to which she is not suited and which for important historical reasons she should not have.

Of the three founding principles of the EU, two are already compromised. The principle of free movement of capital was destroyed when capital controls were imposed first in Cyprus, then in Greece. The principle of free movement of people has become a hollow sham, as country after country has responded to inflows of refugees and migrants with border controls, detention centres and violence. All that is left now is free movement of goods and services. But this principle, too, is under threat.

Fiscal rules in the Eurozone are so tight that weaker countries can only grow by means of an export-led growth strategy. But the EU is home to one of the biggest export engines in the world, and the whole world is becoming less tolerant of trade deficits. As global trade contracts, export-led recovery in the Eurozone periphery will be exposed as the pipe dream it has always been. How long will it be before weaker countries in the Eurozone, deprived of the option of devaluing to support export-led growth, start to put sand in the gears of the German export machine by imposing import tariffs in one form or another?

The future not only of the Euro, but of the whole EU, depends on the willingness of nations to put aside narrow national interests and embrace risk sharing and mutual support, while respecting national characteristics. In the words of Alexandre Dumas, the motto must be: "All for one, and one for all".

This implies radical reform of the EU, including unwinding the Euro in its present form and rethinking the treaty directives that institutionalise power imbalances and create different "classes" of nations. Unfortunately, the current push is for conformity and adherence to dysfunctional rules as a protection against disintegration: but conformity is not union, and forced conformity eventually results in disintegration. I fear that "muddle through" may eventually become simply muddle, and the much-kicked can may become an unrecognisable tangle of metal shards all over the road.

I must emphasise that although I am becoming increasingly gloomy about the prospects for the EU, and I think the Euro is unsustainable in its present form, I remain a fervent supporter of the European dream of peace, freedom and cooperation between nations. And I have a message for the UK's Prime Minister, David Cameron. The UK has historically been the country that has spearheaded important reforms in the EU. It can, and should, take a leading role in today's EU. But it cannot do this from a semi-detached position. To be credible as a force for change, the UK has to be wholeheartedly committed to the EU.

Brinkmanship, Mr. Cameron, is not leadership.

Related reading:

The ECB is irrelevant and the Euro is a failure - Pieria


Mario Draghi speaking at the Guildhall - Guardian
Migrants crossing razor wire on Hungary's border - IB Times


  1. The Schengen agreement suffers from the same problems as the Euro: it works well in good times, but when the pressure is on, the razor wire goes up.

    Is this quite true? The Cold War didn't weaken it but rather strengthen it.

    1. Agreements like Schengen can hold together very well when there is an external threat. It is internal problems - such as enormous flows of people, and terrorist threats - that destroy them.

    2. The main issue with Schengen, Dublin and the defence policy is that the cost and effort of enforcing them fall on periphery countries (Italy, Greece, Bulgaria, Lithuania, etc) while central countries (notably Germany, but also Luxembourg, Austria, the Czech and Slovak republics, etc) live cosily ensconced within the Schengen/Dublin/EU area with no "front-line" responsibility and expense.

      EU countries at the periphery must check land traffic, patrol the seas, and control their international airports; central countries just have to deal with their own airports. Peripheral countries are responsible to fish refugees out of water, house them, register them and provide health care; central countries can just send refugees back to the first country of entry, which is always a peripheral one. As for defending the EU against external threats, the aforementioned central countries spend between 0.5% and 1.2% of their GDP on defence, the above peripheral countries between 1.4% and 2.7%.

      As you mention, the Euro-area is also mis-designed so that peripheral countries ultimately pay the price of relatively higher borrowing costs without the possibility to adjust competitiveness through devaluation, while central countries reap the benefits of low borrowing costs with a relatively overvalued currency in Southern and Eastern markets that boost their exports.

      A system where generally wealthier countries play free-riders while the burden falls on generally poorer countries was bound to crack at some point. Notice that in all the refugee crises so far -- Spain 15 years ago, Italy 5-10 years ago, and now Greece, countries like Germany contributed nothing substantial to help "Club Med" countries to cope with the influx of refugees. Witness all attempts by Germany to deflect the current problem of refugees to some other countries (re-distributing quotas of refugees to other EU countries, asking Turkey to keep them in Anatolia, asking African and Southern EU countries to set up "hot spots", etc).

