Archive for November, 2011

ECB secondary market purchases

I was playing around with the ECB’s SMP numbers this morning, while waiting for last week’s purchase figures to be released (8.58 bn €). The resulting overview is quite striking:

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Final Election Results for the Tunisian Constituent Assembly

Les listes et partis Nombre de sièges Nombre total des voix % of total votes going towards seats in the Assembly % of seats in Assembly % of total voters % of total eligible voters
Ennahdha 89 1,500,649 54.0% 41.0% 36.9% 19.8%
CPR 29  341,549 12.3% 13.4% 8.4% 4.5%
Al Aridha 26  252,025 9.1% 12.0% 6.2% 3.3%
Ettakatol 20  248,686 8.9% 9.2% 6.1% 3.3%
PDP 16  111,067 4.0% 7.4% 2.7% 1.5%
Parti de l’initiative 5  97,489 3.5% 2.3% 2.4% 1.3%
Pole démocratique moderniste 5  49,186 1.8% 2.3% 1.2% 0.6%
Afek Tounes 4  29,336 1.1% 1.8% 0.7% 0.4%
Alternative révolutionnaire 3  29,336 1.1% 1.4% 0.7% 0.4%
Mouvement du peuple 2  13,979 0.5% 0.9% 0.3% 0.2%
La voix de l’independent 1  13,432 0.5% 0.5% 0.3% 0.2%
l’Independent 1  11,980 0.4% 0.5% 0.3% 0.2%
MDS 2  8,230 0.3% 0.9% 0.2% 0.1%
Pour un front national tunisien 1  7,421 0.3% 0.5% 0.2% 0.1%
Parti libéral maghrébin 1  6,621 0.2% 0.5% 0.2% 0.1%
Parti de la justice et de l’égalité 1  6,098 0.2% 0.5% 0.1% 0.1%
L’Espoir 1  6,022 0.2% 0.5% 0.1% 0.1%
Parti du militantisme progressiste 1  5,860 0.2% 0.5% 0.1% 0.1%
Parti néo-destourien 1  5,826 0.2% 0.5% 0.1% 0.1%
Parti de la nation social-démocrate 1  5,643 0.2% 0.5% 0.1% 0.1%
Parti de la nation culturel unioniste 1  5,269 0.2% 0.5% 0.1% 0.1%
La Fidélité 1  5,070 0.2% 0.5% 0.1% 0.1%
La Lutte sociale 1  4,749 0.2% 0.5% 0.1% 0.1%
La Justice 1  4,232 0.2% 0.5% 0.1% 0.1%
L’Union patriotique libre 1  3,599 0.1% 0.5% 0.1% 0.0%
Mouvement des patriotiques démocratiques 1  3,599 0.1% 0.5% 0.1% 0.0%
Fidélité aux martyrs 1  2,540 0.1% 0.5% 0.1% 0.0%
total in/for Assembly 217  2,779,493 100% 100% 68.3% 36.7%
total votes  4,069,786 100.0% 53.8%
total eligible voters  7,569,800 100.0%
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Germany’s ‘Master Plan’ for Europe

November 15, 2011 1 comment

The very idea of national ‘master plan’ always smacks a little too conspiratorial for me, at best I see it as an extreme simplification of a systemic interplay of national actors working for differing goals in an international setting, especially within the EU where borders between national and European policies have increasingly become blurred. Either way, the CDU’s Leitantrag (proposal) on Europe for its current party conference comes as close to a (CDU = major coalition partner ~ ) German ‘master plan’ for Europe as it can get.

For reasons incomprehensible for me, neither the German nor the foreign media seems to have really picked up on this. Neo Nazi crime, the minimum wage, the conservatism debate at large are focused on much more extensively even if arguably changes of this magnitude to the European institutional framework will have a much more important long-term impact. What does this plan entail then?

For the most part it is a compilation of little surprising previously known CDU positions. They are opposed to a centrally organized and governed Europe (Wir wollen kein zentralistisch organisiertes und regiertes Europa), no European debt collectivization (eine unkalkulierbare Vergemeinschaftung der Staatsschulden), no Eurobonds ([wir] lehnen […] die Einführung von Eurobonds strikt ab), current account surpluses as a source of strength not an international problem (Es kann nicht darum gehen, die Starken zu schwächen). In regard to the infamous transfer union there is an interesting emphasis on the opposition to automatic/permanent financial transfers leaving open the possibility of one time payments and other methods (Wir wollen in Europa keinen automatischen Finanzausgleich nach dem Vorbild des deutschen Länderfinanzausgleichs und keine automatischen Haftungsverpflichtungen).

