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Europe’s debtors must pawn their gold for Eurobond Redemption

Published by Anonymous (not verified) on Wed, 27/04/2022 - 4:09pm in

Tags 

ECB, france, Germany, Italy, Spain, UK

And their central banks can buy unlimited amounts to support the price.

Not that they would do that…

Europe’s debtors must pawn their gold for Eurobond Redemption

By Ambrose Evans-Pritchard

May 29 (Telegraph) — The German scheme — known as the European Redemption Pact — offers a form of “Eurobonds Lite” that can be squared with the German constitution and breaks the political logjam. It is a highly creative way out of the debt crisis, but is not a soft option for Italy, Spain, Portugal, and other states in trouble.

The plan is drafted by the German Council of Economic Experts and inspired by Alexander Hamilton’s Sinking Fund in the United States — created in 1790 to clean up the morass of debts left by the Revolutionary War. Flourishing Virginia was comparable to Germany today.

Chancellor Angela Merkel shot down the proposals last November as “completely impossible”, but Europe’s crisis has since festered, and her Christian Democrat party has since suffered crushing defeats in regional elections.

The Social Democrat opposition supports the idea. The Greens say they will block ratification of the EU Fiscal Compact in the German Bundesrat — or upper house — unless Mrs Merkel relents.

“The Redemption Pact cleverly combines the advantages of lower interest rates through joint European borrowing with a reduction of debt,” says Green leader Jürgen Trittin. “Joint liability would be limited in both time and scale.”

The plan splits the public debts of EMU states. Anything up to the Maastricht limit of 60pc of GDP would remain sovereign. Anything over 60pc would be transfered gradually into the redemption fund. This would be covered by joint bonds.

Italy would switch €958bn, Germany €578bn, France €498bn, and so forth. The total was €2.326 trillion as of November but is rising fast as Europe’s slump corrupts debt dynamics. The sinking fund would slowly retire debt over twenty years, using designated tithes akin to Germany’s “Solidarity Surcharge”.

In effect, Germany would share its credit card to slash debt costs for Italy, Spain and others. Yet it is the exact opposition of fiscal union. While eurobonds are a federalising catalyst, the fund would be temporary and self-extinguishing. “The fund is a return to the discipline of Maastricht with sovereign control over budgets,” said Dr Benjamin Weigert, the Council of Experts’s general-secretary.

The ingenious design gets around the German constitutional court, which ruled in September that the budgetary powers of the Bundestag cannot be alienated to any EU body under the Basic Law — the founding text of Germany’s vibrant post-War democracy.

The court warned that open-ended liabilities are unconstitutional. The Bundestag may not establish “permanent mechanisms which result in an assumption of liability for other states’ voluntary decisions, especially if they have consequences whose impact is difficult to calculate,” it ruled. Chief Justice Andreas Vosskuhle said that any major step towards EU fiscal union would require “a new constitution” and a referendum.

The fund implies a big sacrifice for Germany. Its interest costs on joint debt would be much higher than today’s safe-haven rate of 1.37pc on 10-year Bunds. Jefferies Fixed Income says it would cost 0.6pc of German GDP annually. The Council of Experts — or `Five Wise Men’ — argue that this would be modest compared to the growth adrenaline of rescusitating monetary union.

Yet it is not charity either. One official said a key motive is to relieve the European Central Bank of its duties as chief fire-fighter. “We have got to get the ECB out of the game of distributing money, and separate fiscal and monetary policy. Germany has only two votes on the ECB Council and has no way to control consolidation,” he said.

Germany would have a lockhold over the fund, able to enforce discipline. Each state would have to pledge 20pc of their debt as collateral. “The assets could be taken from the country’s currency and gold reserves. The collateral nominated would only be used in the event that a country does not meet its payment obligations,” said the proposal.

This demand could enflame opinion in Italy and Portugal. Both states have kept their bullion, resisting the rush to sell by Britain and others. Italy has 2,451 tonnes of gold, valued at €98bn in March.

Alessandro di Carpegna Brivio, a gold expert at Camperio Sim in Milan, said Italy should treat such proposals with care. “Everything being done at a European level is in the interests of Germany and France, to save their banks. It is not in the interest of Italy,” he said.

“We should use our gold to take care of our own debt, collateralizing bonds above 100pc of GDP. That would be a far more targeted approach,” he said.

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David Marsh, author of books on the euro and the Bundesbank, said Germany is not yet ready for the redemption fund. “The Germans have to do something, but I don’t think it will happen before the elections next year. Spain will have to go through storm first,” he said.

Ultimately, a sinking fund cannot tackle the root cause of the eurozone crisis. It may cap debt costs but it does not alter the intra-EMU currency misalignment between North and South, or help the Latin states close the chasm in labour competitiveness.

