Let's go Greek!

Twelve hours is a long time in politics

From hereisthecity.com:

David Cameron has indicated that he is prepared to wield Britain's EU veto again as he seeks to protect the City of London in negotiations to shore up the eurozone.

As he arrived at the EU summit in Brussels, where eurozone leaders will discuss plans to introduce greater fiscal co-ordination, the prime minister said that he would demand "safeguards"...

Yeah! Go Dave! Stick it to those Eurocrats!

From The Evening Standard, a few hours later:

The Bank of England governor demanded a “real change in the banking industry culture” in a fierce attack on the financial services community. He hit out at “excessive levels of compensation, shoddy treatment of customers and deceitful manipulation of one of the most important rates”...

David Cameron backed the call for change and pledged new laws but ruled out an inquiry, agreeing with the governor that action is the priority...

Yeah! Go Dave! Stick it to those bankers!

We told you so.

Cyprus came top in last week's Fun Online Poll on which country would be bailed out next. Lo and behold:

Cyprus has told the European authorities that it intends to apply for financial assistance, the fifth eurozone member to do so.

It said it needs help to shore up its banks, which are heavily exposed to the Greek economy. The announcement came on another day of nervousness about the single currency.

So let's see if Italy is next - that country came a close second in the poll.

Fun Online Polls: The next bail-out & Any ideas?

The results (after reallocating one vote, as requested) to last week's Fun Online Poll were as follows:

Which Euro-zone member will be bailed out next?

Cyprus - 45%
Italy - 39%
Belgium - 3%
Malta - 1%
Slovakia - 1%
Slovenia - 1%
Estonia - 0%
Other, please specify - 11%

Two people suggested "Spain. Again".

So there we have it, let's see if we're right.
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I normally start a new Fun Online Poll each Monday, but this week either nothing interesting is happening or my mind has gone blank. I can't do football because the 62-minute incident appears to have been pronounced upon quite enough, and England's next match is on Sunday (which ruins the Monday timing).

So that's this week's Fun Online Poll: Any ideas?

Vote here or use the widget in the sidebar.

"THE Eurozone crisis will be dragged out for years, David Cameron promises"

From The Soaraway Sun

THE PM reassured his fellow politicians and bankers as relief over Greece yesterday re-fuelled interest in opportunities in Spain and Ireland.

MARKETS saw a dramatic early rally after Sunday's knife-edge win for the pro-Euro New Democracy party in Greece's general election enabled market insiders to offload overpriced stocks. Within hours, speculators then pushed up Spanish borrowing costs to a high of 7.14 per cent, raising hopes that this would trigger another €100 billion bail-out for Madrid's bankers next month. And more action was also being considered for struggling financiers in Ireland too, with the EU and IMF looking at doubling Dublin's loan repayment term from 15 years to 30 years to ease its mounting pressure.

SPEAKING at the first day of the G20 summit in Mexico, quietly confident Mr Cameron painted a rosy picture of EU bosses' continual dithering over the slow-motion Eurozone "crisis". He said they were coming up with "just enough political and economic action to make it look convincing and keep you in bonuses".

HE ADDED: "If we don't push our luck - like we did in Greece or Ireland - it's likely that Eurozone "crisis" can be kept going indefinitely. But remember: it's a fine line. Just as we have to avoid a total collapse, we have to avoid a full recovery. If the economy did recover, we wouldn't have a cover story handy for why we keep giving the wealthiest people even more money for no apparent reason."

URGING Britain's bankers to look beyond Europe for new victims, the PM declared: "The UK financial sector must do all it can to ensure compliant regulation at home and to get its talons into the fastest growing parts of the world."

Fun Online Polls: Bank Holidays and Bail-outs

The results to last week's Fun Online Poll were as follows:

What do you call a week day on which most people don't go to work?

A Bank Holiday - 33%
A General Strike - 8%
Depends on the context - 18%
Comes to much the same thing, really - 34%
Other, please specify - 8%

So that was a pretty close result, but "Comes to much the same thing, really" just scraped through to the finish line. Which is my own view, as it happens. I mean - what would happen if the unions declared a General Strike for a certain day and the government then declared that day to be a Bank Holiday?