      I am sceptical there will be a genuine infusion of solidarity that will rebalance EU structures; current free-riders will simply be too recalcitrant.

  2. There is no European army either. Having an army wouldn't necessarily make Europe more belligerent, but it would force it to consider the military and security consequences of its political decisions on the whole of the continent.

    For example having a Euro army would have let policy makers to consider the military implications of their proposed economic agreement with Ukraine. NATO, for all it is otherwise worth (which is a lot: I am not criticizing NATO), didn't provide a venue for discussing the implications of that agreement during its offering (for instance, prior to Maidan or during it). And things nearly blew up royally because of that oversight.

    Another example was the decision by France and Britain to bomb Libya. This has been a contributor to special problems in Italy and Greece, with regards to refugees. Yet Greece and Italy, let alone all of Europe, were not initially consulted, nor was a pan-European contingency plan in place at the time military action was begun, and neither was one subsequently developed.

    Basically there are numerous examples of military, economic, environmental, scientific, or social problems where European institutions are non-existent, inadequate or failing.

  3. Restore The Holy Roman Empire.

  4. Sorry but the data suggests the EU is a colony of the UK.
    This crisis is very much a repeat of the 1912 coal strike / 1913 Dublin lockout.
    That is a capitalist production / consumption crisis.
    The IEAs Jan - Aug electricity consumption data is quite striking.
    That is a 6% ~increase of electricity consumption in Iberia and 4.5 % increase of consumption in Greece.
    This is mainly British tourists consuming the local surplus of these countries.
    A devaluation against Sterling would make this very strange production consumption dynamic quite worse.
    We have never seen so much basic consumption tied to such mass long range movement of people and is indicative of the scale of banking operations and consequent lack of redundancy

  5. Excellent article, Frances. Thank you for articulating the issues so concisely.

  6. Stated policy of the Ecb like all bankers is to drive / force mercantalism / scarce money to the point of physical system collapse.
    The EU also somewhat resembles the decay of France post Fronde period
    That is ultracentralization of power in Paris and total destruction of local feudal systems.
    Extreme mercantalist polices then seem to work for a period ( increasing Output) until total breakdown as consumption via crediting of people's accounts is not tolerated.
    Banks can only only work via the debiting of people's life force.

    Every country ( let's not mention banking Central) has experienced these periodic blood extractions.
    Vampiric acts come naturally to Draghi and his kin
    They know no other life then debt

  7. Again we can see Draghi is at least giving the impression that the function of commerce is trade.
    The function of commerce is or at least should be consumption.

    He wishes to increase trade, not to increase wealth but to increase distribution costs.

    If he can increase this friction he can increase the wealth concentration of his employers

    Of course in a perfect market there is no friction.
    The last thing these guys want is a perfect or near perfect market.
    If so they would have no power.

  8. Cogent and concise analysis: thank you.

    There is much evidence supporting the notion that the "European dream of peace, freedom and cooperation between nations" is substantially achievable without the EU, an institution that some even refer to as the Evil Empire on account of its anti-democratic credentials, the lack of a European demos, and the misery wrought by its policies in so many countries and instances. That the UK shows no likelihood at all of being "wholeheartedly committed to the EU" (even assuming a Remain win) and hence its past efforts where it "spearheaded important reforms" are unlikely to be repeated might actually be very good news indeed.

  9. Come on! That "sharing" means that rich countries get into bed with their poor neighbors. A common insurance for failed banks becomes a wet dream when these people think of billions amassed by Germany.

  10. "As the majority of money is issued by private banks - bank deposits - there can only be a single currency if there is a single banking system. For money to be truly one, it has to be truly fungible, independent of its form and independent of its function."

    Maybe multiple currencies would be better. What about competition for the greater good of customers?