The South would still face the long grind of “internal devaluation” — or wage deflation — breaking societies on the wheel. Yet the Redemption Pact is at least a first step back from Purgatory.

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The post Europe’s debtors must pawn their gold for Eurobond Redemption appeared first on Mosler Economics / Modern Monetary Theory.

External Affairs Minister Jaishankar: India Has Concerns About U.S. Human Rights Record

Published by Anonymous (not verified) on Tue, 19/04/2022 - 3:55am in

Look to India to stay an independent foreign policy course, pursuing its national interests in a multipolar world, instead of joining the U.S. kennel of poodles.

Why Birds Migrate Vast Distances – and How you Can Help During Their Breeding Season

Published by Anonymous (not verified) on Mon, 18/04/2022 - 8:50pm in

It’s spring migration season, with birds resident returning from winter sojourns in warmer climes to their summer breeding sites. The post includes some suggestions on how you can help the birds.

India: Pursuing its National Interest in the Multipolar World

Published by Anonymous (not verified) on Tue, 05/04/2022 - 3:55am in

The U.S. botches its India diplomacy as it fails to comprehend Delhi’s understanding of the new realities of the emerging multipolar world.

The Importance of Custody, or NATO’s Internal Gold War

Published by Anonymous (not verified) on Mon, 04/04/2022 - 7:30pm in

Both the UK's Government and the Bank of England have gotten suspiciously tetchy over German requests to get its gold back.

Colonial Taxes Built Britain. That Must Be Taught in Lessons on Empire

Published by Anonymous (not verified) on Sat, 02/04/2022 - 12:55am in

UK government ministers want the British Empire benefits to be taught in schools. Don’t let them ignore the death and destruction it inflicted

COVID Bailouts Helped Politically Connected Businesses More Than Others – New Research

Published by Anonymous (not verified) on Sun, 20/03/2022 - 9:50pm in

Firms with political connections, and those owned by large and influential shareholders, benefitted most from allocation of COVID bailout funds.

Retail sales, Consumer sentiment, NY manufacturing survey

Published by Anonymous (not verified) on Thu, 17/03/2022 - 6:53am in

Tags 

Russia, UK

Gone flat post covid, adjusted for inflation:

The post covid slump continues, and now there are war disruptions:

US Consumer Sentiment Lowest since 2011
The University of Michigan consumer sentiment for the US fell to 59.7 in March of 2022 from 62.8 in February, below market forecasts of 61.4, preliminary estimates showed. It is the lowest reading since November of 2011, as inflation expectations rose sharply due to a surge in fuel prices exacerbated by the Russian invasion of Ukraine. The current economic conditions index fell to 67.8 from 68.2 while the expectations gauge sank to 54.4 from 59.4. The year-ahead expected inflation rate (5.4%) rose to its highest level since 1981, and expected gas prices posted their largest monthly upward surge in decades. Personal finances were expected to worsen in the year ahead by the largest proportion since the surveys started in the mid-1940 pointing out that the high inflation rate is impacting incomes.

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The post Retail sales, Consumer sentiment, NY manufacturing survey appeared first on Mosler Economics / Modern Monetary Theory.

Translating Vô Trị - An Interview With Mèo Mun

Published by Anonymous (not verified) on Sun, 06/03/2022 - 10:05am in

image/png iconcover-image.png

We are honoured to present this interview with Mèo Mun, an anarchist group who focus specifically on archiving, translating, and disseminating anarchist texts. You can find their work on Libcom, the Southeast Asian Anarchist Library, and follow them on Twitter. In July, we published one of their pieces on LGBT+ liberation and the fight for partial freedom in Vietnam. Credits for the banner art go to u/anarchist_snufkin on Reddit.

Vietnam’s so-called ‘socialism’ is state capitalism in a coat of red. The State dangles a communist haven before the oppressed, while politicians and capitalists work the people to their bones and call it ‘socialism’ so no one would think of the pitchforks.

Mèo Mun

read more

Translating Vô Trị - An Interview With Mèo Mun

Published by Anonymous (not verified) on Sun, 06/03/2022 - 10:04am in

image/png iconcover-image.png

We are honoured to present this interview with Mèo Mun, an anarchist group who focus specifically on archiving, translating, and disseminating anarchist texts. You can find their work on Libcom, the Southeast Asian Anarchist Library, and follow them on Twitter. In July, we published one of their pieces on LGBT+ liberation and the fight for partial freedom in Vietnam. Credits for the banner art go to u/anarchist_snufkin on Reddit.

Vietnam’s so-called ‘socialism’ is state capitalism in a coat of red. The State dangles a communist haven before the oppressed, while politicians and capitalists work the people to their bones and call it ‘socialism’ so no one would think of the pitchforks.

Mèo Mun

read more

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