Streetwise Professor

November 28, 2011

Plan Number . . . I’ve Lost Count

Filed under: Economics,Financial Crisis II — The Professor @ 2:23 pm

Equity markets around the world are spiking on news of Le Plan du Jour/Der Plan des Tages being floated by the French and the Germans.

Basically, it is just a variant on an old theme: fiscal integration, but with teeth this time:

Angela Merkel and Nicolas Sarkozy . . . are said to be putting together a framework for a rapid move toward greater fiscal integration. Such a plan would likely entail oversight of member-state budgets—and a corresponding loss of sovereignty—with the understanding that such ties would facilitate the way toward sovereign risk-sharing, as through euro bonds. The prospect of fiscal submission to the will of the euro zone’s big powers is unlikely to appeal to peripheral countries, but many have already accepted some degree of oversight in exchange for emergency assistance, and the alternatives are likely to be far worse. To get around the need to go through a lengthy and uncertain treaty-change procedure, the plan may be drawn up along the lines of the Schengen agreement on geographic mobility. Countries may be able to sign on on a voluntary basis; it will not be an all or nothing approach. Given the scale of the current debt crisis, mutualisation of fiscal responsibilities won’t fix the mess. The main hope for the plan is clearly that a major step toward better fiscal institutions will encourage the European Central Bank to substantially step up its intervention in bond markets.

But the teeth are the problem.  Or, put differently, the lack of panzers is the problem.

The Economist piece is right to recognize that “mutualisation”–i.e., having Uncle Fritz pick up the tab–won’t work.  It won’t work because Fritz (or, more accurately, German taxpayers) aren’t willing to do it, and even if they were, it is doubtful that even Germany has the financial wherewithal.

But if Germans aren’t willing to tax themselves more to pay for what they perceive to be Greek, Italian, Portuguese, and Spanish profligacy, why should anyone expect that Greeks, Italians, Portuguese, and Spaniards are willing to tax themselves much more to pay for what they perceive to be German miserliness?  Which leads to a focus on one of the italicized sentences: any voluntary agreement requires Greek, etc., consent.  How likely is that?  And even if they consent now, are their promises credible?  Will southern Europeans agree to be bitten, and will they stand still to be bitten?  Can Germany et al really bite?  Color me extremely skeptical on each count.

Although the plans themselves have huge holes, as the rapid sequence of announcement and fading away demonstrates, the announcements and leaks (e.g., the completely unsourced story in an Italian paper that the IMF was going to finance Italy) serve a purpose.  The rumor mill will keep on grinding as long as the rumors have even a temporary market impact.  This buys time, which suits the natural proclivity of politicians to procrastinate, but which also does make some miraculous outcome possible.  Time to pressure the ECB into becoming the lender of last resort–or, more aptly, debt monetizer of last resort (because although a liquidity crisis is the current symptom of the problem, it’s much more than that); or time to pressure the Fed into becoming the European lender of last resort.

Which means that today’s market bounce will produce a bounty of new rumors and plans.

Just in time for Christmas.

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15 Comments »

  1. Der Tag…sounds like the Ludendorff offensive, or June 22, 1941…which reminds me:

    Slava Zashitnikam Moskva!

    Including Andrew’s compatriots who refused to become slaves to the Greater Third Reich.

    Comment by Mr. X — November 28, 2011 @ 2:42 pm

  2. Second, the round and round we go discussion about Georgia is really a tiny part of the big picture, which is this:

    http://www.salon.com/2011/11/26/wes_clark_and_the_neocon_dream/singleton/

    Wolfowitz: “But one thing we did learn [from the Persian Gulf War] is that we can use our military in the region – in the Middle East – and the Soviets won’t stop us. And we’ve got about 5 or 10 years to clean up those old Soviet regimes – Syria, Iran [sic], Iraq – before the next great superpower comes on to challenge us.” China?

    Comment by Mr. X — November 28, 2011 @ 2:44 pm

  3. Some more a awesomeness here:

    http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html

    $13 billion for nothing, chicks for free

    Comment by Mr. X — November 28, 2011 @ 6:34 pm

  4. The latest outrage being floated is that the FED is going to buy Eurodebt with newly printed dollars:

    http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8918784/Should-the-Fed-save-Europe-from-disaster.html

    This is truly outrageous – I now our leaders will do anything for money but to bail out the Krauts from their race memory Wiemar/Freikorps induced hysteria is ridiculous. Even I can’t see Bernanke (aka MaxiMe to Greenspan, or as we should call him Kid Wiemar) falling for this crap. And as far as that Chablis and brie society the IMF I will be damne3d if we should give anything to them. It is time for the House to get on its hind legs and say NO.

