December 16, 2011

We need to design a new economic order

by Caroline Lucas, MP and a leader of the UK Green Party

... The City of London is set, once again, to play a major causal role in the coming financial catastrophe...

...So I want to appeal for a debate about how we transform our economic system away from today's failed economic order - designed to serve the interests of the City of London's 1% - and instead build a new one.

One that is socially just and ecologically sustainable. One that provides useful and meaningful employment for all and strengthens our communities. We can and must find a better way of bringing people closer together and building a better society, while operating within the limits of the ecosystem.

Why will my fellow politicians not engage in these debates? The system we have is catastrophically impaired, yet our leaders remain prostrate before neoliberalism - an ideology that has destroyed jobs and firms, ruined the life-chances of millions, while enriching crooks, thieves and oligarchs. I call on others to join me in calling on our political leaders to match progressive politics with meaningful action, and in taking a principled stand to challenge the deeply corrupt financial system that has plunged us into environmental and economic crisis.

/... http://www.guardian.co.uk/environment/blog/2011/dec/16/new-economic-order

December 14, 2011

Leaving the Euro: Scenarios...

NYT: Pondering a Dire Day: Leaving the Euro

... Instead of business as usual on Monday morning, lines of angry Greeks form at the shuttered doors of the country’s banks, trying to get at their frozen deposits. The drachma’s value plummets more than 60 percent against the euro, and prices soar at the few shops willing to open...

... As the country descends into chaos, the military seizes control of the government...

... In “Leaving the Eurozone: A User’s Guide,” Mr. Dor starts with the obvious: any return to the drachma would have to be preceded by an immediate freeze on bank deposits.

To prevent panicked Greeks from sending the rest of their deposits abroad, transfers to countries outside of Greece would be halted. As the new currency inevitably lost value, new drachma accounts would remain frozen.

/... http://www.nytimes.com/2011/12/13/business/global/a-greek-what-if-draws-concern-dropping-the-euro.html?_r=2&pagewanted=1&ref=global-home


Leaving the euro zone: a user’s guide (.pdf)

... For a country wanting to abandon the euro the only legal way possible following the European treaty regulations would be to leave the whole of EU using article 50 of the treaty and then try to rejoin but asking for special dispensation with regards to the monetary union. Another legal way would be to negotiate an amendment to the treaty with other member countries. All these options require long negotiations and ratification by all member states. Some people therefore think that, because of urgency, only a unanimous agreement by the European Council leading to the issue of a European regulation, could be sufficient despite the legal uncertainty that this could entail. Some articles from the Vienna Convention on the Law of Treaties could also be used when a country wants to leave the euro zone without leaving the UE, as long as it is accepted that international public law applies to the European treaty, which is however a much debated issue.

The difficulties related to the abandon of the euro by only one country (or a subset of countries) in the EMU arise because the other countries would keep the euro. The new currency of the country leaving the EMU will have to coexist with its old currency, the euro, that would be kept by the other countries. It must therefore not be taken for granted that any debt that the country had in Euros would be converted automatically to their new currency. This situation would be even more critical if the new currency was expected to depreciate and become worth less than its initial conversion rate with the euro.

A description of the procedures to be undertaken by a country when wanting to leave the euro zone allows you to measure the difficulties that you may come across in the process. A crucial question is how to undo the euro denominated debts and claims of the country’s national central bank to or on the other national central banks in the Euro System, including the European Central Bank. To avoid a panic and too strong devaluation in the new national currency value, the saving accounts could be temporarily blocked. Moreover, contrary to the free circulation of capital in the EU, temporary measures of capital movements control may be taken even though this may be illegal under the European treaty.

In the hypothesis of a state wanting to leave the euro zone, it would only be under certain conditions that certain debts that would have been issued in euros by either a public or private institution of the country before the date of exit, or certain payments deriving from contracts in euro’s settled before this date, could be automatically converted into the new currency at the initial conversion rate. In general such a conversion could only apply to debts and contracts for which the involved contractors intended to refer to the “lex monetae” of the leaving country...

/... http://my.ieseg.fr/bienvenue/DownloadDoc.asp?Fich=1046781054_2011-ECO-06_Dor.pdf


AFP: Impact studies on failed euro intensify

A return to the drachma, the deutsche mark, the punt and the franc or any other national currency would mean devaluations for some, appreciation for others.

According to Jens Nordvig of Japan’s Nomura Securities, Germany’s currency would rise against the US dollar, but Greece would lose 60 percent of its money’s value.

Italy, Spain or Belgium would lose around one-third each.

While scope for exports would improve, debt restructuring on that basis would mean a dramatic rise in borrowing costs for those governments who write off the most.

National banking systems would collapse, experts say, because of a loss of confidence in the value of the currency that replaced the euro.

/... http://www.taipeitimes.com/News/biz/archives/2011/12/12/2003520513


Time: Scenarios of Euro Collapse Appear

... That’s all pretty bleak—though some observers insist there may be a silver lining in the current black cloud of crisis. French researcher Emmanuel Todd argues that though the implosion of the euro would produce a period of economic pain, panic, and instability, he says that shock wouldn’t last as long as some predict (18, maybe 24 months), before companies and governments picked up and moved on. And because many euro countries would be starting anew after having brushed off huge amounts of debt through various degrees of default, Todd argues the post-euro economies could be re-constructed on more solid fiscal foundations.

