ESM for Spain ? Irish & Belgian banks could get their bailout!

Dear reader,

just after the last big summit of June 28th & 29th which gave European leaders and investors a big relief, the author here found two small articles which indicate that the ESM could or should be used to help out Irish & Belgian banks:

The first time the author gained knowledge about Belgium was via @geertnoels who suggested the possibilty to tap into the vast resources of the new financial instrument called ESM. A day later this author here found an article in Dutch where Belgian prime minister di Rupo came up with a similar idea.

(Dutch)>>Een herkapitalisering van Dexia zou in theorie dus ook rechtstreeks via het ESM kunnen, laat premier Di Rupo weten. "Het systeem geldt voor elk van de zeventien lidstaten uit de eurozone".

Maar de kwestie is niet aan de orde, zei Di Rupo nog. "Tot nu toe hebben we helemaal geen vraag daarover. Niemand heeft hier op de Eurotop over Dexia gesproken."<< engl.: "a recapitalisation of Dexia would in theory be possible thus could also be done directly via the ESM, PM Di Rupo let us know. "The system is in place for every member state of the eurozone". But this matter isn't yet done, Mr Di Rupo added. "Until now we haven't been asked for that. No one at the European summit here talked about Dexia." 

          source : http://www.deredactie.be

(German)>>Dublin ⋅ Irlands Politiker und die Fachwelt haben die Beschlüsse des EU-Gipfels begrüsst. Kredite an die spanischen Banken – unter Umgehung des Staates – erlauben eine analoge, rückwirkende Lösung für die bereits erfolgte Rekapitalisierung der irischen Banken. Premierminister Kenny sprach in Brüssel von einem «seismischen Wandel in der europäischen Politik», Aussenminister Gilmore von einem «massiven Durchbruch für Irland». Irland hofft auf eine Entlastung der Staatsschuld um etwa 20%. Die Renditen auf irischen Bonds sanken am Freitag auf ihren tiefsten Stand seit Ende Oktober 2010.<<engl.: Dublin - Irish politicians and the experts hailed the decisions of the EU-summit. Credits for the Spanish banks - under circumvention of the state - permit a similar,  retroactive solution for the recapitalisation of Irish banks which is has already been done. Prime minister Kenny talked in Brussels of a "seismic shift in the European politics", Foreign minister Gilmore of a "massive breakthrough for Ireland". Ireland hopes for a reduction of their sovereign debt of about 20%. The yields for Irish bonds declined on Friday to their lowest level since end of October 2010. 

source: http://www.nzz.ch

So those two individual reports might only be early indicators for more troubled banks of countries to come forward and make their claim for 'easy money' out of the big ESM which might get operational on July 1st, but more likely a bit later, depending upon at least a decision of German constitutional court. Perhaps some other countries will also contribute to a delayed succession of the EFSF. As soon as this author encounters additional stories of banks eying the ESM they will of course be added to this blog post.

Worry about idiocy not inflation (part 6) Inflation itself

Dear reader,

there are those who fear inflation even if there isn't traditional inflation looming and there are those who obviously are obsessed with inflation to root it out as if it is some kind of nasty evil to combat.

The author here is somehow shocked again that he didn't come across any article lately which might have explained the sudden and perhaps for some unexpected decline of inflation figures not only in the eurozone but also in the UK. (ooops .. just after writing this blog post came across this article by Handelsblatt explaining recent German inflation number)
Some feared that the LTRO actions of the ECB in December last year and February this year would spark inflation. Well at least those assumption haven't materialized yet and latest numbers aren't supporting it either. So there was even an alarming inflation figure of around 5% in the UK which now falls back to 3% and in Germany, the mother of all inflation worriors it has declined to 1,7%. So yesterday the German paper 'Financial Times Deutschland' had even reported that there are some chances that the ECB would lower its base lending rate to a level below 1,0% !

So far so good, but still there hasn't been one article detected by this author which gave some explanation for what caused that drop in inflation numbers across Europe, not only the euro area everyone is watching very closely. As if there isn't only a tendency of denial of factors behind driving inflation, but also for closing their eyes to the extreme dependency on fossil fuels.

Inflation is declining sharply along with rapidly declining oil prices and before it was on the rise because the oil prices were on their way to reaching all time highs. By ignoring the close relationship between oil/energy prices and inflation there is not only the danger of not reacting properly by conserving energy, searching for new sources of energy, but also there looms the danger by taking a wrong path concerning monetary policy. So when it is obvious so far that LTRO did nothing to drive inflation as there is no evidence so far that the policies of the 'american canon on the loose' called FED could not invoke inflation over there so far, it is necessary to concentrate on energy prices and their influence on our economies. So by investing in the sector of energy efficiency and exploiting Europe's own energy sources it could be seen as a 'helping hand for the mandate of ECB'. And if hundreds of economists have proven the linkage between fluctuating energy prices and inflation in the future, the applied wrong policies of the ECB may have wrecked the whole common European currency already. We can then call such studies another orbituary to the Euro's existance.