Pedant points to Bruce: "As the working population is less than half the population, that's every day of the week that most people don't go to work."
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What is most alarming about the Spanish bank bail out is that nobody is in the slightest bit surprised, they were hotly denying it until the end of last week and they hey presto, come Monday morning it was a done deal and the Spanish PM was hailing it a success for the Euro-zone. So the bankers get away with it yet again and are now presumably limbering up for the next bail out, I guess they'll "do" Italy next, seeing as they/the EU have already got one of their place men in charge.

For the record, following the Irish bail out, in a November 2010 poll our view was that Portugal would be next, followed by Spain. Portugal was duly bailed out five months later but Spain managed to hang on until now.

I (quite wrongly) didn't consider Greece to be a bail out candidate - in November 2011, I asked how long they'd manage to keep Greece in the Euro-zone. Only 18% thought longer than the end of 2011, so a retrospective 'well done' to them.

So who's next?

Cast your vote here or use the widget in the sidebar.

It's as if his debts are following you round the room...

More wilful misreporting of Greek bail out

by The Metro:

After more than 12 hours of gruelling talks, eurozone ministers agreed a £200billion rescue deal that would save the country from bankruptcy.*

As part of the plan, £90billion of debt will be wiped out and interest rates on loans will be slashed. A further £108billion will also be loaned to the country to help it get back on its feet.

In exchange, Greece has agreed to cut pay, public sector jobs and spending as well as find £270 million of savings** in this year’s national budget. Next month, the IMF will decide how much to contribute to the package but if it is the same as last time, Britain could be made to hand over £1.6 billion***.

Nope, you cannot add £90 billion to £108 billion; you have to deduct £108 billion from £200 billion to arrive at the real answer +/- £90 billion, which is the value of debts from which Greece has been released.

What happened was that the EU/ECB/IMF gave existing existing creditors (who were owed £200 billion) £108 billion and told them to clear off, so now Greece owes the EU/ECB/IMF £108 billion instead of owing the existing creditors £200 billion.

* Countries can't and don't go bankrupt. They either default or are subsumed into a larger country, by consent or by force.

** To put £270 million into perspective, Greece's population and GDP are approx. one-fifth of the UK's, in other words, £270 million in their terms is £1.4 billion in our terms, i.e. still peanuts.

*** We will, hopefully, get most of that £1.6 billion back, sooner or later, as it is a loan not a gift; further, the chances are that this £1.6 billion will end up being paid to UK banks anyway. So this is not A Good Thing but it is hardly A Disaster, given the scale of UK bank bail outs so far.

Reader's Letter Of The Day

From the FT, it's basically about agglomeration, but also about the optimal size of a currency area in the absence of big intra-area transfers:

Sir, A simple lesson in geography explains why periphery states could never compete in the euro.

Take an approximately 1,000km circle round Cologne. Such a circle will reach as far north as Dundee and Oslo, as far east as Warsaw and Dubrovnik, as far south as Naples, and as far west as Dublin; 1,080km will get you to the Spanish border. That’s what a truck or van driver could achieve in a day’s intensive driving from the Rhine valley, if the regulations allowed it.

Take a similar distance from Lisbon and you get as far as Bordeaux. You wouldn’t make it to Barcelona*. From Athens and you won’t even get as far as Belgrade**.

Now think for a moment how many people live in each of these circles, the market available for a salesperson to jump in his car from his factory in Düsseldorf or Cologne, compared with that available to an entrepreneur in Lisbon, Madrid or Athens. Hermann has a market on his doorstep of more than 350m people within a 12-hour drive. Alfonso can reach out to only 57m, if he’s lucky, unless he flies. Spiro, on the other hand...

Patrick J d’A Willis, Director, Loans Trading, Exotix, London.

* Lisbon-Barcelona is 1,006 kilometres, allegedly.

** Athens-Belgrade is only 806 kilometres, allegedly..

What's the point of that then? (2)

Anon alerted me to this in The Daily Telegraph:

Fearful banks parked a record €411bn (£344bn) with the European Central Bank (ECB) last night in a further sign that Europe's financial institutions are becoming increasingly wary of lending to each other.

