The Bewilderness

Philip Stephens of the Financial Times is one of the misguided Europhiles on the pink organ. Quite the chronicler of Tory failure, his tome from the nineties: "Politics and the Pound", is a timely reminder, if read today, of the mistakes and misguidance that has afflicted this country. The concluding remarks in his book sum up the erroneous assumptions underlying Europhilia and the ideological compass that underpins their reasoning:

Sterling is a useful indicator and an instrument of economic management but the currency markets can be as destructive as they are powerful. For now there seems only the slightest prospect that Britain will join EMU in 1999. A re-elected Conservative government would not survive such a decision. Tony Blair would almost certainly have more pressing priorities. But if the rest of Europe does create a single currency, sterling's future will look bleak. Once again Britain is likely to follow Monnet's advice.  It will watch from the sidelines to see if the venture works and, if it does, will join. Until then politics and the pound are destined to remain dangerously entangled.

The emphasis is upon British reticence, hesitation and cowardice, not upon the pros and cons of a currency union. When your magnetic north is inverted to Brussels, your reasoning does not look ahead but back, from out of your arse. The 'guilty men', who supported this disastrous venture have found any number of excuses for not amending their opinions.

This does not prevent our pygmies from another failure at the G7 (no Putin, so no G8). Strong leadership would demand the orderly dismantling of the currency union into convergent groups. Instead, isolating Angela Merkel, the Anglo-Saxons called for further integration, the mutualisation of debt and the monetary debasement of the Euro. The only response they can give is their own pisspoor stealth inflation and austerity spin. (The UK government is not on the austerity treadmill).

Why should the Germans pay for the debts of others? Their political elite may subscribe to a 'European Germany' and wish to avoid causing the gimps who gave all of their deposits in bad loans from facing the consequences of their actions. The German government have tried to stop bailing out their own banks. Merkel may have forced this poison on Ireland, Portugal, Greece, Spain and the periphery. Now that poison is being thrust upon her.

From Grexnix to Grexit

In 2000AD lore, a grexnix is a churlish person or an ignoramus. It is not clear if they are lower or higher on the list than nonscrots (redefined as nonscrotes, if drunk): nonreaders of 2000AD. For our purposes, the European political classes, as individuals, can be insulted as grexnixes. Why? Because, through their political decisions, they have ruined the lives of Greek nonscrots and forced them into an inevitable Grexit from the Euro. Their status as Grexnix leads inevitably to Grexit.

The backwash from this event is incalculable. Not in the exaggerated drama of overwhelming damage but a practical observation concerning the vast number of overlapping and contradictory warnings handed out about the Eurozone. Believe the best and prepare for the worst?

A Greek exit will cause economic damage. It will destroy confidence in the currency union and a deep recession in the UK. The greater the contagion and subsequent disruption, the more that we should fear the consequences on these islands.

One can muse at the irony. Greece was a latecomer to the welfare state and, like its peers, used debt to fuel its payments. Now, the crisis of late social democracy has been accelerated by the Greater Depression and the downfall of sovereign debt. Welfare liabilities are no longer possible. It is not possible to discern the new forms of government as yet. We can only chart the downfall of the old. 

They did not even mention the FTT...

On Francois Hollande's first day as French President, his goal was to meet with Chancellor Angela Merkel, reaffirming the relationship between France and Germany underpinning the European Union and the Eurozone. One should emphasize relationship, rather than partnership. The latter is fruitful, the former can be abusive.

The two leaders met for talks and a dinner, holding a press conference on their discussions. It is clear that neither was willing to give ground, politely stating their differences. Hollande made the case for Eurobonds, a lender of last resort and renegotiation of the fiscal treaty. Merkel stood her ground on the figleaf of austerity, already clear that the liabilities will overwhelm Germany if the Eurozone falls.

On the day that economic news highlighted the widening divisions within the currency union, both leaders noted that they would agree to disagree. Their sole point of unity was a plea for Greece to remain within the Eurozone and a plea to provide further support; perhaps this formed the majority of their discussion. Growth and austerity become minor points in the maelstrom that would result if contagion flowed through the markets.

To sum up, the discussions confirmed that Hollande and Markel are now bystanders like the rest of us. They have no solutions and the future of their currency union resides in the Greek electorate. They didn't even mention the financial transactions tax (don't want to piss UK and US off?). 