Even without hard scientific evidence of what exact influence on inflation numbers it is time to acknowledge that there is some signifiant influence. Whether if it's good for 1% of inflation 1,5% or even 2% might be the question to answer by some research to be done, but that there is some significant influence should be considered 'captain obvious'. So in the UK the decline in new loans might have contributed in the sharp fall of their inflation as well as the exchange rate of the pound to the Dollar might have done its part as well. But coming back to the eurozone there is the general feeling of relief that oil prices are currently declining sharply and they therefore not contribute, at least for the time being, to the 'perfect storm' professor Roubini has warned of on many occasions. But it's really not the time to get complacent on that important field (energy) again, cementing the rather helpless position of the whole of Europe, not only the EZ, comparable perhaps to ship in the middle of the Atlantic ocean with engine failure or a broken rudder, unable to maneuver. Able to sustain for a few days because of suffient stock of fuel and food, during a period of good weather as a result of a area of high pressure, but doomed nonetheless as soon as this zone moves away and a depression will invoke high winds and waves forceful enough to break the ship in half and sink it.

If we are not looking into securing our 'Archilles heal' not only will the ECB loose their ability to fight inflation, because a significant part of it does not come from an overheating economy but from an 'outside source', not only outside the continent but also outside the ECB's mandate or capacity.

We could protect the motor (economy) and the rudder (ECB) of our European ship by shielding both from the negative influence of externally driven positive or negative inflation.By gradually reducing the effects of fuel price fluctuations we will be able to gain back control of our economy and to reduce the outflux of capital out of consumers and industries and governments pockets alike which would otherwise flow in consumption and therefore in 'own growth' rather than in the growth of foreign sovereign wealth funds. (which then ironically will be asked in desparation to lend us money to protect us from going bankrupt) So if there is one 'mother of idiocy' the author here would say:'Well this is it'

And currently there are many other stories to tell regarding 'idiocy'. And every few weeks there is one other popping up like now there is 'Cyprus idiocy' and perhaps next there will be 'Slovenia idiocy'. It could become a whole book filled with 'Eurozone idiocy' and as more chapters are getting written the more it becomes clear that it is indeed better to worry about all that idiocy which is ruining not only the EZ, but also the EU depending on its 'core zone', than to worry about that inflation is around the corner and Germany's 1923 exceptional circumstances could hit us tomorrow. Well if there is such a slight chance of repetition it would be for those countries having to leave the eurozone, such as it was discussed for Greece. Even then it wouldn't be that extreme as in those month of the French occupying the Ruhr area of Germany.

Within the Eurozone all those who are afraid of the 'boogeyman' should spend their sleepless nights on thinking about tackling the dependency on foreign fossil fuels and even more by preventing the times of utter chaos whenever the production levels would not match the global demand levels anymore. Whether peak oil was reached already, is now, or will get reached in the future, the moment when demand is widely higher than supply the prices will skyrocket and therefore those future studies of exact influence on our inflation levels might prove then the correlation between USD/barrel and hyper inflation ;-)

The author here is sure that most of the readers are familiar (by and large) of the latest inflation numbers and also with latest developments on the fossil fuel front (not only oil), and therefore they will forgive the author here once again that not all 'evidence' is delivered right now. Some charts will be added immediately, some others like the EU energy policy studies and this authors analysis will be linked to later.

Maybe already 'evidence' is strong enough to call for another (4th) pillar of European existence besides ECB, more controlled fiscal policy(fiscal pact), a resurrection of economic policy (growth pact): a strong call for an European equivelant of the US department of energy (DoE) in order to contribute to economic stability and steerability by a coordinated effort to improve our energy systems and to reduce our dependencies earlier. Let's enhance that large European oil tanker and get it back to a condition to steam full speed ahead, instead of endangering it by leaving it rather helpless behind on the big ocean of world economy, prone to get succumed by stormy weather ahead.

All charts by Scott Barber/Reuters (ThomsonReuters.com)
UK inflation chart presented by BBC: UK: CPI & RPI 2000 - 2012

more charts here: http://ezrcharts.blogspot.com 

Idiocy part 1 - Introduction
Idiocy part 2 - German austerity myth
Idiocy part 4 - Helping Greek bureaucrats not businesses
Idiocy part 5 - Undetected risk: humans (on Bankia, Spain etc)

Krugman's "Operation Market Garden" (One bridge too far)

Dear reader,

once again this author here had to read just one story by Business Insider: How A German Balance Sheet Recession Fueled The Euro Crisis in order to explode and write another blogpost. It was the last straw that broke the camel's back.