Most revealing though are the actual proposals themselves. The is in favor of ‘more Europe in important policy areas’ (Wir brauchen in wichtigen Politikfeldern mehr Europa), which includes integrative changes to the Economic and Monetary Union and a move of the European Union towards a strong Political Union (Deshalb wollen wir die Wirtschafts- und Währungsunion vollenden und die Europäische Union als starke Politische Union gestalten), which can act internationally also ([die] in der Lage ist, unsere Anliegen international durchzusetzen).

Monetary Union shall be converted into a Stability Union (aus der Währungsunion eine Stabilitätsunion machen). Specifically, the CDU is in favor of the introduction of debt brakes all over the currency zone and as a condition for new Eurozone member states ([wir] setzen […] uns weiterhin für die Einführung einer Schuldenbremse nach deutschem Vorbild in allen Euro-Staaten ein. Die Aufnahme in die Eurozone soll nur noch möglich sein, wenn zuvor entsprechende Regelungen in der Verfassung des beitretenden Staates verankert worden sind).

On the European level the Stability and Growth Pact is supposed to be integrated into the EU Treaties in order to effectively function as a Eurozone-wide debt brake (wir auch den Europäischen Stabilitäts- und Wachstumspakt in die EU-Verträge integrieren, damit er die Wirkung einer Schuldenbremse auf europäischer Ebene entfaltet). In order to reinforce the pact, the European Court of Justice shall be empowered to fine malefactors (der Europäische Gerichtshof (EuGH) [soll] die Einhaltung des Stabilitäts- und Wachstumspaktes künftig durchsetzen und Verstöße ahnden). States incapable of following macro-economic regulations will in a first step receive ‘advising help’ (Beratungshilfe), followed by ‘human resource support’ (personelle Unterstützung) in both cases coming from the Commission. In a last step the ESM shall be activated where ‘unavoidable’ (unabdingbar) and under strict economic and financial conditions (strenge finanz- und wirtschaftspolitische Auflagen). If a debt restructuring becomes necessary an EU Savings Commissioner (Sparkommmissar) shall be allowed to oversee restructuring measures (Restrukturierungsmaßnahmen), he/she shall also be allowed to overrule the state’s government in question (dieser [soll] auch Durchgriffsrechte erhalten, falls der jeweilige Staat seinen Pflichten nicht nachkommt).

Less concrete measures are more spectacular and surprising. Thus the ESM is supposed to be evolving towards a European Monetary Fund. The aforementioned Political Union shall receive a symbolic head with the President of the Commission to be elected by all citizens of the EU! The CDU also wants the emergence of a ‘democratic two chamber system’ (demokratisches Zwei-
Kammer-System) consisting of the European Parliament and the Council, both are to given the right to initiate legislation also (beide Kammern […] [sollen] das Initiativrecht für die EU- Gesetzgebung erhalten). Within this framework of a move towards a more integrated European Political Union and society, the CDU also proposes a common European People’s Party leading candidate for the next EP elections. The European Parliament should also reflect EU population more in the future, more MPs from the bigger member states in other words.

What else? A two speed Europe, potentially outside of existing treaties, is seen as potential but acceptable evil (Die Umsetzung dieser Maßnahmen kann in einer Übergangsphase auch auf der Basis zwischenstaatlicher Lösungen erfolgen) even if everything should be integrated into the EU treaties at some point (neu geschaffenen Regeln der zwischenstaatlichen Zusammenarbeit [sollten] mittelfristig in die EU-Verträge integriert werden).

Really what has to be taken away from this is that the CDU clearly is asking for ever deeper union at this point, subsidiarity is all of a sudden seen as a principle requiring the policy transfer to the European level ([wir] sehen […] die Übertragung von Kompetenzen auf die europäische Ebene im Rahmen des Subsidiaritätsprinzips als die zeitgemäße Form an). Merkel’s party after initially generating some doubts about this during the early months of the Eurozone crisis has clearly laid an emphasis of integration as the way forward.