Bank bailout transacted through Greek front

The Telegraph caught up with Euractiv today, reporting that France and Germany would harmonise their corporate taxes on an intergovernmental basis. The pioneering duo hope to provide additional foundations for a Fiscal Union and prevent tax competition. I predict this is one wheeze that will survive a Hollande win, although he may wish to increase taxes against German opposition.

Still, the lunatics remain in charge of the asylum. A second Greek bail-out has been announced alongside some verbiage announcing the transformation of a basket case into a dynamic export driven economy. Potential strengths like tourism are ignored (since they would thrive in devaluation) and emphasis is laid on austerity and privatisation. You know, asset strippers.

Since the economy is now at crisis point, the paper is the final novel in this fantasy trilogy. Their medicine: cut wages, privatise the state and open Greece up to investment. How they will dispel the risk of default, depression and revolution is open to question. 

Such a programme can only be completed with victory for the political elite. Their support is shrivelling by the day. The collapse is priced in, now: duration till the event remains unknowable, but it can't be too long now. Elections in April.

We need questions, not answers

Zero State is a new grouping that has emerged out of the inchoate slew of groups and personnel straddling futurism and transhumanism in the United Kingdom. Following the mutations amongst these associations over the last decade, one could get cynical about the lack of 'take off' one finds in a movement. A similar parallel could be drawn in the quest for liberty.

So, we find that the latest permutation seeks not to mainstream transhumanism, but to embrace the values and broaden participation. Admirable goals, no doubt and mood music to the major focal point of this post. Without quoting from the text, a troubling manifesto was put up for comment on a mailing list as a response to the financial crisis. The first paragraph blamed the financial crisis on capitalism and deliberate actions by a cross-section of government and the richest 1%. The result was that the middle class were paying a redistribution to the rich. The redistribution to the rich exists but I was loath to recognise agency in such a confusing and unknown situation. Within the text, such sentiments did denote class war and the politics of envy; sentiments indistinguishable from any utterance of the Labour Party or the radical left. This led me to think: if we are unable to understand what has occurred so far (since we can read a slew of competing narratives), what would transhumanist interests bring to the table? And I think that this is an important question, since these interests, these values distinguish us from the peddlers of traditional fictions.

One of the key factors of the banks has been a misreading of risk; part of the area that plays into the research on cognitive bias and other factors that can skew thought and action. Should we ensure that there are women traders to break up the dominant effects of testosterone? Should we ensure that all risk officers are women (the mother of all Battles?) Do we need to consider the effect of archaic institutional perspectives on what has occurred? Corporations, regulators and hedge funds all date from the twentieth century. They find it difficult to receive, process and act upon information; the complexities are too tangled in certain circumstances. (That does not prevent us from identifying those companies that were just stupid: loading themselves up on badly rated debt and foudering as a result).

The emphasis should be on questions, not an narratives. Adopt a story and you will instantly slot yourself into an existing narrative; one based on its own assumptions, not the evidence.

 

 

Waiting upon a butterfly, whose wings have already flapped

If you go out in the markets today, you are sure to meet a bear. And all the bears will be pondering the same philosophical question: if a bank fails, can it do so silently, or will the whole forest burst into flames?

All of the articles one reads offer the same handwringing condemnation of pusillanimous politicians and inevitable calamity. Yet, historians examining the same papers will come to radically different conclusions. What realistic choices do Eurozone participants have? They do not have control of the money supply. This belongs to the European Central Bank. They are unable to exercise full sovereignty. That was given away. All policy decisions require the unwieldy and unanimous commitment of all Eurozone members. Leadership and action are not words that could be associated, even remotely, with this set-up.

A radical response would be political suicide, entailing a dilution of fiscal responsibility and a further surrender of democratic sovereignty. The latter has been argued for by the bureaucrats and central bankers, pushing for even less accountability over budget and taxes from elected representatives. Such a move would usher in an illiberal confederation. None of the political classes have the courage to break with this structure, yet.

Since muddling through by consensus is the realistic policy response, criticism should flow from the ground chosen. Even on this narrower platform, the Eurozone members have proved to be a hapless bunch. Their play book is predictable and whatever firebreaks are built, only postpone the contagion. 

This does raise the important question: was the run on the € inevitable from a certain date? Would we have entered contagion without the pavane of promise from politicians, who feel dutybound to undertake the dance of the dead with their zombie banks? Could a proper accounting of sovereign debt after 2008 have averted this endgame? We will never know. 