The record amount was deposited just a week after the ECB lent 523 eurozone banks a total of €489bn in cheap loans in an attempt to keep credit flowing through the economy and prevent a full-scale credit crunch. Banks borrowed the money at the ECB's benchmark rate of 1pc, but receive an overnight rate of just 0.25pc, well below what they could earn in wholesale markets.

This means lenders are depositing any new cash back with the ECB at a loss in order to guarantee safety.

There's not much I can add to that, except to note that maybe this is how the ECB borrowed the money which they lent out a week or two ago, and the ECB is taking a 0.75% cut as insurance for guaranteeing inter-bank lending between banks with spare cash and banks with not enough cash, which seems perfectly fair to me.

The other possible explanation is that there are banks so stupid that they borrow money from the ECB with the sole purpose of depositing it back with the ECB.

Schadenfreude ist die schönste Freude!

Spotted by Denis Cooper in the FT:

Germany saw one of its poorest debt sales on Wednesday in what was seen as a failed auction by many market participants amid fears the eurozone’s debt crisis is spreading all the way to Berlin.

Marc Ostwald, at Monument, said "I cannot recall a worse auction ... If Germany can only manage this sort of participation, what hope for the rest. Yields are at completely the wrong level."

Mr Oswald said the bid-to-cover ratio was only 0.65 times as the German debt agency sold just €3.644bn of its new 10-year Bund of the €6bn targeted.

Chuckle, chuckle, tee hee, people are starting to worry about the German government having to bail out all the other Euro-zone countries.

As Denis points out, Germany hasn't had a failed bond auction for nearly three years.

Why currency unions usually fall apart again

From the FT:

In any single currency area resources are always magnetised to the economically successful regions. To counterbalance this, political action is needed. Central government collects taxes from successful endeavours and redistributes resources to poorer areas.

This is not done just by regional aid, but by welfare transfer payments and paying the wages of public sector employees or building infrastructure. Were it not for this process, market forces would always tend to make rich regions richer and poor areas relatively poorer.

There are many examples where this... works well – in most developed countries – but there are others where it does not...

The implications of a single currency were understood by the leaders who formed the EU. The mistake was the euro’s premature introduction. The attempt to force political union before economic convergence and before populations were ready for it, has turned the euro from being an incentive to convergence, as was intended, into a powerful centrifugal force.

Not blindingly original, but a very good summary.

I suppose you could argue that it's not a problem if the wealth divide widens, which is fine for inhabitants (and esp. land owners) of the wealthy regions, but doesn't go down too well with people in the poor regions: they vaguely recognise that part of the increase in wealth in the wealthy regions was at their expense, and most of them wouldn't be prepared to move to another country or even to another part of the same country to try and catch up again, even if the wealthier regions welcomed them with open arms (which they don't).

Here we go again...

Headline in DT:

European Union debt crisis: Britain must help rescue eurozone, say Germans

Link here

It strikes me that this is third time in 100 years that we have been asked to rescue Europe from the failure of the German political class and leadership. On the previous two occasionas it cost us (and the Commonwealth) blood and treasure. This time, so far, it has just cost us treasure.

Having lost twice just what part of fuck off do they not understand?

(BTW I do not believe for one moment that that Merkel's view reflects the views of the majority of the German people).

Why do people assume that Greece has to stop using the Euro if it leaves the Euro-zone?

"Economist" Andrew Lilico* appeared on Channel 4 News yesterday evening, and he was reading from the same script as Allister Heath, i.e. if Greece leaves the Euro-zone then basically it would have to introduce a new currency which would devalue against the Euro by seventy or eighty per cent, there will be 'capital flight' and 'bank runs', molten lava will start raining from the sky etc etc. And as we know, the feeble minded have always insisted that Greece has no control over the currency it uses because it can't print Euros and can't set its own interest rates.

Now, this is all arrant nonsense, so let me try and unpick the web of self-supporting lies and prejudices and set a few matters straight...

1. Countries do not need to have their own currencies

It is traditional for most countries to have their own currency, but there's no absolute and over-riding reason why this should be.

