Out of Europe overnight we get one of the first signs that Angela Merkel might be willing to blink in her game of chicken with the peripheral sovereign nations. Germany has indicated that they would be open to what amounts to a one-off variation of “eurobonds,” the pooling of Eurozone debt into a common security. However, this would be part of a larger action that would centralize fiscal control throughout the Eurozone.
Pressed by a banking crisis and turmoil in the markets, Germany has indicated that it is prepared to accept a grand bargain that would provide greater support for its most indebted euro zone partners in exchange for more centralized control over government spending in Europe.
The German chancellor, Angela Merkel, said that finding the way to “more Europe, not less” was the next task for Europe’s leaders. “The world wants to know how we expect the political union to complement the currency union,” Ms. Merkel said at a news conference here Monday with José Manuel Barroso, the president of the European Commission. “We have to find an answer in the foreseeable future.”
German officials remain adamant that they are not talking about euro bonds, or jointly issued debt, which they have dismissed as unconstitutional. More likely is a plan to combine much of Europe’s bad debt into a single fund with the idea of paying it off over 25 years, an idea gaining traction in Germany as an alternative to euro bonds, officials say.
I don’t see how this is that different. It’s would be the retirement of old debt rather than a security based on new debt, giving it a time limit, but it would still get issued collectively, meaning favorable rates for the peripherals and worse rates for Germany.
The devil is obviously in the details. It would probably include some collective deposit insurance for the banking industry, but also control by the European Union in Brussels over fiscal policies in the member nations. It would also involve greater intervention by the European Central Bank, to rescue member states directly. But it would represent a further loss of control of sovereignty in a way that may not make the member nations all that comfortable. But a crisis has a way of bringing this about.
Though such a fiscal and financial compact would take years to accomplish, there’s a sense that things are moving right away. Today there’s an emergency G7 meeting on Europe. The markets have taken a shine to this as a potentially real solution for the crisis. There’s no question that this does more than the previous kick the can attempts. The question is whether it will be accepted, and of course whether it’s acceptable; otherwise we could end up in the exact same place.
We could get finalized plans for this integration at a finance minister summit at the end of the month. We’re definitely seeing what one US official called a “heightened sense of urgency” around the situation.
What little details have been released would move the European Union toward an actual union, but that may be a bit much for its members. Moreover, questions would still persist. If the end result is a fiscal compact that demands austerity out of all of its members and can veto budgets that produce otherwise, that obviously will in no way bring Europe out of its torpor. And there’s that pesky Greek election to worry about.
More from Reuters.





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Will they need brown shirts now ? {clicks heels together and salutes}
Is Merkel changing her stripes? More about this at WSJ this morning.
http://online.wsj.com/article/SB10001424052702303918204577446703449650304.html
But it’s without financial backstops, like shared deposit insurance, in the near term. And it seems aimed more toward future problems rather than the present crisis.
The common scheme seems different from the usual form (whatever that was) for eurobonds. I think what Germany is talking about is a one-time event. Take all the debt above, say 60% debt/GDP in each Euro nation, and put that into a common debt pool for which all are responsible. Issue common bonds for which all are responsible against that single pile of debt. You do this once, then everyone gets their fiscal house in order German style, but you never do it again. All the fiscal constraints and penalties of the Fiscal Pact apply thereafter, enforced through the European Union.
Until now, Eurobonds have been thought of as an ongoing vehicle that governments could collectively use over and over going forward. This looks more like a one-off event, which is why Germany might prefer it. “Okay,” Merkel says, “but just this once, and only for this amount, but never again and no more.”
Just the tip.
:s
Some German official reportedly asked how much German money the EZ wanted (Reuters). If so that is telling and certainly would not support more than a one time event.
I don’t see how this will help long term.
It might help with the current debt, but the German austerity demands will continue to shrink these country’s economies and the debt will start piling up again.
This is simply another step in the long process of letting unelected bankers take over complete rule of Europe, and ultimately the world. (I emphasize complete control, with no vestige of real sovereignty left. Elections would essentially become meaningless.)
After everything German has done in the past, I wouldn’t loan them my lawnmower. Those Europeans are a gullible bunch.
Interesting you were apparently speaking in the future tense.
That was just to avoid a panic, right? That’s OK you can trust me. :-)
I was referring to European elections, where public financing, limited length of the campaign season, and multi-party parlimentary structures still allow for some degree of voter sentiment to percolate up into the power structure. Look at the Greek election; if the far left party wins control, there may be a confrontation over (and rollback of) austerity. Same for the recent French election. Hollande is no great improvement over Sarkozy, but he is some improvement. Whereas over here, you can make a case that Romney would be no improvement on, yet no worse than, President Pinocchio.
I think that’s about right. Originally, those EU elections seemed important, then less so as time went by. They would become more important in the future. Since it is a parliament, there is a mechanism for a union more like the US under the Articles of Confederation, which is probably a good idea in Europe, where almost everyone identifies by nationality rather than as Europeans.
You’re right, of course. European elections, IMO, do offer better results than our current system does.
Maybe we should switch to 220v DC current. Just a thought.
Speaking of voting, today is Primary Day in CA. Just made the two block hike to my local polling place. Some key points:
Voted for only one Dem, in a State Assembly race, because he is on record favoring shutting down a nearby powerplant (and ace polluter) when it’s operating permit comes up for renewal next year. (Heavily Dem district and no Green party candidate for that office.)
Speaking of Green Party candidates: Not a single one listed for U.S. Senate — DiFi’s seat. So I voted for the Peace and Freedom candidate.
But think about this: the Green Party wants to be taken seriously (esp. WRT Jill Stein) and they can’t even get a candidate on the ballot to run against one of the worst DINO’s in the last 100 years?
Just more proof that the Greens aren’t a party, they’re a plaything for dilettantes. What a sick joke.