  11. This seems to confuse the problem with the solution. Having different interest rates in different parts of the Eurozone is exactly what you would like to see in an efficient market. Risk priced correctly. What caused the eurocrisis is exactly that investors' risk perception was off: they assumed that their would be infinite bailouts if necessary, and clearly they were mistaken (ish).

    The solution is to price risk correctly, have German borrowers pay German rates and Greek borrowers pay Greek rates. While I've never seen data on, say, US regional differences in the interest rates people actually pay, I suspect that there, too, interest rates vary among borrowers who are clearly linked to just one state. (Many larger US borrowers wouldn't have exposure to just one state, which changes their risk picture.)

    In such a situation, if a Greek borrower doesn't want to pay the higher Greek rate, it can either move to Germany or lobby its government to institute whatever reforms will bring the wedge down. Seems like an efficient solution to me.

    1. What you describe may be efficient, but it is not a union.

  12. The european experiment = the destruction of place to facilitate movement.
    This destruction of the local (Now sadly National) is of course a deeply political and sociological objective.
    A repeat of the capitalistic nation state disaster post 1664 but on a continental rather then country scale.

    The first euro depression in the Ireland of the 80s involved a consequent major transfer of oil consumption to the aviation sector.

    If more and more energy is diverted to distribution then less and less energy is available for consumption.
    This cannot be refuted.

    Austerity can be defined as the rationing required to sustain the consumer war economy.
    Irish aviation energy consumption is now (2014) double it's pre masstricht level despite a total collapse of its (already Rump Domestic) economy
    Private car energy consumption will surpass it's 2007 peak by a wide margin.....
    And yet this is a country with massive purchasing power dislocations.

    the pubs are empty....half the customers I see fly across the Atlantic for a weekend.....
    This is simply mind blowing from a physical economy perspective put perfectly reasonable when looked through the prism of finance capital and its dark objectives.

  13. France now engaged in a mini-me 1914 like Keynesian Mobilization experiment.

    War is always the final option for banks who wish to maintain control / concentration.

    Never never a distribution of the commons.
    Given the shortage and disbelief of Scots in the UK and Corsicans in France it will not work out well.

  14. This is a old old story sadly repeated.
    The 19th century sov debt market created massive local money shortages throughout the old continent.
    People therefore needed large families to engage in wage or rent slavery (human labour remained a vital cog of the industrial and older capitalist agricultural ranch economy unlike todays world of machines)
    This created a massive overpopulation crisis in Europe.
    The same guys who created the crisis were deeply involved in the transatlantic
    Shipping trade, its was a symbiotic dynamic .
    Great masses of European mainly Catholic peasantry was shipped off to the states to the consternation of the resident WASP puritan middle class
    By 1912 the real costs of this business was projecting itself on the white star line and others ....
    war rather then distribution was the solution.

  15. "To be credible as a force for change, the UK has to be wholeheartedly committed to the EU."

    Except that trying to make changes from within is like trying to move a carpet with 27 pieces of furniture on it. Perhaps it would serve the rest of the EU better if the UK left and created alternative banking and trade regimes that the EU could sign up to.

    1. The EU is a extractive scam
      As I speak the biggest and second biggest trawlers in the world are working in former Irish waters.

      The UK is at the center of the scam.
      It's prepared to reject scientific method of Bacon to embrace the last surpluses of usury.
      Refer to Ft alphaville promoting a booklet called something like the size and function of the UK low carbon economy.
      Simply look at the Uks pink book to understand why the UK is low carbon.
      Hint it is not a low carbon economy.
      The only low carbon economy is a peasant economy.
      To claim the UK economy is a low carbon economy simply because it outsources both production(primary and secondary Industry) and consumption (tourism Etc) is beyond all logic.

  16. So we have simply moved from Catholic capitalisms doctrine of forcing production from female wombs to a almost total outsourcing of reproduction as happened in Ireland post 1995.

    If you reinvent feudal social and economic relationships of stability people will live in peace having their 2 or 3 kids ~
    However capitalistic management of human stock depends on constant flux.