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The Eurozone Crisis’ End Date Reconsidered

A friend of mine raised two very relevant points in regard to my belief that this crisis ain’t going to end until 2013. There is a reason he has a much more interesting job than me after all:

  1. I think you assume that the ECB is too hawkish. I can see them getting involved sooner than you think.
  2. There has to be more than just strict conditionality. The Germans really have to get this at some point. Ultimately, there needs to be some reason for the southern countries to actually STAY in the Eurozone. Sure, they’ll say “JA” to everything Berlin throws at them now, because of fear of contagion. But Germany is setting itself up for a bunch of “exits” once the Europeans actually solve this. Without a plan towards growth, which has to come from a commitment by Germany to converge, this can’t last forever

He is probably right to some extent on number 1 as Thursday’s rate cut showed which additionally was immediately followed up by secondary market purchases to the tune of 5bn in one single day. Yet, I wouldn’t overemphasize the ECB’s non-hawkishness either as Draghi’s insistence that the ECB were not to become bank of last resort as well as immediate calls for secondary market purchases to remain temporary (Draghi) and end as soon as possible (Stark who admittedly will be leaving soon) show. The ECB might not be as hawkish as myth has it the Bundesbank used to be, it arguably isn’t dovish (=expansionary) either to seriously bring about an inflationary end to this debt crisis.

Still, there is an extremely interesting paper circulating (check out Olaf Storbeck‘s discussion of it) which posits that:

Looking at the European Central Bank, we show that nationality is indeed relevant for […] decision-making.  […] monetary policy decisions seem to be linked to national representation in the core business areas of the ECB.

Yet, what the paper shies away from naming is which countries are actually overrepresented within the ECB and macro-economic positions thus disproportionately have an impact on the ECB’s monetary guideline decisions. Hope says – for once, I usually abhor this – the Southern Europeans’ nepotism on the EU level has led to a rise in their numbers in the ECB as well leading to higher inflation in the core and less need for painful deflation in the periphery.

On number 2, I also agree with his assessment that there will have to be carrots as well as the stick of conditionality and the loss of sovereignty – hello Greece and welcome to the party Italy. I think this only serves as additional fodder for my argument that we will need a change of government – either through a Grand Coalition at some point next year when the FDP has finally succeeded in committing political suicide or following elections in 2013 – in Germany before an conclusive solution for this crisis can be found. The SPD (and Greens) apart from having positioned themselves as far more integrationist than the current government is also via an international op-ed – Sigmar Gabriel, Ed Miliband and Hakan Juholt – effectively arguing for demand expanding policies.

We need a new deal based on the understanding that lack of demand is undermining the global recovery. In that context, immediate collective austerity simply will not work. […] We also need greater […]  domestic demand in surplus economies.

I still stand by my belief then that a solution to this crisis will require time and a different government constellation in Germany, in other words it is doubtful we will stop to obsessively stare at Slovak, Greek and soon Italian parliamentary turmoil for quite some time to come.

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Don’t expect this to be over before 2013

I’ve talked before about laying out why I doubt we will find a definite solution to the Eurozone crisis in my two previous posts on this subject (I, II). So, after a crazy Greek day yesterday, here goes.

While the Greek Prime Minister’s announcement of a forthcoming referendum – which might or might not actually take place – impacts this analysis to some extent, it does so only on the fringes. If the Greek public were to disapprove of the most recent measures agreed upon by the Eurozone, Greece most likely will be dropped by Europeans and then – officially – go bankrupt. In this scenario Greece will probably be forced to not just leave the Euro but because of legal restraints the European Union also – ironically taking away the common market, which in theory holds the biggest promise for a currency-deflated Greek economy. Greece in other words would go through a harsh, sudden recession, but then it will go through a maybe less harsh but probably longer recessionary period otherwise. Who knows which one of those evils were actually worse for the Greek population, I tend to believe that leaving the Euro would be less advantageous (at least even more disadvantageous), but that is not the question I am looking to answer here. For the Eurozone as a whole, a Greek default and the end of its Eurozone (and EU) membership would not fundamentally change any of the underlying structural problems and imbalances of European Monetary Union without an accompanying fiscal or economic governance union. In fact, speculative attacks (and rising interest rates in the periphery) would more than eradicate the benefits of the biggest intra-Eurozone debt imbalance falling out. The overall picture of the Eurozone being obliged to work towards a resolution to these problems, this crisis, would not change thus.

