The Bewilderness

Crack Pipe Markets whore € paradise

I use the terminal font for € posts from now on. Unsurprisingly. The currency is bouncing dead cat highs on thin rumours and fat fingers. Do traders hang round chat rooms waiting for the latest: ooh, Fat Freddy's Cat says Draghi could be capping yields or yielding caps or something. There's no LSD trip quite as light fandango as that alternate reality we see before our eyes: sparkling € diamonds more lustrous than gold. And they even greece their optimism.... 

EU then Asia: the rolling debt death

Mario Monti, in an interview with Der Spiegel kept his phrases light and neutral. He stated that his role was to save Italy from financial ruin and "moral support" from other countries was required, especially from Germany. Dig deeper into Monti's utterances and his assertion that Italy has not received one pfennig from Germany so far ignores the huge liabilities held by the Bundesbank under the Target 2 system. This unauthorised transfer of virtual assets allowed the Italians to stuff European banks and the European Central Bank with debased assets.

Those assets and liabilities will still need to be accounted for as we endure the endgame. The poison has overwhelmed the body corporate and all countries are now infected by the malaise. The European timetable is out of step with the markets. A banking union gameplan will be published in September and finally agreed in December; by this time most of the sovereigns may have choked.

And then the ball will roll eastwards and westwards...

Elections on ice

The European institutions have adopted the very policy positions that spell out the doom that came to Madrid (and Rome, and so on). Incompetence is wedded to demands for greater austerity and banking capital at a time of economic collapse. The Commission twists the touniquet to ensure that more blood spurts out. 

Yet as more countries are taken down for the good of the whole, one does wonder at the strength of the European ideology. An outsider, aware of its flaws and irrationality, expects that the politicians will come to their senses, return to rationality and plot a course that could start to reduce these risks. Yet, they are enchanted by the irreversibility of the project: go forward, never back; except the road has almost run its course and they are out of time. 

The allegiance of all centre parties to Europe will invite extremes. The Greek election was an early example. Other elections will prove more radical in the years to come. If the Europeans prove as competent here as they have in currency union, then we must view democracy in danger, from extremist illiberals and technocrats. Will Europe engineer technocratic suspensions to foil Eurosceptic takeovers; elections on ice until people have again proved their fitness to vote?

Financial ferrets in a regulators' sack

Until now, the public has received little or no evidence of collusion between banker and regulator in relation to the manipulation of the markets. Nor have they understood the wider political framework within which such contacts took place. The FSA's investigation of Barclays bank has revealed ambiguous communications between the bank, Bank of England and unnamed parties within Treasury. 

The speculation is forthcoming but this could have profound implications for the Labour party, if the parliamentary investigations uncover evidence of co-operation between government and banks. Miliband's cynical distancing from the last government will be undermined by a reminder that Labour were in hock to banks, just as they are now in hock to Unite.

Nor does this let the government off the hook. Osborne's judgement may prove even more flawed when it becomes clear that his chosen vehicle for clean-up is besmirched by the antics of his predecessors. The Bank of England will suffer reputional damage and the FSA has one final triumph: kicking its rivals after they have succeeded in eviscerating its role.

We can look forward to a few weeks of kicking lumps. 

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?). 

The stanks bubble away....

The tsunami of liquidity that the European Central Bank released in November and February to stave off an incipient 'credit crunch' no longer hides the inability of Member States to pay back their debt. Greece, Portugal and Ireland all remain mired in depression and austerity with no hope of recovery. Yields have begun to rise precipitously again in Spain and Italy.

There is no map for plotting the duration of this crisis: slow, slow, quick, slow. The gathering pace of European leaders towards the cliff edge will become far quicker when the first of the 'too big to bail' countries enters an antechamber of default. For this will be a moment of decision: integration or disintegration!

As Ken Rogoff again lists, the Eurozone does not meet the basic criteria for an optimal currency union: political legitimacy, labour mobility, a lender of last resort for bates and stanks (bank owned states and state owned banks) and a shared debt. When the crisis reaches its full fury, will some or all of the Eurozone leap headfirst into union?

This is unknowable, though all Eurozone leaders have urged greater rather than lesser integration. The current strategy of austerilty through liquidity runs the risk of political rejection after a period of time (depending upon the tolerance of the countries affected). After that, it is a matter of the Eurozone grappling with its strongest flaw: Germany.

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.

Yet one more vote, one more summit, one more bail-out...

Greek rioters have begun to burn buildings as a torrid backdrop to the parliamentary vote on accepting austerity measures. Parliamentary opposition has coalesced around a question of sovereignty. All of the political parties that used the technocratic government of Papademos to distance themselves from these policies are suffering meltdown in the polls. If nothing else, the destruction of the political class that brought Greece to this pass would be a welcome development.

Even if the parliament votes in favour of Papademos, new elections should remove the tainted parties. Voters are emigrating from the austerity pack and moving towards the far left. Elections are due within a few months, and it is unlikely that any deal will remain unmodified unless Greece suspends its democracy. Watch them deploy the fear card: vote for us or leave the Euro. Except that the buildings are already burning....

It has taken a few years, but we are beginning to see the much predicted resurgence of the Left.