Because of the holidays, I am not yet posting the regular Weekly Support. The commentary is now getting extremely negative on the prospects of the common European currency. Keep in touch with me through Twitter, Facebook, email, paper.li.
EURO CRISIS: GENERAL
EU - euro area governance – a messy rebuilding – bruegel
Integration of policy making within the euro area has increased and this has created some tensions between the euro-area ins and outs. Surveillance mechanisms have been extended to cover areas far beyond fiscal policy.
Sarkozy gains in the polls but Hollande risks remain – Sober Look
In spite of this trend, BNP Paribas' analysis still projects Hollande to be the winner. In spite of Sarkozy's one point advantage in the first round of elections (28.4 to 27.4), the believe that Hollande will be able to capture the bulk of France's left.
European policymakers, particularly on the continent, have long appeared to be in denial of the centrality of systemic banking fragility in the place’s problems…Put simply, Europe’s leaders are not ready to create a truly meaningful federal framework for banking policy because a critical mass of countries see banks as a core instrument of national policy.
Tommaso Padoa-Schioppa and the origins of the euro – National Bank of Belgium (pdf)
National Bank of Belgium Working Papers by Maes, Ivo 28-Mar
The Big Easing – Project Syndicate
Daniel Gros: The real problem for the ECB is that it is not properly insured against the credit risk that it is taking on. The 0.75% spread between deposit and lending rates (yielding €7.5 billion per year) does not provide much of a cushion against the losses that are looming in Greece, where the ECB has €130 billion at stake.
Ultimately, monetary union cannot be sustainable without fiscal union and banking union, and these will not themselves be sustainable without a form of political union…Contrary to many people’s intuitive perception, it is politically easier for a nation to renounce its own currency and even its fiscal sovereignty than its control on banks.
New strains surfaced in European markets as a slide in the euro forced Switzerland's central bank to intervene in currency markets and Spanish bond yields climbed to their highest level this year.
BREAK-UP
John Lloyd: The European crisis isn’t over until the First Lady pays, and the First Lady of Europe, Angela Merkel, cannot pay enough. She needs to erect a large enough firewall to ensure that the European Union’s weaker members do not, again, face financial disaster. That will not happen – which means the euro faces at least defections, and perhaps destruction.
The fate of the euro will probably be determined by politics as much as economics. A debtor state may tire of internal devaluation. A creditor may want to stop supporting others. And any one of the euro’s 17 members may balk at the loss of sovereignty involved in saving the currency. But the worst outcome of a euro split would be a chaotic breakdown.
German Ideology, EMU, and the Wolfson break-up Prize – The Telegraph
There is almost no intellectual recognition – except among those who have lived abroad and worked in global finance – that monetary union has become an engine of contractionary havoc… Wolfgang Schäuble is not going to oversee the dismantling of EMU – the project that he, more than anyone else still in public life, helped to create. He is a fanatic.
Wolfson gurus see euro break-up as dangerous but liberating – The Telegraph
A disorderly break-up of the euro would set off a cataclysmic chain-reaction and a collapse of Europe’s banking system, pushing the world into full-blown depression.
PIIGS
Fiscal devaluation as a cure for Eurozone ills – Could it work? – voxeu.org
Troubled Eurozone countries face the difficult challenge of regaining competitiveness without devaluing their currency. Could a fiscal devaluation, shifting taxes from employers to consumers, help? This column presents evidence suggesting that it could, but the devil is in the detail.
The EMU strategy of wage deflation across half Europe is simply not doable. It was tried in the early 1930s, with results of varying awfulness…Why? For What?
The decisive test of the euro area’s plans for economic recovery was never Greece but Spain, and the European Union shows every sign of failing it.
For insatiable markets, Spanish steps fall short – MacroScope / Reuters
So much for the lasting power of the ECB’s 1 trillion euros in cheap bank loans. Spain is again looking like a basket-case, more because of market dynamics rather than any particular policy misteps.
Stephen King's Perspectives On The Greek Tiger – ZH
HSBC: How the Greek tiger learnt to roar again...and Germany shot itself in the foot. A futuristic fable with a moral for those who want Athens out of the euro.
Bank of Greece’s balance sheet has increased from 30bn before the crisis to 200bn, but still the monetary aggregates have collapsed.