    The collapse of feudal southern Italy post 19th century Italian capitalistic nationalism is a classic case.
    1.Migration to the states.
    2.Turmoil throughout the 20 the century
    Followed by collapse of reproduction both for social and capitalist (inflationary increase resulting in reproduction becoming unaffordable)
    followed by a desperate bid by capitalist forces to inject more fully formed 20 somethings into the ether
    up next - total social collapse ?

  17. In the nine month period from January to September, Spain received a record total of 54.4 million international tourists, representing an increase of 3.8% over the same period of last year, and an additional 2 million visitors.

    According to data from the latest Frontur tourist border movements survey, published by the Ministry of Industry, Energy and Tourism on the Spanish Government’s website, La Moncloa, almost 7.2 million international tourists visited Spain in the month of September alone, which is 2.2% more than the same month of 2014, and another record in the comparable series.

    The source markets with the greatest numbers of tourists visiting Spain in the first nine months of the year, were the United Kingdom (12.7 million), France (9.1 million) and Germany (8.2 million), while the survey also highlighted the increases registered in visitor numbers from the United States (23.1%), Switzerland (8.6%) and France (6.9%).

    In September, the top tourist market for visitors to Spain was the United Kingdom, with 1,854,995 tourists, representing an increase of 4.6% year-on-year, followed by Germany, with 1,186,463 tourists (-3.4%) and France (1,018,970 tourists, +5.2%). The rise in tourist numbers from the United States was also noted, of 33%, maintaining the excellent growth rate of recent months, as well as the increase in tourists from the Netherlands, of 13.3%.

  18. Portuguese use of combustible fuels in the electricity sector increased by a massive 42.5 % (Jan -Feb) and Spain by 25.1 % , UK consumption decreased by 11.5 %.............
    Jet kerosene consumption is also up in Europe by 65 KBd vs the same period last year.

    Ft alpha ville latest piece about diffuse renewables is a fantasy , UK increases in the renewable sector % of total (declining) production is a artifact of the long distance movement of people and the wood pellet Drax scam.

  19. By my calculations 4,500 ~euros per man woman and child of tax collected in Ireland was not repent within the state last year.
    Its likely to reach near 5,000 ~ euros this year.
    My guess is that much of this money is flowing to London given its real resource burn.
    It is then recycled via increased tourist activity , investment in wind follies etc etc etc.
    You witness a increase in conduit economies GDP or activity but declining real living standards.

  20. Correction electricity combustion figures covering the Jan to August period .
    Data IEA.

  21. My first action as Irish finance / energy minister would be to abolish all tax on the price of Porter.
    I think we pay 1.25 for each pint.
    You would see a immediate collapse of Nat gas consumption in Ireland (my guess about 2 thirds)
    No longer will Irish bachelors be sitting at home watching telly and keeping warm
    Atom like consumption in Ireland would collapse.
    50 customers in the pub means means 49 less buildings to heat and light.
    For most people there would be no need to escape to Spain periodically so as to retreat from domestic inflation.
    Jet Kerosene consumption would therefore also crash.

    Again austerity is the rationing process required to sustain the consumer war economy.

    If Europe was serious about energy and climate change issues they would reduce costs and not increase them
    European industrial policy is a scam required to sustain the dynamics of usury.
    Indeed the entire EU construction since its inception is a scam.

  22. That interest is the price of money and monetary unity therefore limited to the extent that interest differs by country doesn't seem true to me.
    Not interest, but the price level (doing without other assets that can be bought with a specific amount of money) is the price of money.
    Interest is the price of loans (and when interest is negative, borrowing gets a bonus).
    Even though most money originates in loans, not all lending results in money creation.

    I do agree that European Unity is too weak, but unwinding the Euro doesn't seem a solution to me.
    I do agree that the imbalanced export capacities of European countries is a problem, but the solution to me seems to be to refocus on the European (or €zone) export capacity rather than on national export capacities.
    We don't bother about the inbalanced 'export capacities' of different regions within a country, neither should we bother about the imbalanced export capacities of different countries within the EU (or €zone), as long as trade balances out for the EU (or €zone) as a whole.
    Germany can be the export engine of the EU & €zone with as little problems as the Randstad being the export engine of the Netherlands, as long as (or as soon as) we identify sufficiently as European rather than national citizens and demand European rather than national accountability and democratic legitimacy of our politicians.