Basically, very small countries just don't bother, because the convenience of using the same currency as your main trading partners far outweighs any marginal advantage of being able to set your own interest rates etc. Liechtenstein uses the Swiss Frank; the Channel Islands use sterling; a lot of shops in the German part of Switzerland were happy to accept Deutschmarks (and now probably accept Euros); Monte Carlo used to use the French Franc; Luxembourg used to use the Belgian Franc; Andorra used to use the Spanish Peseta; The Vatican and San Marino used to use the Italian Lira (these all now use the Euro); and so on.

Even in pre-Euro days, Germany, Benelux and Austria used to have very stable exchange rates and would co-ordinate their central bank interest rate policies, they have been a currency bloc for fifty years. It is also true that there are plenty of huge global corporations which have total income/expenditure far larger than the income/expenditure of smaller countries. None of these corporations have their own currency as such, they just use whatever the local currency is wherever they operate.

2. Any country can print any amount of any currency it likes - provided people are prepared to accept it in payment

In fact, anybody can do this. Remember: money does not exist in and of itself, it is a case of 'splitting the zero' and when you print money, you create an asset (the notes or coins or IOU) and a liability on yourself to redeem or honour them.

To give an example, when you apply for a mortgage, you actually print money, by writing a big number on a bit of paper and trotting round the various banks to see whether any will accept your 'currency'. The banks then decide whether you will be able to repay it out of your future income; you then choose the bank which gives you the best credit rating, i.e. which offers you the lowest interest rate. A UK buyer will print sterling, an American buyer will print US dollars and a Euro-zone buyer will print Euros.

The bank in turn prints its own sterling, dollar, Euro and gives that to the person who sold you the house. Their deposit is backed by the bank's assets, and the banks assets in turn consist of your ability and willingness to repay; and the seller/depositor can withdraw that money over time and spend it on goods and services which you produce; and you take that money and use it to repay the mortgage. So his deposit melts away as your mortgage is repaid. In reality you are getting a house now in return for providing the seller with goods and services in future, it's just that the whole system works better with standardised units rather than with face-to-face barter.

The point here is that governments only need to print money if their expenses exceeds their income (to which see 4).

3. Greece would not need to stop using the Euro as its functional currency even if it left the Euro-zone

This overlaps with 1. above.

I can imagine it's a bit of a hassle introducing a new currency, but that all assumes that Greece has to stop using Euro as its functional currency, even if it does leave the Euro-zone or do a partial default, but who says they do?

Whether the government defaults on part of its debts or not has nothing to do with which currency it uses thereafter (Did Russia stop using the Rouble after its partial default in the late 1990s? Methinks not), in the same way as a lot of companies have gone into and out of administration or done debt-for-equity swaps and still continue using the same currency as before.

(The most recent example I can think of when a country scrapped its old currency and introduced a completely new one was West Germany in 1948, but that was not announced in advance. They just did it overnight, every adult was given DM 40 and told to get on with it, the old Reichsmark were just so much waste paper. Older Germans can still remember that as soon as the Deutschmark was introduced, there were jobs to be had, the shops were full of things to buy and so on, different topic, this was more about wiping out the ill gotten gains of the old Nazis who had hoarded Reichsmark).

Real Greek people and businesses can use any currency they like, in the same way as some Swiss shops used to accept Deutschmarks and now accept Euros. Most governments, for convenience, tend to use one currency only, and there's another fairly modern tradition that taxes are collected in 'money' rather than in kind, but this is only a convention, and there's no over-riding reason why this should be the case (to which see 5).

Now, a government doesn't earn money in the traditional sense, it raises taxes, but as long as the Greek government can collect taxes - which it can and does, it collects 39% of its GDP in taxes, mainly via swingeing VAT - it has no problem as long as it keeps state spending to 39% of GDP. It doesn't of course, but that is a separate issue (to which see 4).

4. Governments only need to print money if they are running deficits. Governments CAN set their own interest rates, even if they use a foreign currency. Government CANNOT set their own interest rates, just because they are using their own currency

If a government matches income and expenditure, it does not need to print or create money at all, or at least, it creates and destroys money at the same rate, so by the end of each month it all squares out again (see 5).