Another consequence of such default, Todd says, would be freeing economies and governments from control of what he calls the “oligarchy” of mega-rich investors whose fortunes and interests drive and shape bond markets—and whose gain through safe government securities have influenced political leaders into building up huge public debt in the first place. Another benefit for European nations, Todd says, would be throwing off the domination of Germany, which he describes as dysfunctionally psycho-rigid, and so focused on its own national interests that it no longer cares about ruining its euro partners. Burning the rot from a teetering house, Todd suggests, will be hard and grim work, but at least leave enough of a sanitized structure to rebuild from.

That may sound to some like too extreme of a blame-and-punish-the-rich view to take seriously, yet Todd isn’t an observer anyone should write off. An unabashed leftist who switched his early opposition to the euro to more recent resignation that the useful and beneficial currency is probably doomed, Todd is no ideology-blinded seer of capitalistic disaster. His 1976 book, “The Final Fall”, used demographic and economic data to predict the collapse of the Soviet Union almost to the year, and he has since written studies across a variety of sociological disciplines to accurately forecast (and explain) major developments in Europe. It’s for that reason few people in France are willing to write off Todd’s warnings that recent socio-political events make very real the possibility that authoritarian forces may seek or take power in Italy, Greece, Portugal, Spain, and perhaps elsewhere in Europe, particularly if E.U. turmoil results in monetary and economic failure.

Read more: http://globalspin.blogs.time.com/2011/12/13/as-the-crisis-refuses-to-calm-scenarios-of-euro-collapse-appear/#ixzz1gWGcEMsK

December 13, 2011

Latter-day London was built on the back of Empire,

on the back of the tired, the poor, the huddled masses yearning to breathe free, the wretched refuse of the teeming shore,

and still tries to maintain itself that way.



A terrible beauty was born.

December 13, 2011

The Economist: Lessons of the 1930s: There could be trouble ahead

Just excerpting here one small part of a long explanatory piece. Very relevant to right now, today. X-posted in Good Reads: http://www.democraticunderground.com/1016973

... In the mid-1920s, after an initially untenable schedule of war reparations payments was revised, French and American creditors struck by the possibility of rapid growth in the battered German economy began to pile in. The massive flow of capital helped fund Germany’s sovereign obligations and led to soaring wages. Germany underwent a credit-driven boom like those seen on the European periphery in the mid-2000s.

In 1928 and 1929 the party ended and the flow of capital reversed. First, investors sent their money to America to bet on its soaring market. Then they yanked it out of Germany in response to financial panic. To defend its gold reserves, Germany’s Reichsbank was forced to raise interest rates. Suddenly deprived of foreign money, and unable to rely on exports for growth as the earlier boom generated an unsustainable rise in wages, Germany turned to austerity to meet its obligations, as Ireland, Portugal, Greece and Spain have done. A country with a floating currency could expect a silver lining to capital outflows: the exchange rate would fall, boosting exports. But Germany’s exchange rate was fixed by the gold standard. Competitiveness could only be restored through a slow decline in wages, which occurred even as unemployment rose.

As the screws tightened, banks came under pressure. The Austrian economy faced troubles like those in Germany, and in 1931 the failure of Austria’s largest bank, Credit Anstalt, triggered a loss of confidence in the banks that quickly spread. As pressure built in Germany, the leaders of the largest economies repeatedly met to discuss the possibility of assistance for the flailing economy. But the French, in particular, would brook no reduction in Germany’s debt and reparations payments...

... So the dominoes fell. Just two months after the Credit Anstalt bankruptcy a big German bank, Danatbank, failed. The government was forced to introduce capital controls and suspend gold payments, in effect unpegging its currency. Germany’s economy collapsed, and the horrors of the 1930s began.

/... http://www.economist.com/node/21541388

December 11, 2011

Eurozone Solution: Aaah, So That's How They're Trying To Do It!

... Recall, the basic short term problem is that finance is fleeing eurozone banks, there’s a tremendous credit crunch going on. This is roughly what happened in 1930/31 and led to the Great Depression. We would really rather not go through all of that again. The solution is well known. The European Central Bank should simply print euros and buy up the debt of the peripheral nations. Very much like the quantitative easing by the Federal Reserve and the Bank of England.

However, the ECB isn’t allowed to do that so we can’t do that. So, what can we do? ...


... So, here’s a rough sketch of what will now happen. Umm, OK, no, here’s a rough sketch of what the plan is intended to be, assuming that the plan works.

So, we have governments that have huge piles of debt that they need to sell. The ECB is not allowed to buy this debt nor is it allowed to buy old debt to lower the issuance price of new debt. Banks desperately need a source of medium term funding as everyone other than those stuck in the eurozone is pulling their money out of it. So here’s how we do it.

The ECB agrees to lend very cheap money to any bank that asks for it. Sure, they’ve got to put up some collateral to get it but guess what the acceptable collateral is? You guessed it, sovereign bonds. So, banks buy Italian bonds on which they get 7% interest (ish, at present) present them to the ECB and get money at 1%. Recycle this process as many times as you like and the net effect is that the ECB is printing the money to purchase government bonds, using the banks as intermediaries.

We’ve a nice side effect too. The eurozone banks all desperately need more capital. One very useful source of new capital is retained earnings. And if you can borrow at 1%, lend at 7%, that’s a good source of such retained earnings. Providing no one goes bust of course.

/... http://www.forbes.com/sites/timworstall/2011/12/11/eurozone-solution-aaah-so-thats-how-theyre-trying-to-do-it/

(Found myself encouraged to move over here... )