The other piece detected earlier was of course by Paul Krugman: Greece as Victim

The title of this blog entry of course a related to the movie: A Bridge Too Far which describes how a military operation intended to be a short cut to VE day , turned out to be too ambitious due to its mastermind's main driving motive behind it: personal ego ! So the plan was ambitious and right and could have worked, but the last bridge to get conquered in Arnhem was just driving the plan over the edge.

And the author here, although basically acknowledging that a functioning euro zone needs some measures of rebalancing such as free flow of labor force and also some measures of stimulants to repower growth in some of the regions effected most by economic decline (The main reason why states couldn't meet deficit criteria, so search for contributors to economic decline). And the author here can even follow Krugman's thesis for 'money recycling' in order to keep e.g. Germany's exports to EZ flowing, but after other countries with large current account deficits try their best to regain export strength by exporting to BRICS and other emerging markets !

Although latest piece of professor Krugman contains a small acknowledgement  that there are some things that Greece is responsible for:

Roubini: "Give Germans 1000€ voucher for holidays in Southern Europe & tax breaks for real estate there"

Dear reader,

it was just brought to to this author's attention (via @rubenmooijman) that professor Nouriel Roubini gave an interview to Germany's most popular newspaper where he demanded basically to do more stimulus for the real economies in Southern European countries instead of putting ever higher sums into failing systems. He warned in that interview of an uncontrolled exit of Greece from the euro area (although it's only fair to comment that so far he and at least Megan Greene of RGE until very recently came to the conclusion that Greece has to give up the Euro currency in order to find new ways for growth)

>>BILD: Ist es nicht besser zu sparen, als den Markt mit Geld zu fluten?
Roubini: „Nein! Der Sparwahnsinn muss beendet werden. Die Regierungen müssen die Steuern senken und die Löhne erhöhen. Europa braucht Wachstum. Die deutsche Regierung sollte jedem deutschen Haushalt einen 1000-Euro-Reisegutschein schenken. Der darf aber nur für Urlaub in den Krisenländern ausgegeben werden. Damit wird die dortige Wirtschaft angekurbelt. Außerdem sollte jeder einen Steuerbonus bekommen, der sich in den Südländern eine Ferienimmobilie kauft.“<< engl.: BILD: Isn't it better to save instead of flooding the market with money ? Roubini: "No ! The austerity insanity must be ended. The governments must lower taxes and increase wages. Europe needs growth. The german government should donate every German household a 1000-Euro-travel-voucher. That one however is only to be used  for a vacation in those crisis countries. Thereby the economy there will get a boost. Besides that everyone should get a tax break who buys himself a vacation apartment in Southern countries."

source: bild.de

Well 'helicopter money' wasn't on this author's mind , but incentives to promote travel to e.g. Greece however was. It was more the idea to promote EU wide advertisements on TV channels and in newspapers. It might be a good idea to give those who book their vacation in e.g. Greece a chance to win a prize in a lottery.
As described earlier here: Helping Greek bureaucrats not businesses (currently!)


It's about time to learn that the whole crisis is as much about imbalances as about bureaucrats who are more likely to waste billions of Euros to support financial structures which are rotten to the bone, instead ever thinking of how to support the very structures everything else is build on. This author's guess was and is still that many of those in charge have somehow forgotten about what capitalism is all about:the market ..and those who are representing demand and supply (consumers & businesses)

last updated: June 12th 20:08 CET

Improving category issue bloggingportal.eu (technical stuff)

Dear Ron Patz & others,

It was observed here that many blog entries which are added to your excellent website are actually lacking a category. Some do however have such a category/label. So it is assumed here that the editor on duty is assigning a category manually every time a new blog entry is added to your database.

It is much easier for readers of your great website to use those labels for selecting a topic. Otherwise there is a large pool of blog entries with no categories and users of your website may never find what they are looking for.

Since it might not be that easy for your editors to find out what label a new blog entry should get it is my suggestion that authors can add something like this to their new blog entries for instance at the top or the bottom of their new piece: 

cat=eurozone or 
cat=eurozone, france


out of a choice of valid labels from your website. (which can be published somewhere e.g. under your section "FAQs" and please mention how many labels can be attached to one blog entry)

At least for the time being as long as the automatic crawling process of your website isn't fully operational. When it works one day those categories can be 'hidden' in HTML metatags.

E-Book: How the West avoided going bust

Dear reader,

the title of course a reference to the magnificent BBC documentary
The Party's Over: How the West Went Bust Episode 1 & Episode 2
by BBC business editor Robert Peston.
Along with a more recent masterpiece: The Great Euro Crash with Robert Peston plus this one: Michael Portillo's Great Euro Crisis
an absolute 'must see', since they not only ask many questions what went wrong to those people who should know it, but also gives some of the answers what could be done to avoid a systematic collapse. Of course from a British perspective but a view from the sidelines of the playing field called the eurozone is perhaps not a bad vantage point upon the crisis of the eurozone which has some potential to severely harm the economy of the UK as well.

