herman van rumpuy

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The End of European Sovereignty?

It looks like fiscal union will at least be tried in Europe.

From the BBC:

German Chancellor Angela Merkel has said Europe is working towards setting up a “fiscal union”, in a bid to resolve the eurozone’s debt crisis.

She told the Bundestag that a new EU treaty was needed to set up such a union and impose budget discipline.

On Monday she is to meet French President Nicolas Sarkozy, who has also called for EU treaty changes.

EU leaders have been under pressure to do more to tackle the debt crisis, amid concern about the survival of the euro.

In her speech, Mrs Merkel promised “concrete steps towards a fiscal union” – in effect close integration of the tax-and-spend polices of individual eurozone countries, with Brussels imposing penalties on members that break the rules.

In hindsight, perhaps this was always Germany’s favoured course.

From Reuters:

The idea [of Euro bonds] was immediately rejected by German Finance Minister Wolfgang Schaeuble, who said such bonds would undermine the basis for the single currency by weakening fiscal discipline among member states.

“I rule out euro bonds for as long as member states conduct their own financial policies, and we need differing interest rates so that there are possibilities of incentives and sanctions to force fiscal solidity,” he told Der Spiegel weekly.

“Without that kind of solidity, there is no foundation for a joint currency,” he added, according to extracts of an interview released ahead of publication.

In theory (ignoring the lack of a economic common culture, lack of labour market flexibility, lack of a common language, etc, etc)  this would have made Europe a viable monetary union. In practice, no amount of “budget discipline” can now reverse the ongoing confidence panic — essentially a run on the Euro — stemming from the mediterranean budgetary disasters. Fiscal union might have prevented this mess from developing, but once the mess has developed, it won’t do anything to contain or reverse it. The fact that policy makers seem to be making things up as they go along is not exactly inspiring confidence, either. The only hope for temporarily reversing the run on Europe (and kicking the can down the road into Euro zombification — or, as Obama calls it, “recovery”) is a massive money printing operation.

Will the cathedral of teutonic monetarism (also known as the ECB) allow for it? No — that’s why they’re trying for fiscal union as an alternative.

In any case, such a fiscal union will surely prove deeply unpopular with a Europe growing sick of top-down technocratic integrationism, and frankly seems bound to fail. Why? Because it almost certainly means stern teutonic austerity — a policy which will surely cause yet more economic contraction, more pain, and more of a mess.

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The Guacamole Hits the Fan: “Ten Days to Save the Euro”

From the Guardian:

9.18am: Just in case anyone was in doubt about the situation today, EU monetary effairs commissioner Olli Rehn has warned that Europe has just 10 days to “complete and conclude” its crisis response.

The markets for the last six months (and longer) have been crying out for the ECB to go postal, print a tsunami of new paper, buy every troubled asset going, and (ahem) “save the world”.

Stern teutonic monetarism has won the day.

Either that, or Eurocrats see this as a fantastic opportunity to consolidate the Eurozone into a full blown fiscal union:

Now it’s the turn of Herman Van Rompuy, president of the European Council, to sound the alarm. He just told a conference of EU ambassadors that Europe is trapped in a “systemic…full-blown confidence crisis.” Some may blame it on the irrationality of the market. But it’s a fact and we need to confront it.” What’s the solution? Van Rompuy argued that Europe must swallow closer fiscal union (as Germany, for example, has long demanded): “We need a significant step forward towards a real economic union commensurate with our monetary union.”

Don’t these people understand that such measures always come with massive unforeseen consequences? Here’s a rule of thumb any idiot can use: more centralisation means more systemic fragility. Proponents of any such centralisation have to weigh the benefits against the fragility, because when the black swans begin to flock excessive fragility tends to mean collapse.

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Reindustrialisation

I’ve talked a lot recently about reindustrialisation. Now, I’m fairly certain David Cameron hasn’t been reading what I write. But I’m also fairly certain we have been looking at the same statistics: Manufacturing has shrunk from nearly 40 percent of Britain’s gross domestic product in the late 1950s to not much more than 10 percent now. And while Cameron might not put it this way, that has left Britain as a shrivelled husk of an economy: overly reliant on services, foreign oil, Chinese manufacturing, junk food, corporate handouts, and too-big-to-fail-too-big-not-to-fail financials. So it’s no surprise that Cameron has been talking up manufacturing. From Bloomberg:

Prime Minister David Cameron has latched on to manufacturing as a cure for Britain’s economic hangover and its 7.9 percent jobless rate. U.K. Business Secretary Vince Cable says that for sustainable, long-term growth, “manufacturing is where we need to be.”

“One of the main growth sectors of the economy in recent years has been banking,” Cable said in an interview. “For reasons that are blindingly obvious, that’s not going to be so important in future.”

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