    1. This comment has been removed by the author.

    2. In a credit money system in which the vast majority of money is interest-bearing, the price of money is the interest rate. That is why central banks must have control of short-term interest rates. That is why Draghi referred to the impairment of monetary policy transmission. The pace of money became vastly different between the core and the periphery, and the ECB was unable to bring the rates back together. That is fragmentation of the single currency.

      All bank lending, without exception, creates money. That includes short-term liquidity created by banks in their market-making function, and short-term overdrafts created by banks in the course of payments transmission.

      Regarding the export capacity of the Eurozone, it is already a net exporter. How much more do you think the rest of the world should buy from it, and more importantly, WHY should they? For every Eurozone export, there must be an import somewhere else in the world. Where will these net importers be? Are you expecting Asia to switch from net exports to net imports? Are you expecting the US to become consumer of last resort again? Relying on export-led growth for a trading bloc the size of the Eurozone is not a sustainable strategy.

      Germany and the Netherlands can only sustainably retain their enormous trade surpluses if other countries in the Eurozone run trade deficits. As we do not want to see a return of the excessive periphery borrowing pre-crisis, I'm afraid that means large-scale fiscal transfers. We are a very, very long way from this at present. A return to trade protectionism within the Eurozone is in my view far more likely.

    3. Dear Frances,

      Thanks for your response.
      Let me first underline how much agree with your commitment, your dream and your analysis that the EU lacks unity, coherent policies and leadership to forge these.
      I just do not share your analysis of money and your idea that unwinding the Euro as common currency would be a step in the right direction.
      The EU lacks unity also because countries like the UK have NOT adopted the Euro and NOT committed themselves to forging the common European policies needed to make the Euro sustainable.

      You can find here where I'm coming from:
      Not money, but credit is interest bearing (most, not all anymore).
      The fact that most money originates in credit and that all bank credit creates money does not make money and credit identical.

      Money is the ability to pay and to store value (which requires sufficient stability of exchange rates to be unit of account).
      Its price is the alternative cost of other assets that cannot be had when we choose to hold money.

      Credit is the temporary command of more assets than one could otherwise afford.
      Its price is interest and from those who are sufficiently insecure about the future to prefer saving over spending now it gets a bonus (negative interest).

      Yes, monetary policy transmission is a problem, because the monetary policy is wrong, because it is based on dogmatic thinking:
      - separation of sovereign and monetary authorities in ALL respects (while differentiation between control of amount and direction of money creation would be wise) and
      - considering the financial sector as part of a 'private' realm (while being utterly intertwined with 'public' intervention and 'expert' guilds of professionals).

      Yes, the Eurozone is a net exporter (as is the EU as a whole, I presume).
      So there need not be an internal problem if the EU would be sufficiently united (and net export should decrease rather than increase for global balance).
      We do not make a problem of the province of Drenthe in Netherlands being a net importer and the province of Noord-Holland (where I live) being a net exporter; we barely register it.
      Within a family we do not talk about 'borrowing' and 'lending' when we create happiness and prosperity together, but we hold slackers to account in other ways.
      These 'other ways' require unity, coherent policies and leadership to forge these.

      We do not need 'fiscal transfers' to the extent that we get European taxes.
      We already have European democracy; it just needs empowering by Europe-wide rather than national debate and political discourse.

    4. I understand your analysis. I fundamentally disagree with it, on several counts.

      1. Your distinction between "money" and "credit" is spurious. Ours is a credit money system. Apart from physical cash, all other money is interest bearing. Money is simply very short-term credit. Therefore the price of money is the short-term interest rate.

      I think you confuse the price of money with the value of money, which is its purchasing power. They are not the same thing and I am careful to distinguish between them.