It is only when a government is running a deficit that it needs to 'print money' and the amount they can print depends on its credit worthiness, i.e. the ratio of its overall debt to its current surplus, just like with my mortgage example in 2. Our hero who earns £50,000 has no problem printing an IOU for £150,000 and being accepted by a bank, but very few banks would accept an IOU from him for £500,000.

There is a grey area of course, if our hero wants to borrow £100,000 he'll get a much better interest rate than if he wants to borrow £200,000, and once we get past £300,000 or so, only one or two banks will be willing to lend to him and at very high interest rates, and if he wants to print £500,000 no bank will accept him (i.e. no bank will give him such a mortgage, i.e. the interest rate charged is infinity). Thus the interest rate that the mortgage borrower has to pay depends largely on how much he wants to borrow relative to his income.

I did some charts a while back that show exactly the same rule applies to countries who all use the Euro. The Dutch government pays next to nothing on its government debt because it hardly has any and runs a surplus, Greece and Italy pay the highest rates because their debts are so huge and they run deficits. Quite how the UK government - which is just as indebted as either and runs similar deficits gets away with the derisory interest rates it pays, I simply do not know.

So if the Greek government wants to pay lower interest rates, all it has to do is to run a surplus and pay off its national debt, which can be done surprisingly quickly if a country puts its mind to it, i.e. over ten years or so.

Conversely, let's imagine Greece were to reintroduce the Drachma, re-denominate its debts and start collecting taxes and paying for pensions and salaries in Drachma. Investors would look at the overall ratio between total stock of debt; current tax receipts; and current surplus/deficit and that dictates the interest rate. It's not as if the Zimbabwean government could arbitrarily choose to pay any old interest rate it liked until it scrapped Zim dollars and started using US dollars, is it? That particular experiment seems to have worked, so why should we assume that Greece can achieve a positive outcome by doing the opposite and going from a stable, major currency back to a tin-pot currency?

5. Governments do not need to use any particular currency for tax and spending purposes, because whatever units they choose becomes a currency in its own right

Let's take a simple example and assume that a government runs neither a deficit nor a surplus, so it collects exactly as much as it pays out; or more to the point, it pays out as much as it collects. As Modern Monetary Theory teaches us, the order is unimportant.

It could use green plastic tokens if it wished (provided they are very hard to forge) and decide that pensioners get a hundred plastic tokens a week, teachers and nurses get two hundred a week, policemen get three hundred and doctors five hundred. It then works out that it needs to issue three billion plastic tokens a month, so it has to claim back those three billion plastic tokens in tax. It then decides a simple tax system, where the tax on one litre of petrol or a bottle of wine is one plastic token; the tax on a house is a hundred plastic tokens a week, and so on, as long as the numbers balance somehow.

So a pensioner receives and has to pay a hundred a week and is indifferent. A teacher has a surplus of a hundred tokens and can sell them to anybody who needs to pay their house tax, fill their car with petrol, buy booze, for whatever the going rate is. Or a teacher can take his two hundred tokens, pay his house tax, buy fifty litres of petrol and buy fifty bottles of wine (if he so wishes, not that this 'blog approves of drinking and driving).

Those green plastic tokens have value because people need to get hold of them to pay their house tax or petrol tax or booze tax. Quite how much one token is worth in £-s-d depends entirely on people's marginal preferences between being a teacher/ nurse or working in the private sector; between buying booze, driving a car or having a house to themselves (if five people share a house, the tax is only twenty tokens each per week), and no doubt an exchange rate would be established so that you can go down to the bank and buy or sell tokens for a fairly stable amount in £-s-d, it may be 57p per token, it may be £1.23, the free markets will sort this out.