'How the West went bust' is of course both: a bit gloomy and a retrospective look from the future on what went wrong in the past. The past is of course our present time and our immediate future and so the gloomy title can actually help to understand that the future could indeed deliver some very bitter pills to our western European society as a whole. On the other hand citing a famous quote it is also true that 'The future isn't written' as Thomas Edward Lawrence once replied to his Arab counterpart, Sherif Ali who, until he encountered the will & determination of Lawrence, believed that mankind has to accept fate, which is always at the mercy of Allah. T.E. Lawrence if of course better known to present generations as 'Lawrence of Arabia'.

And there are more present suggestions that 'the future is written' which are expressed as the euro area is facing 'a train crash in slow motion' as expressed by professor Nouriel Roubini, also known as 'Dr. Doom'. The title assigned to him by people who don't want to see that his analysis and his predictions are rather describing the in fact miserable economic circumstances. Whereas those who see him as 'Dr. Doom' are rather overly optimistic or even blinded by faith that everything is just working fine. In contrast to the Arabic counterpart of Mr Lawrence it can be assumed that Mr Roubini doesn't like the predicted outcome either and is therefore rather giving a realistic picture in oder to prevent things from actually crashing. Just as Mr Krugman as the author here is convinced that labeling him as "anti-euro" or even being against Europe or European Union as whole is actually too far fetched and is utterly unjustified. As Mr Roubini or others who warn about looming, possibly hidden dangers those who are considered to be 'Cassandra' are in fact driven by the wish to prevent disasters not inflicting those.

Spain , Fitch, pain , fools and complacency

Dear reader,

just after the latest punitive action by Fitch as you can read here:

A three notch cut for Spain (and a deteriorating view of those banks…)

the author asks himself, what are economists for when obviously those in charge (governments,  EU , EC) are not listening to their recommendations anyway ? This is not only frustrating for Sony Kapoor as he expressed several times in the past, but also for the one writing blog entries here at Eurozoneremarks.

And it's a well educated guess that many CEOs and other people in charge ask themselves a question whether or not the economists nowadays a bit like those fools employed by European monarchs to entertain them back then in the middle ages.

Let there be no doubt: All the economists actively involved in governmental consultations need to get praised not 'spanked' and the question who is the real fool is answered when complacency is turning yet another country into "smoldering ruins" ¹. 

The question this author asks at least himself is why those Presidents, Chancellors, Prime Ministers did not involve more of their ministries like e.g. as their justice departments for legal advice of every single measure proposed by economists whether it is within the legal framework of EU regulations or not. Not after consulting those fine economists like Mathijs Bouman of the Netherlands who did see already in April what would will happen when nothing is being done about it, and who admitted that extraordinary times may need extraordinary measures. Not after, but simultaneously and not only the ministries for legal expertise but also the heads of the economic ministries in order to check immediately what their countries' industry is capable of and willing to contribute to the immediate rescue operation.

A pragmatical and most important of all quick response. And thereby a clear sign to the markets that the solidarity of other members of the EMU is not about words, statements given late at night after summits without any decisions. Some response just as the author here repeatedly referred to those courageous decisions taken while a catastrophe was happening in his jurisdiction. Once again of course a tribute to Helmut Schmidt and his rescue operation in 1962 when gigantic flood waves threatened lifes and properties of Hamburg's citizens.  Here is a detailed report on what exactly Mr Schmidt did: Helmut Schmidt regiert den Krisenstab
Mr Schmidt later told in an TV interview, that at the time he was fully aware of the fact that he was trespassing the limits of the German constitution and was willing to face any personal consequences for it later. Nothing ever happened to him !
 
Mr Obama should call those European leaders on an hourly basis in order to act quicker or as Ms Lagarde (IMF) put it recently:

"If I was able to do one thing, I would lock them in a room, take the key and let them come up with a comprehensive plan,"

       source:The euro zone, slow-motion crashes and Latvia-Chrystia Freeland

How about opening a subsidiary of German KfW in Madrid immediately and start to to hand out loans to SME sector of Spain ??? Bilateral agreements Rajoy / Merkel ! Do something ! Bend the rules ! Act now ! Don't just enjoy the sweet fruits of own sovereign bond yields of 0,00% or just a bit more than that !