      2. The UK is never going to join the Euro, It would be disastrous for a country so dominant in the world financial system to give up control of monetary policy. Euro-dogmatics need to accept that the EU and the Eurozone will never be equivalent, and a way must be found of recognising the equality of non-Euro countries with Eurozone countries. It is not acceptable to regard non-Euro countries as "second division". That is to create division and the potential for conflict within the EU.

      3. It is not possible for the Eurozone - or the EU - to be a net exporter unless somewhere else in the world is an equivalent net importer. We do not trade with Mars.

      4. I'm afraid we do need "fiscal transfers". The only successful currency unions in history have had systems of fiscal transfers. There is no reason to suppose that this time is different.

      5. Democracy is taking a considerable beating in the EU at the moment, and especially in the Eurozone. I see no prospect of Europe-wide democracy creating cohesion.

    5. Dear Frances,

      No disagreement about net export implying net import elsewhere.
      My point is that with external net export (or trade balance) internal fiscal transfers (or even accumulating peripheral debts) are not in itself an economical problem.
      They are only a political problem because of the lack of European identification.
      What is your point?

      Some national politicians are taking beatings (while others win) and European ones are taking advantage of crises to strengthen the EU.
      I don't see how democracy itself is taking beatings; it is doing its work.
      How do you propose to create more European cohesion?

      To the extent that tax is collected at the currency union level, its differential spending in regions with more or less need for such spending is not perceived as 'fiscal transfer'.
      Technically such differential spending is equivalent with 'fiscal transfer' and in that sense you are right that we need it.
      Is that a problem from your perspective?
      Not from mine.

      Yes, one can distinguish value and price of money, as with any asset.
      Its price is its purchasing power and its value is composed of perceived purchasing power, appreciation of liquidity and expections of the possibility to exploit future changes in purchasing power because of that liquidity.
      If you think that my distinction between "money" and "credit" is spurious, please show that the different definitions that I gave are equivalent.
      I think it holds and is stronger than the distinction between price and value (of any asset).

      Our monetary system is not (solely) credit-based, but hybrid.
      Most people perceive money are primarily token-based (with cash, tokens, being deposited on bank accounts and being reclaimable anytime).
      Economists are aware that most money isn't.
      That perception divide causes bank runs (or risks of them that necessitate lenders of last resort).

      A gold coin is both gold and money, but gold and minted gold can be distinguished.
      A bank balance is both short term credit and money, but credit and money can be distinguished.

      We have to accept that you British seem to perceive yourself predominantly as not part of Europe, as long as you experience a foggy Channel as isolating the continent rather than your islands.
      You are is not wise to do so, however.
      It would strengthen the Euro, Britain, its domination of the global financial system and Europe (EU and €zone) if the UK would join the Euro.
      It would require stronger identification with Europe to experience that as increasing rather than decreasing its control of monetary policy.
      It is national preoccupations that weaken control (and quality) of monetary policy both in the UK and in the €zone.

      Non-Euro countries exclude themselves and weaken themselves and the whole by doing so.
      THAT creates division and potential conflict.

      Never say never.

    6. Britain is not going to join the Euro. This is not because we see ourselves as "not part of Europe", as you allege (and btw the EU is not "Europe" anyway). It is for two reasons:

      - Britain's experience with the ERM
      - the effect of the Euro on other countries with large financial sectors and large and intractable current account deficits. If Britain had been a Euro member in 2008, both Britain and the Eurozone would have experienced a far worse crash than they did, because the Bank of England would not have been able to take the extraordinary actions it has taken in the last seven years. I'm not at all sure the Euro would have survived such a disaster. Believe me, UK membership of the Euro is a very bad idea, both for Britain and for Europe.

      Because of this, the EU must reform. Eurozone cannot be the "top table", and Euro membership cannot be compulsory. Both of these alternatives will eventually lead to disintegration.

      Rigid constructions are not able to absorb shocks. If it is to survive, the EU must become more flexible and more tolerant of national differences.