* He's not an "economist" at all, if you ask me, he is a "commentator on economic matters". By analogy, a sports reporter is not an athlete.
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UPDATE: He has emailed me a spirited defence with some links to his research work, which you can peruse at your leisure and make up your own mind:

http://www.jti.com/file.axd?pointerID=8e10b02017a843cd920459089c544088

http://cesifo.oxfordjournals.org/content/56/2/141.abstract

http://www.econstor.eu/bitstream/10419/26648/1/597827478.PDF

http://stakeholders.ofcom.org.uk/binaries/consultations/823069/responses/Europe_Economics_report.pdf

http://www.policyexchange.org.uk/images/publications/pdfs/Controlling_Public_Spending_-_Nov_09.pdf

http://www.europarl.europa.eu/document/activities/cont/201108/20110818ATT25094/20110818ATT25094EN.pdf

http://www.fsa.gov.uk/pubs/international/mifid_impact.pdf (Annex 2)

http://www.europe-economics.com/publications/bc_rs_thefutureofbankingregulation.pdf

Also worth a look is his excellent summary of the whys and hows of debt for equity swaps.

Let the propaganda war commence!

George Papandreou's proposal to hold a referendum on sticking with the EU's prescribed 'austerity measures' or not (sub-text: whether to stay in the Euro-zone of not, or at least this is what the French/German government appear to think it means, or possibly want it to mean) has taken everybody completely by surprise, so we end up with a situation where whatever anybody says about it says more about the person saying it than about the actual event.

The Daily Mash reckons that George P is just an old time con artist.

Leo Kolivakis seems to agree that it's pure brinksmanship on Greece's part to try and squeeze out an even better deal.

Angela Merkel seems genuinely miffed and is doing brinkswomanship of her own.

David Malone aka Golem XIV reckons that George P wants the people to vote to stay in the Euro-zone, and will launch a propaganda campaign of shock and awe proportions and intensity.

And so on, for every article you get a different opinion and it's not inconceivable that George P doesn't actually know what he's doing, short of going out in a blaze of glory.

To my great surprise/disappointment, it appears as though Allister Heath, editor of CityAM is firmly in the Greece-should-stay-in-the-Euro-zone camp:

The Eurozone’s main aim now will be to contain the fallout from any Greek default and withdrawal from the euro. The value of Greek assets (land, equity and debt) redenominated in a new drachma would slump 70-80 per cent.

Combined with inevitable capital controls, social collapse and mass nationalisation, the chaos would inflict huge losses on all companies with operations in the country. The European Central Bank itself may become insolvent as its Greek government bonds would become near-worthless...

I see absolutely no reason to make any of those assumptions. For example, was there 'mass nationalisation' in post-WW2 Germany, or in Argentine or in Iceland or in any other country which defaulted on its government/bank debts or devalued/replaced its currency?

Answer: nope.

Writing off debts is by and large a zero-sum game, so if 'everybody else' ends up worse off, then surely the Greeks would end up better off, after an initial adjustment period?

The European Stability Mechanism

Denis Cooper has summarised something rather complicated. It's still rather long but worth a read, the sting is in the tail:

On March 25th EU leaders agreed on a radical amendment to the EU treaties through European Council Decision 2011/199/EU. Over the past five months the UK media have hardly even mentioned that this treaty change has already been agreed, let alone discussed its potential implications. The nature of the amendment is that of a licence which the 27 EU member states as a whole would grant to a class of EU member states, the (now) 17 EU member states in the eurozone.

The fact that it is considered necessary to change the EU treaties so that henceforth the "The Member States whose currency is the euro may establish a stability mechanism ..." confirms that the stability mechanism they have already established, the European Financial Stability Facility or EFSF lacks any legal base in the present EU treaties.

And bearing in mind that Christine Lagarde, then French Finance Minister and now head of the IMF, described the actions of EU political leaders on May 9th 2010 as "major transgressions" of the present EU treaties, which are "very straightforward - no bailing out", clearly a treaty change to legitimise similar actions in the future must be seen as a major treaty change which should be the subject of significant public debate across the EU, including in the UK. The eurozone states are already proceeding to make use of their new licence, even before it has come into force, through a Treaty establishing the European Stability Mechanism which they signed on July 11th.

