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You say bailout, I don't say bailout
Jan. 14th, 2011 04:15 pmFrench foreign minister Christine Lagarde has said that the €440bn European Financial Stability Facility (EFSF) might be extended. German finance minister Wolfgang Schaeuble yesterday said whatever the German equivalent is of "no way, José".
This fund, you may recall, was launched in May last year as part of a total €750bn bailout back-up that was meant to be so large that it would never be needed. Now it's beginning very much to look as if Spain is indeed going to need it, and Lagarde has spotted that, oh, €750bn might not be enough after all.
The media reports that because Portugal managed to sell a paltry €1.25bn of sovereign debt at about 6.7% meant that it was "less likely" that it would eventually need a bailout is, I fear, total piffle. Firstly it was a very small amount compared with the total debt it is going to need to refinance, and secondly even this required some solid work on the part of the ECB. The forthcoming default of Portugal is, in a sort of future past participle kind of way, already a done deal. And that brings us to Spain and the prospect of innocent consumers going to the ATM one Monday morning in early November and finding that they don't work.
Since this does not follow the Birks principle of "the least damage to the largest number", I think that we can be fairly sure that various elected and non-elected authorities throughout Europe (the Spanish government itself is actually remarkably powerless in this whole affair, passim the Irish government's humiliation last November) will make sure that Spaniards aren't running around setting fire to every bank in town, just before stringing up the local councillors from lampposts.
Lagarde is making the first step to try to ensure that social armageddon doesn't strike the streets of Madrid along the lines of Tunis at the moment. But Ggermany has less freedom. Just as Ireland is about to virtually destroy a political party at the ballot box, a political party that goes back to the heart of the foundation of the Irish nation state, the German political parties have greater fears to keep at bay. For Germans, representative political democracy isn't "a nice idea" or even "a bad idea" -- it's what they have instead of Nazism or Communism and people being dragged away at 4.30am in the morning, never to be seen again. Put like this, Germany pays a bit more attention to its people than do some countries (such as the UK) where the confidence in the solidity of our current system of government leads to what is clearly the occasional abuse of process (one which, thankfully, standing against which we still have an independent judiciary).
But this veers rather too much towards tedious constitutionalism. This is really about the heart and soul of the people -- the governments of individual countries and the EU itself are something of an irrelevancy. Most people (sadly) haven't read Hobbes' Leviathan, but to do so gives an indication to what extent leaders are invariably pawns of a subset of their subjects. In Germany and France we have different subsets to which the political leaders have to nod, and it is this which is leading to posturing in public and talks behind closed doors as these people desperately try to save the euro (in their own preferred way) without causing an even larger cataclysm than would occur if the euro were allowed to split.
I hear on the radio at the moment that "people power" has already expressed itself in Tunis, with the government being dissolved. But this is a fine example of how events outside governments' control (in this particular case, commodity prices, but in the case of the eurozone, it's past over-borrowing by one sector and over-exporting by another) can bring about social crises.
People are not used to not being in control. They find it hard enough when natural disasters show that there are many things compared to which human beings are as insignificant as ants. When it comes to economies and "market forces", most governments are equally insignificant. hence the attempts to blame "speculators". It's nothing of the kind, of course. Generally speaking, there are no bad guys here (with the possible exception of the fools in the US who deliberately initiated a credit boom in 2001 when the Internet dotcom bubble burst). All the characters were, in a way, pawns in a game of which they had no control.
Tunis -- a non eurozone country, appears to have blown up. This is a fine indication of how fast this kind of thing can happen. This country was seen as an "ideal" for North Africa, far more stable than even Egypt. The banking system has broken down. The supply chain has broken down. Anarchy is in play and it isn't a pretty sight. There is no rule saying that this kind of thing can't happen in Greece, or Portugal, or Spain. Or even Italy. People who say "it couldn't happen here" are living on Fantasy Island. It very much could happen here.
It is the fear of this that leaders within the eurozone are working with, not some airy-fairy academic concern about the euro. Society is always closer to breaking down than we think -- indeed its survival in most of Europe since the early 1970s (the Balkans excepted) might be looked back upon as a golden age. Little wonder, therefore, that there is a willingness to do anything possible to keep the people happy and the financial institutions stable.