    7. Dear Frances,

      The 'foggy Channel isolating the continent' story was a bit provocative, I know.
      It is definitely not just British self-centredness that is a problem for Europe, EU and €zone.
      The problem is national politics and national identification and primarily national democracy in a globalized and further globalizing society in general.

      Good that you avoided "never" this time and gave (your) REASONS why Britain SHOULD not join the € (rather than 'real' BARRIERS).
      foretelling the future is notoriously difficult and reasons can become irrelevant and can change.

      ERM is history, (some of) Britain's (policiy makers') trauma related to it will become less relevant with time and circumstances next time will differ from back then (eg. when joining ERM II preceding joining the €).
      Hard to say what WOULD have happened if..., the point is what WILL happen next time if Britain does join AND if we try to do all that is needed to reduce the risks involved.

      Yes, countries with financial sectors disproportional to their economies (UK, Luxembourg, the Netherlands etc.) are a complicating factor and a source of such risk.
      Cooperation between central banks is necessary, unavoidable AND already underway to reduce such risks.
      I believe that in due course such cooperation will increase our ability to prevent crashes.
      Who can tell when it has increased sufficiently to enable the UK to join the € without inordinate risk?

      It would help to reduce the size of financial sectors relative to 'their' national economies OR to further integrate both (disproportional) financial sectors and national economies, I'd say; don't you think so, too?
      The financial sectors in most developed countries (at least in Western Europe) are too large to contribute to wealth any more anyway.

      Sure, the EU needs reform, but of what kind?
      More tolerance of national differences??
      When they are of a cultural kind, fine, but also economical and political differences??
      Wouldn't that be the very incoherence and lack of unity that you (and I) are critical of?

      Can I safely conclude (from your not continuing that discussion) that you have dropped your case against the distinction between credit and money and your advice to unwind the € because of regionale interest differences?

  23. @Frances
    You give people back their money and products will then reflect their true cost ( tax and Inflation to pay for usury )

    No need for protectionism to save local national money monopolies.
    Local products will become cheap and non local expensive
    It takes 3 or 4 tons of Kerosene to fly to Spain to escape domestic capitalistic costs.
    Spain was so 60s / 70s however
    Now people must live in Cambodia to escape capitalistic costs.
    A wide body needs 60 or 70 tons of Kerosene to facilitate modern western capitalistic refugees.

    Mercantalism in the modern world goes far beyond the production of physical goods for export.
    You cannot tell me that Spain is not a highly mercantalist country ( with devastating effects on Spanish Wealth) since its opening up first under the Franco regime and subsequently under the euro regime.

    I have a niece who works in Australia and then retreated to Cambodia to actually live for 6 months.
    This is the lengths people must go to retreat from these bank monopoly costs.
    It's the modern equilivant of getting on a steam boat.....
    The fuel waste from this practice astounding

  24. Martin Wolf on the corporate savings glut........(Dantes why save / why waste question )

    Oh please.

    Yee guys drape everything in this complex embroidery when most of it is so simple.

    Let's us observe real world examples.
    The solid fuel carbon taxes objective in Ireland is to eliminate the last remaining bits of peasant redundancy.
    The serfs are then directed into the corporate killing zones of the oil and gas utilities.
    This is the real reason why equities of the connected corporates have not crashed further ........people are being treated like cattle in feeding pens.

    The rump Irish domestic economy and society was shut down in the 80s because not all life was serving corporate interests.

    This could not be tolerated.

  25. Anyone with the knowledge prepared to give a detailed breakdown of where the 21 billion of tax collected in the Irish anti - state but not respent actually went...

    Activists wanting corporates "to pay their fair share" do not seem to understand that any increase of tax on their part will simply disappear down a usury black hole.

    Also labour remittances flows are not published in the Irish Cso.
    They likely reversed sometime after the Dagenham yank went the way of the dodo.

    Anyone anyone......
    Of course this sort of stuff is not talked about in polite company.
    Perhaps some of our learned friends from the auld Irish economy website can give a breakdown.
    Are we funding a expeditionary war somewhere?


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