    Comment by Sotos — November 28, 2011 @ 8:02 pm

  5. Nope, they just end up with ‘Kein Weimar Amerika!’. That gives me an idea for a banner to unfurl at the first ever joint OWS/Tea Party protest outside the German embassy and IMF in D.C.

    And I see the usual suspects are questioning my sanity. I’m just producing a sane soundtrack for insane times. They don’t even try to rebut the charge that Uncle Sam is arming Al-Qaeda now and the black Takfiri Al-Qaeda flag flew over Libya. Even the ever-excitable establishment weathervane Andy Sullivan can’t rebut it.

    Comment by Mr. X — November 28, 2011 @ 8:31 pm

  6. Anyway, I’m not saying these guys are ‘The Al-Qaeda’ — whatever that is, besides Bin Laden and a handful of followers. It’s the same worldview though that makes blowing Muslims or Christians brains out with sniper rifles in Syria to justify foreign intervention. Basically, an Islamonazi one.

    Comment by Mr. X — November 28, 2011 @ 8:35 pm

  7. Uhm, pardon my interruption of your free association here, X man, but what does the German embassy have to do with it? That wasn’t sarcastic–I really wonder what that’s about. I may regret asking, but there you go.

    The ProfessorComment by The Professor — November 28, 2011 @ 9:20 pm

  8. Why not SWP? It would at least get on DeutscheWelle before the protesters get pepper-sprayed and clubbed.

    Comment by Mr. X — November 28, 2011 @ 9:22 pm

  9. Still not tracking. Maybe that’s a good thing.

    The ProfessorComment by The Professor — November 28, 2011 @ 9:26 pm

  10. Mr.X, I know you are mentally deficient, but it is Assad’s troops that are blowing out peoples brains with snipers rifles…..

    Comment by Andrew — November 28, 2011 @ 9:52 pm

  11. Watch and learn Andrew. Don’t you have some demonstrations to organize in Uzbekistan or something?

    http://www.youtube.com/watch?v=yB17j0a-R34
    Gen. Wesley Clark on the planned take downs of Iraq, Syria, Iran, Libya…

    http://www.youtube.com/user/TheAlexJonesChannel?blend=1&ob=5#p/u/129/dZih8xTAxyo
    What an eyewitness was told in Homs

    Comment by Mr. X — November 28, 2011 @ 9:55 pm

  12. And you can say Andy — oh that’s just crazy ex-NSA guy Wayne Madsen. Ok. But Angelo Codevilla sure does take him seriously, at least on that whole ‘Obama’s grandparents were CIA’ thing.

    Keep playing dumb guys. It works for a while but you ain’t foolin’ people when the turbaned killers from Libya fly in by the plane load into NATO air bases in Turkey.

    Comment by Mr. X — November 28, 2011 @ 9:58 pm

  13. Sorry, here’s the link to Boston University professor Angelo M. Codevilla believing Madsen on Obama’s CIA grandparents. Explains a hell of a lot. But only in Russia do siloviks put one of their own into power, right?

    http://www.claremont.org/publications/crb/id.1852/article_detail.asp

    And here’s Wayne Madsen’s honorable record of service in the Navy and NSA:

    http://en.wikipedia.org/wiki/Wayne_Madsen

    Clearly the Claremont Institute, heretofore a loyal part of the conservative U.S. establishment, has been captured by the lunatic fringe, or maybe is under Russian influence — darn Kremlins are everywhere!

    Once again, the Establishment that a points out andy and rytb don’t even get paid to defend (or maybe they do) is crumbling. It’s 1989 in the USSA, or Russia cerca 1994 where open looting and oligarchic takeover is here.

    Comment by Mr. X — November 29, 2011 @ 3:24 pm

  14. http://streetwiseprofessor.com/?p=5795&cpage=1#comment-85097

    Peace out Professor, and don’t forget to buy gold, silver and ammo!

    Comment by Mr. X — November 29, 2011 @ 3:25 pm

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    Pingback by EU Politics - Hamsterwheel - Page 51 - PPRuNe Forums — December 1, 2011 @ 2:10 am

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