[update]
Schaeuble Says Germany to Help Spain With Joint Investment Plan
(Bloomberg Apr 27th 2013)
[/update]

¹ copyright for this expression by Joe Weisenthal ;-)

FTM: "Europe is like a soup tureen"

Dear reader,

an interesting article was brought to this authors attention (via @_basjacobs) comparing European sovereign bonds yields to a soup plate. Well a soup tureen is a bit deeper and Europe isn't really that flat anyway.

Here is the article in Dutch language by: Follow the money

and it is expressing a dilemma of short term and egoistic advantage vs long term damage and deepening the European divide between those states regarded as 'safe havens' (core) and those considered to be 'less safe' (periphery).

So as jubilant those states with refinancing rates close to zero, or even less than that, are ,as short lived their joy will be when they realize that this cashing in from capital fleeing basically to the north is actually contributing to damage to the Euro area construction as a whole.

So it is certainly worth a consideration to forward some of the recent panic driven advantages to e.g. Spain.

last update: June 6th 2040 CET earlier errors corrected
(accidentally pressed 'update' instead of 'save' button, sorry for publishing some 'draft nonsense')

Where Paul Krugman got it wrong (Ivory tower vs ISS)

Dear reader,

many times earlier the author here reflected on recent pieces by Paul Krugman and he was or is for that matter still right when he points out that Spain just needs to be like Florida and everything is fine: Florida Versus Spain.

or in his earlier pieces where he states that inflation targets just have to be 'rebalanced' in the way that Germany or the 'North' for that matter adjust their inflation figures and the 'South' won''t be forced anymore to dive into deflation in order to keep the average inflation on an acceptable level for the ECB.

When he and others like to address their insights to Germany, which still suffers not only from a stubborn female Chancellor but also from many millions of stubborn voters who aren't 'getting it' either, he can also use the example of Germany's own fund redistribution machine called 'Länderfinanzausgleich'. Strong regions like Bavaria, Baden-Wuerttemberg, Hessen are obliged by law to contribute to the receiving regions such  as North Rhine-Westphalia, Bremen or the capital Berlin. If you look upon the Dutch redistribution model where the wealth is actually pumped out of the ground around the rural area of Slochteren to be used by the Dutch state to support other regions of the country. This model is known as 'Dutch disease' where the name indicates that is isn't really the optimum.

All the assumptions are quite right and indeed a possible model IF the objective was to stick with the original 'business model' of the early 1990s where the iron curtain just was tared down and Europe focused mainly on reconstruction of Eastern Europe and later on integrating those belligerent states which formed on the Balkans after the collapse of Yugoslavia. So the EU had a political agenda to build a new Europe with all its current and future member states are also bonded together by a single currency. The second objective was to enhance the basic principle of the EU which was creating wealth by intensifying cross border trade, harmonization of national legislation and improving competitiveness. In order to contribute to that goal it was one measure to abolish the costs and procedures which were connected with cross border payments. So the Euro was one tool to achieve a single market of some +-500 million people. At the time a very promising goal and one has to admit the EU came pretty close to that goal just before the bad luck or 'Lehman Bros.' struck the EU and EMU 2008. Now is not the time to make a case that is was proven a wrong assumption that the existence of the Euro has spared its member states even more misery, because those 10 EU countries still having their own currency managed partially at least even better to overcome the impact of the 2008 blast from across the Atlantic.

Coming back to the 'business model' and the inner European trade which is by now already an 'aging idea' because meanwhile other countries have achieved a transition from '3rd world countries' to emerging markets to real or 'virtual' members of the G8. Brazil just overtook the UK, China's economy just overtook Japan's, BRIC countries, emerging markets are improving and threngthening bilateral trade relations. China is well on its way to even overtake the USA as largest economy of the planet. In some sectors like groceries , smartphones luxury watches and purchasing power they already dominate the USA and according to Mark Weisbrot in The Guardian  they will have passed the USA completely already in 2016 ! Some say we (the West) have reached the end of the track, but the author here says we just have to go on constructing new tracks in order to steam ahead ! 

So the EU business model or Paul Krugman's 'repair instructions' for the common currency area are right when you look at it from this perspective (ivory tower): 

                                     source: http://en.wikipedia.org/wiki/Eu  
but not necessarily anymore when you look from this

                                       source: http://en.wikipedia.org/wiki/Continent

vantage point (ISS space station)!

That's the background for coming up with a 'recipe' for creating demand in those regions now not only suffering from the lack of it but even from severe malnutrition, wars, instability etc:

The EIB or why politicians should ask industry/entrepreneurs

It's also more within this authors preference of growth by market opportunities instead of redistribution models which still lack of basic incentives of demand.

Some related articles:
Trading places (The economist)
The hopeful continent: Africa rising (The economist)

The EIB or why politicians should ask industry/entrepreneurs

Dear reader,

in these days of turbulences in the eurozone two things seem to be extremely difficult:

One is to finish blog entries which should maintain a certain standard, requiring lots of research, needs combining of many sources and yielding some new or additional knowledge to the Internet community.