______________
This fund, you may recall, was launched in May last year as part of a total €750bn bailout back-up that was meant to be so large that it would never be needed. Now it's beginning very much to look as if Spain is indeed going to need it, and Lagarde has spotted that, oh, €750bn might not be enough after all.
The media reports that because Portugal managed to sell a paltry €1.25bn of sovereign debt at about 6.7% meant that it was "less likely" that it would eventually need a bailout is, I fear, total piffle. Firstly it was a very small amount compared with the total debt it is going to need to refinance, and secondly even this required some solid work on the part of the ECB. The forthcoming default of Portugal is, in a sort of future past participle kind of way, already a done deal. And that brings us to Spain and the prospect of innocent consumers going to the ATM one Monday morning in early November and finding that they don't work.
Since this does not follow the Birks principle of "the least damage to the largest number", I think that we can be fairly sure that various elected and non-elected authorities throughout Europe (the Spanish government itself is actually remarkably powerless in this whole affair, passim the Irish government's humiliation last November) will make sure that Spaniards aren't running around setting fire to every bank in town, just before stringing up the local councillors from lampposts.
Lagarde is making the first step to try to ensure that social armageddon doesn't strike the streets of Madrid along the lines of Tunis at the moment. But Ggermany has less freedom. Just as Ireland is about to virtually destroy a political party at the ballot box, a political party that goes back to the heart of the foundation of the Irish nation state, the German political parties have greater fears to keep at bay. For Germans, representative political democracy isn't "a nice idea" or even "a bad idea" -- it's what they have instead of Nazism or Communism and people being dragged away at 4.30am in the morning, never to be seen again. Put like this, Germany pays a bit more attention to its people than do some countries (such as the UK) where the confidence in the solidity of our current system of government leads to what is clearly the occasional abuse of process (one which, thankfully, standing against which we still have an independent judiciary).
But this veers rather too much towards tedious constitutionalism. This is really about the heart and soul of the people -- the governments of individual countries and the EU itself are something of an irrelevancy. Most people (sadly) haven't read Hobbes' Leviathan, but to do so gives an indication to what extent leaders are invariably pawns of a subset of their subjects. In Germany and France we have different subsets to which the political leaders have to nod, and it is this which is leading to posturing in public and talks behind closed doors as these people desperately try to save the euro (in their own preferred way) without causing an even larger cataclysm than would occur if the euro were allowed to split.
I hear on the radio at the moment that "people power" has already expressed itself in Tunis, with the government being dissolved. But this is a fine example of how events outside governments' control (in this particular case, commodity prices, but in the case of the eurozone, it's past over-borrowing by one sector and over-exporting by another) can bring about social crises.
People are not used to not being in control. They find it hard enough when natural disasters show that there are many things compared to which human beings are as insignificant as ants. When it comes to economies and "market forces", most governments are equally insignificant. hence the attempts to blame "speculators". It's nothing of the kind, of course. Generally speaking, there are no bad guys here (with the possible exception of the fools in the US who deliberately initiated a credit boom in 2001 when the Internet dotcom bubble burst). All the characters were, in a way, pawns in a game of which they had no control.
Tunis -- a non eurozone country, appears to have blown up. This is a fine indication of how fast this kind of thing can happen. This country was seen as an "ideal" for North Africa, far more stable than even Egypt. The banking system has broken down. The supply chain has broken down. Anarchy is in play and it isn't a pretty sight. There is no rule saying that this kind of thing can't happen in Greece, or Portugal, or Spain. Or even Italy. People who say "it couldn't happen here" are living on Fantasy Island. It very much could happen here.
It is the fear of this that leaders within the eurozone are working with, not some airy-fairy academic concern about the euro. Society is always closer to breaking down than we think -- indeed its survival in most of Europe since the early 1970s (the Balkans excepted) might be looked back upon as a golden age. Little wonder, therefore, that there is a willingness to do anything possible to keep the people happy and the financial institutions stable.
______________