It is the teasing out of structure versus action that raises an historian's game. Talk of economic determinism and a dysfunctional currency union ignores the ability of states to place politics over economics, even at great cost. Such arguments also dilute the responsibility of a political elite for the consequences of their mistakes (which we are all paying).

Now we are just awaiting triggers and that depends upon a butterfly, whose wings have already flapped.

Europe squanders its breathing space

The transfer union is off the table; Eurobonds will not be tolerated; it is doubtful that the EFSF can be enlarged.

What remains? A disorderly rout once the ECB's firepowers is exhausted. Or a European coup d'etat overturning parliamentary sovereignty and constitutions: political will overriding legal niceties designed to protect democracy. 

Soon, the EU periphery may face costly chaos or a bureaucratic technocracy with a representative figleaf.

And the band played the banks out...

History will record that political incompetence compounded economic disaster. The compunding is quite literal. By adding debt to debt, they increased the amount of interest to be paid back on outstanding principal. Banks losses were transferred to central banks. As countries toppled, these were transferred to the state. Soon, confidence in the state itself eroded: commercial risk became economic farce and then political disaster.

At what stage are we? Political action is now proving to be an accelerant, adding to the flames. The dishonesty of leaders, unwilling to allow banks to fail, has brought their whole project near the brink. We are not there yet, but soon, soon. Italy and Spain are the next tests.

Today, markets are dropping as the price of risk is reassessed. The more mendacious and deceitful the political class, the worse the economic outcome. (And that also brings us to the taxes heaped on the backs of the poor in the name of climate change: different trend, same moral sump). Evans-Pritchard is scared that a recession will commence next year. Backwards looking economic indicators suggest that it is already here and that the austerity of tightened state budgets will contract demand. Raising interest rate as the European Central Bank did recently will be seen as an act of malevolent madness. Further inaction and political chaos leaves any resolution of the contagion as close to zero. We can only watch the endgame play out, with national authorities acting unilaterally once a pain threshold is reached. The opportunity of collective action for the euro is now at an end.

Bailout sequelitis

Is the Eurozone nearer a resolution to the crisis of debt, default and devaluation. These are the three stages that all countries could potentially go through. The future of the € is mired in the political future of the European Union. The paymasters and the supplicants will need to sort out if they want a transfer union (a political union de facto) of if they wish to kill the Project off. Afterall, most of the political class in Europe love the travelling to an undefined destination but never wished to actually arrive.

Germany, naturally, balks at consigning its financiers (the German taxpayer) to a future of misery, bailing out other Member States. Yet we hear opinion after opinion from analysts, the ECB and endebted beggars that decisive action is required. Otherwise, contagion ensues. When examined closely, the actions demanded involve more money and institutional reform that will guarantee that flow of money. Will such actions prevent contagion or merely stave off the inevitable? The latter. All the actions desired appear to be bailout sequelitis. 

SO when Deutsche Bank argues that € hitting the wall = a 30% drop at least, we should prepare for the inevitable. Since the inevitable is here and earlier than expected.

Will contagion prove a self-fulfilling prophecy?

The Eurozone finance ministers are talking tonight on two issues: providing Greek with further finance and dispelling a possible 'contagion effect' across the markets if this fails. The argument is compressed into the next two days as poltical and financial effects combine. The Papandreou government in Greece is facing a vote of confidence which, if positive, will ensure parliamentary support for the austerity measures. To sweeten the pill and assuage the street, Papandreou is offering to curb some of the perks enjoyed by the political classes (ministerial immunity, political financing, gouging the taxpayer). In tandem, the Eurozone will make a bridging loan, to keep Papandreou's government afloat, although the IMF portion can only be disbursed if they are confident Greek finance is on a medium term foundation.

If these two hurdles are overcome, then the play will enter a new scene: to climax on July 11th. There, the ministerial jugglers will attempt a voluntary restructuring of debt (including private sector participants) without setting off a default event. Since the whole tiresome process hinges on Greek co-operation, I hope that the Parliament puts PASOK out of its misery and faces economic truths: your austerity program will not resolve your debt trap.

If there is a 'contagion effect', this may be viewed as a self-fulfilling prophecy. Market participants expect the dominos to fall, and act accordingly. Another blinding performance from Juncker and the Debt Junkies