The other impossibility is to stay calm and ignore certain news flashes out of the constant stream of new news highlighting certain aspects of the European project and concerning the eurozone as a whole.

Sometimes such stories like this one:

EIB chief warns about too high expectations on EU growth impulses (reuters_de) (Ger)

EIB chief since this year's beginning is Werner Hoyer (ger) (eng), a liberal politician. Nothing wrong with that career so far the author here has to admit, but the modesty expressed in the Reuters article above expresses a fundamental problem somewhat typical for the demise of the eurozone at least, maybe even for the whole European Community.
It reflects this authors darkest visions about a looming repetition of the collapse of the Comecon, the economic union of the states under control of the soviet imperial might, consisting of ideological communists with little or no knowledge of markets.  
Please don't understand it in the way that the author here wants to put Mr Hoyer somewhere near the communists from beyond the iron curtain back then. It's more the idea that institutions are manned by politicians and staff with excellent theoretical background, but who didn't serve so far in companies. Institutions (not individuals) which lack the spirit of exploring opportunities, see future markets, see possible advantages of saving resources.

Mr Hoyer is of course right, when he wants to dampen expectations arising from remarks of Mr Hollande.

>>Die Investitionsbank werde bisweilen als Allheilmittel gepriesen, "auch weil man sich in Europa auf vieles andere nicht ohne weiteres verständigen kann", bemängelte Hoyer. Sie sei aber nur ein Teil der Problemlösung. Geplant ist, im Rahmen der Wachstumsinitiativen das Eigenkapital der EIB durch Einzahlungen der EU-Staaten um 10 Milliarden Euro zu erhöhen. Damit könnte die weltweit größte Förderbank neue Kredite in Höhe von rund 60 Milliarden Euro vergeben.<< engl.: The EIB is sometimes praised as a panacea, "also because the inability of Europe to find common ground on other issues", Hoyer criticized. It is however only a part of a solution. It is intended to enhance the equity of the EIB by payments of about 10 bn of EU states in the context of growth initiatives. Thereby the world's largest promotion bank could hand out new loans amounting to 60 bn €  

By referring earlier to Mr Hollande he condemns blind spending programs as usual are certainly only a repetition of errors of the past which contributed to towering state debts. He dampens expectations resulting from statements made by Mr Hollande during his election campaign. Mr Hoyer is right when he refers to short term effects of infrastructure programs and given the so far limited scale of the EIB enhancement mentioned above. It won't do any good to currently struggling banks in Spain, Greece and possibly elsewhere. Mr Hoyer is economist and of course right when he addresses the shortcomings of mid to long term effects.

The author of this blog however has vastly different sums in mind, based on the needs for infrastructure for the energy sector alone of approx. 1000 bn € as expressed by  Mr Oettinger here (pdf) & 2. The EIB has projected the amount of 2 trillion € needed for all infrastructure to be build when outlining its 'project bonds' as you can read here.

This author has suggested already not only to collect fresh funding by those infrastructure bills issued by the EIB but to enhance funding by an unlimited banking license provided to it by the ECB. The goal is not only to achieve significant improvements of infrastructure in continental Europe, to finance projects such as power stations, power lines in advance to later sell shares of those to private investors, to use massive reductions in import bills for e.g. fossil fuels to 'payback' and to fund infrastructure projects in other regions of the world to be refinanced by reduced bills for commodities imports from those regions. 

This will not contribute to the immediate rescue of some banks, but will contribute to funding of the real economy to the benefit not only of construction companies involved but also to deliver longer term benefit by enhanced trade, reduced energy bills and by conquering new markets in the underdeveloped parts of the globe. It's much more useful not to waste hundreds of billions on saving financial institutions, which contribute in some economies like the US & UK to some 8 % (much less in other economies) of total GDP but to concentrate funding on traditional sectors with much larger share in GDP and with much more effect on work force and thereby budgets (tax revenues & reduced spending on social benefits). 

Mr Hoyer and others must get the European industrial firms 'on board'. Enterprises such as EADS, Airbus, Siemens, ABB, Alstom, Areva, Philips, Arcelor, DESERTEC, FIAT, VW, Vattenfall, EdF, France Telecom, ACS and others to present their plans for improving European infrastructure and preparing new markets in the so far underdeveloped regions of the planet and their plans for finance and refinance of those projects. Forget the banks, concentrate on real economy again and provide them with sufficient funding. Politicians should see their role in supporting them, not try to outsmart 'market oriented thinking'   