As discussed on this blog, last week’s summit conclusions serve as another temporary fix to a problem that is two-fold. The main and underlying problem lies with a common market and currency for differing economies with no fiscal transfer and de fait limited labor mobility serving as a valve to assuage emerging capital and currency account imbalances. There are tepid signs of the EU’s labor market truly Europeanizing itself with for example Spaniards increasingly moving to Germany (you should walk around Berlin one of these days!), this process is developing at a crawling rate though and comes far too late to solve the current crisis. The second main cause for this crisis or rather the way it is being played out on the markets, lies with the differing perceptions of time and the speed of developments within the political and the financial realm. International agreements move slow, look at international climate change negotiations or WTO-trade rounds if you believe this is only true for EU negotiations. Financial markets of course are acting within seconds of whatever event dominates the day (even faster with computerized trading), markets want a satisfactory proposal to ease their doubts on the Eurozone not today but yesterday.

Whenever a positive agreement is reached then, euphoria fuels a short rally before traders (and others) realize that once again an enduring solution has not been reached. On the other side of the coin European Union leaders – justly so – believe they have acted with unprecedented speed in bringing about bailout packages (remember the no bailout clause anyone?) and bringing about structural change to the Eurozone (with the EFSF, the ESM, the six-pack in economic governance, and now envisaged treaty changes and other moves towards common economic governance). While politicians are moving with unheard of speed – in light of their usual decision-making mode – they are moving far too slow for markets measuring time in far smaller units. Neither of these will change and we can expect the current cycle of emergency summits, inconclusive conclusions leading to short-term rallies and once again rising interest rates for periphery states to continue for at least another year, maybe even two or three.

The reasoning for this belief can be laid out rather easily. The German government is extremely reluctant to pour additional money into bailout-programs that are at an increasing speed seen as insufficient anyway. With Germany as the most relevant AAA-rated country essential for any kind of conclusive solution, this is the baseline that we are operating from. One way to work around this would be for the ECB to either buy up much more debt itself (or at least promise to continually do so, which would in itself put a significant damper on speculation) or to allow the EFSF to tap into the ECB to do the same. Germany of course is opposed to either of these options also. While it has – de facto – veto power over anything the EFSF does, its influence on ECB decision-making is more limited. Yet, it seems doubtful that the ECB will massively act against its biggest contributor, the Bundesbank, on this issue. In other words, while monetization will remain an option to temporarily assuage interest pressure on the periphery and will – I would guess – increasingly be relied on, it looks like an unlikely end-all solution considering the the ECB’s charta and astounding – and seemingly exaggerated – fear of inflation.

With both of these options out for the time being we are then looking at what Germany will allow in terms of an incrementally growing bigger commitment to a stability union, to common economic governance, even a European economic union and the dreaded fiscal union. The Eurozone has only started out on this path. It will require treaty change, which in turn will have to be ratified in national parliaments maybe even via referendums in some countries. It might also require constitutional change in Germany because of the Constitutional Court’s strict limits imposed on the Bundestag’s powers to sign away its own constitutional budgetary prerogatives. All of this will take time. Most importantly though, the current German government will not go any step further than absolute necessary to prevent the Eurozone from blowing up. For Germany to underwrite some of the debt currently carried by Southern Europeans a new government from 2013 onwards (or before in the shape of a Grand Coalition) will have to take power. Such a government, without the FDP most importantly!, would have much more leeway either giving a Eurozone wide promise to underwrite European bonds, create some kind of a version of Eurobonds, or simply allow periphery countries to default on some or all of the debt currently held by the ECB (~170 billion € at the moment, by that point somewhere in the high 200s?) , the latter of which initially would be a relatively creative and easy way to avoid some of the uproar related to an taxpayer’s participation in yet another bailout.

To sum up an already too long post then, I believe Germany has the will to assure the survival of the Eurozone and – indirectly and because of it – bring about an ever deeper – economic – union, but it will take the installation of stringent conditionality and punishment mechanisms on the European (supranational or intergovernmental) level and a different coalition at the helm of Germany’s political and economic decision-making levers. In other words, don’t expect this to be over before 2013.

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