There are enough projects out there which need funding: Whether it is power lines in Poland and Czech Republic which are being 'abused' by German power transmitting firms for transporting their peaks of green electricity, or lack of power exporting 'bridges' from Dutch grid to e.g. German grid and some 20% of Dutch power production is wasted instead, or the massive delays of trans alpine freight trains which ought to deliver goods from Italy to the north just in time, but are often delayed. Or the current dependence of Italian power grid on foreign electricity production capacity etc etc etc. There is plenty of room for improvement. Outlining a major plan for production and trade of the EU alone would be much more convincing to financial markets than keeping insolvent banks alive by providing artificially cheap money to them or bail them out every 2-3 years. The former is very promising the latter sheer idiocy !

update June 6th 2012:

Where Paul Krugman got it wrong (EZROpinion)

Prof. Danny Blanchflower (UK) on Twitter:

>>"It would be amazing if were not many public investment projects with certain equivalent real returns well above zero" http://on.ft.com/JLZ10y<< (@D_Blanchflower June 4th 2012 13:54 CET)

Nov 29th 2011: Osborne Prepares $46 Billion U.K. Infrastructure Program
(Link also 1 topic among others:European growth initiatives (Eurozoneremarks))
Jun 18th 2012: Stimulating European growth (Financial Times)
[/update]

Earlier related pieces by this author:
Economists and medics (importance real economy vs financial sector)
Overcoming the Euro crisis (part XXIV)
Eurozone looking South (to Africa) 
Greece: Project Helios doesn't need exports to the North
Advice to politicians: Be Superman not Clark Kent ! (eng)(Nov 2011)

Some energy projects in need of funding:

Energy companies in fear of power outages (DFTelegraaf) (dut)
Italian power import/export 2012 (Terna,eng)
Italy spends record amount on foreign energy
Fuel costs in Italy hit all-time high
European Power im/export (Wiki, ger)
Spacial distribution of transalpine flows (Zurich process, eng)
Spacial distribution of transalpine flows (Zurich process, ger)
Transalpine freight traffic (Swiss confederation, ger)
DESERTEC project (solar power to Europe,Wiki,eng)
Bid to overhaul Europe power grid (BBC,eng)
Building the Rotterdam of the South (Ekathimerini,eng)



    
References:  
European Union- Energy infrastructure 2011 (pdf) 
Analysis: Troubled euro zone states most at risk from high oil
Opportunities for Dutch companies in developing countries (MVO Nederland)(dut)


related pieces:
Yannis Varoufakis: Depression in the Eurozone’s Periphery and how to restore Aggregate Demand without creating new bubbles
Eijffinger,Sinke,van Egmond,Wijffels,Witschge: Re-Energizing the Eurozone

Timing

Dear reader,

it is important to understand that timing is of the essence when it comes to solving the crisis of the eurozone.

If there is an immediate crisis situation ("fire") one is well advised not to discuss to long about the causes nor about what happens when to clean up the rescue operation itself. (e.g.water damage done by extinguishing a fire)

So perhaps it is not only worth looking into which group could do what job in current crisis situation, but also keep in mind that different stages need different approaches:

So there are short term measures needed, 


Some steps to be taken in 1-3 years (control liquidity, inflation)


and then long term goals must be observed.

The author here never made a secret out of his believes that the EU and its common currency project should be rooted in a functioning market economy and the Euro should have made border crossing payments easier and cheaper (by saving the costs of currency exchanges). But this goal isn't strictly tied to the existence of a single currency for all: Single Euro Payments Area

The Euro is a currency which was intended to improve European & International trade, foreign travel and therefore to contribute to growth. Convergence of economies was needed and a strict follow up the rules of Maastricht (deficit & total amount of state debt to GDP).  
Unfortunately some did not stick to that simple but promising fact, but instead assigned an almost mystical objective to the single currency to form a 'European identity' no matter how the economies of the member states performed or better how the governments of those member states would stick to the rules outlined already in 1992. As we all know it worked for a while but failed the first big 'stress test' which swept over the Atlantic to the European continent.

As there is a current and urgent need to act swiftly, decisively and convincingly (to calm the financial markets) and the author here agrees to the recipes given by Mr Krugman and others to stabilize the EZ in the short term, he disagrees strongly to an endless 'spending spree' in the long run. In the long run the European continent can only survive with a competitive industry, concentration on new products, new (emerging) markets besides using the benefits of a single market within the EU. Using the benefits of massively reduced bills for energy imports is another promising contributor.

Mr Krugman and 'the left' are right when it comes to solving immediate problems and Mrs Merkel and the 'German orthodoxy' are also right, when it comes to long term objectives of structural reforms towards lean and efficient state structures, the promotion of market economy and strengthening of the private sector. The reduction of state debt is a good cause and so is the principle not to spend more than the economy is able to deliver in tax revenues. In the long run 'printing, lending and spending' cannot work and the whole system would reach a point in the future where there will be a Giga or Tera implosion.
So austerity is necessary but not at once and certainly not in the middle of crisis ranging anywhere between serious recession and depression in most EZ countries. And not everywhere geographically from Portugal to Scandinavia and from Ireland to Greece and not at once trying to reduce state and private debt.
To forget however about the long term goals is indeed a recipe for disaster too originating from 'moral hazard' not to reform at all and let the 'rich uncle' (Germany) pay the bills or let the ECB print new money when the old one has just vanished once again.

So in order to reach the long term goals some objectives to reduce debt levels during economic times of economic growth and prosperity must be casted into law now, but in order to survive one should not apply artificial restrictions to the EZ in times of crisis.

  

"Either make up or break up"

Dear reader,

title of course a reference to David Cameron: David Cameron defends 'make up or break up' euro warning

Once again the rapidly developing or rather deteriorating events in the eurozone are to blame for yet another postponement of a planned blog entry on "human nature as a risk factor" (Which the author tries to complete nevertheless)

The author might add a chapter "Complacency of politicians" to the other causes for ultimate disaster leading up to the point of break up of the eurozone. But time to analyze what went wrong is running out and it's not time anymore to reflect on mistakes of the past but to concentrate on the future, without forgetting what we know so far from the past.

And we do actually know quite a lot, and some clever economists even predicted where things could get out of hand, but unfortunately nobody of significance listened.

So what would this author recommend after he wrote several stark warnings during Fall 2011 where the first complete disaster was looming until Mario Draghi and his fire fighting ECB stepped in ?

The ECB stepped in order to give politicians some breathing space to act and the ECB part worked but buying time is senseless when time is wasted by just kicking the can further down the road. So another almost 6 months of useless summits and much talk is wasted and now Spain is once again in the focus of attention making looming problems arising out of Greek mismanagement look so much smaller. OK... a fiscal compact is on its way to get ratified and Mrs Merkel seems to have get used to the idea that growth could do no harm to austerity, but so far avoided to sign up to the statement that some other EU members issued. (More growth initiatives here)

Well basically people have to see that there wouldn't be any problems of deteriorating confidence if the whole system wasn't obliged to restriction. The levels of debt are much smaller than in the USA or Japan. If the ECB could act as a lender of last resort all problems of confidence are vanished asap and the vicious downward cycle of self-fulfilling prophecies would have been broken.

Within the Anglo-American community there is the joke:
"There are two solution categories: One that works, the other which is acceptable to the Germans."
If you want some more 'beaf', here it is by excellent Jeremy Warner: Davos 2012: Can the Germans stop being German?

And as the author here point out earlier, Germany is in fact not 'an island of austerity' within a eurozone full of 'sinners'. It is the result of so far robust industrial production and other sectors regaining strength rapidly after the shock of 2008. And to be even more frank: It was lucky so far to have escaped declining demand by other EZ countries falling back into recession or worse landing in depression because BRIC countries and other emerging markets filled the gap ! Otherwise the 'German island' would also have been swamped by rapid deterioration of state finances partly due to reduced tax revenues and partly because of exploding social benefit costs. Without any doubt the rest of the EZ would face even bigger problems if that scenario played out.

In fact Germany would have experienced also a 'lost decade' and would be at the point where Ex-Chancellor Schröder and his reform agenda changed things. It changed German productivity but it didn't change its massive dependence on exports, which might arise the rather philosophical question about the 'hen and the egg'. There are indications that China, India and also Brazil are also facing at least a slowdown of their growth rates and this would force also Germany to rethink its strategy, when the EZ restarts to gain significance for their exports.

But it is not the time for philosophy or orthodoxy for that matter anyway now. Just as the ECB and its fire crew didn't ask about the ethics of their LTRO actions and justed hoped it will work somehow, just as Helmut Schmidt did break in fact the constitution of the FRG at time when he orchestrated the rescue of his fellow citizens of Hamburg during that catastrophic flooding in 1962, it's unfortunately time again to heed the warnings of Mr Cameron and not to condemn them as 'unwanted foreign interference'.

Maybe there is just enough time for at least one philosophical question: What about praised German austerity in NRW region , in Bremen or Berlin ? Kick them out or continue to feed them with 'Länderfinanzausgleich'. Collapsing industrial structures in all three regions can be blamed for decline, partially killed by political interference as it happened in Bremen

Just in case anyone needs some additional ideas of how solve EZ main problems:
Overcoming the Euro crisis (part XXIV) 

or many other 'newer' entries at  http://ezropinion.blogspot.com
or 'older' stuff (check archive 2011) at http://eurozoneremarks.blogspot.com


Timing is also important.

related articles:
Alessandro Profumo warns: "We are close to the abyss" (Wirtschaftsblatt AT) (Ger)