While few people in the UK have noticed this development it has attracted the critical attention of the economist and commentator Dr Oliver Marc Hartwich, a German and a former Londoner now resident in Australia. In a Business Spectator article entitled A poisoned chalice of EU power he writes scathingly:

“The ongoing assault on the basic rules of liberal democracy has been the defining feature of the euro crisis. The treaty to establish the new European Stability Mechanism is the best example of this fundamentally undemocratic approach … it may be European but legally it stands outside the EU. This means that the EU can formally keep its commitment to the Lisbon Treaty’s ‘no bail-out clause’ though the ESM will provide just that …

"If the ESM has thus turned parliaments into mere cash machines, will it at least be transparent and accountable? Provisions about legal privileges granted to the ESM suggest otherwise … European governments do not have the slightest interest in a thorough debate about the introduction of the ESM. They cannot risk the public understanding what this ESM treaty really is: an enabling act that undermines budget rights of parliaments; a coup d’état of the continent’s political leadership against their peoples; and the most costly piece of legislation ever put before European lawmakers. It would be crazy to explain to ordinary Europeans what their political leaders have conspired to introduce. And so they don’t."

From a British point of view, it is crucial to understand that because intra-eurozone treaties such as this would be allowed by the EU treaties as amended by Decision 2011/199/EU, but would legally stand outside the EU, it should not be assumed that integrationist measures such as "eurobonds" or a "fiscal union" or a "transfer union" would require any further changes to the EU treaties, provided that such measures were confined to the eurozone and ostensibly at least would not apply to the rest of the EU.

Therefore if anybody is fondly hoping that the need for further EU treaty changes would give the UK government a splendid opportunity to extract concessions and repatriate powers in exchange for its agreement, they would be sorely disappointed. Just as the UK is not a party to this first intra-eurozone treaty so it would not be a party to subsequent intra-eurozone treaties – unless and until the UK joined the euro - and therefore the UK government would have no veto to exercise over changes to those intra-eurozone treaties, and so no leverage for extracting concessions from the EU, even if it was disposed to do so.

All this depends on the eurozone states being granted their licence by the final ratification of the EU treaty amendment embodied in European Council Decision 2011/199/EU, and in the case of the UK that will require parliamentary approval through an Act. Is it too much to ask that our MPs will stop and think hard about the long term implications of giving their approval of that Decision, rather than just nodding it through?

Fun Online Polls: The Saturdays and financial markets doolally

Last Friday's Fun Online Poll was a damn' close run thing:

Who is your favourite out of The Saturdays?

Frankie - 3 votes
Molly - 2 votes
Rochelle - 2 votes
Una - 0 votes
Vanessa - 0 votes
They're all identical, aren't they? - 1 vote
Who or what are 'The Saturdays'? - 56 votes

Frankie is the second one from the left in this picture. I think that was the right decision.
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Financial markets doolally, yawn, vote here or use the widget in the sidebar.

Buddy, can you spare me a Euro? Well, about a hundred billion, actually...

Splendid

From The Telegraph:

While the Irish rescue removed the immediate threat of "haircuts" for senior bondholders of Irish banks, it leaves open the risk of burden-sharing from 2013 on all EMU sovereign bonds and bank debt on a "case-by-case" basis.... Yields on 10-year Italian bonds jumped 21 points to 4.61pc, threatening to shift the crisis to a new level. Italy's public debt is over €2 trillion, the world's third-largest after the US and Japan.

"The EU rescue fund cannot handle Spain, let alone Italy," said Charles Dumas, from Lombard Street Research. "We we may be nearing the point where Germany has to decide whether it is willing take on a burden six times the size of East Germany, or let some countries go."

Italy distanced itself from trouble in the rest of southern Europe early in the financial crisis, benefiting from rock-solid banks, low private debt, and the iron fist of finance minister Giulio Tremonti. But the crisis of competitiveness never went away, and the country has faced a political turmoil for weeks.

If Portugal and Spain have to follow Ireland in tapping the EU's €440bn bail-out fund – as widely feared after Spanish yields touched 5.4pc – this will put extra strains on Italy as one of a reduced core of creditor states. The rescue mechanism has had the unintended effect of spreading contagion to Italy, and perhaps beyond. French lenders have $476bn of exposure to Italian debt, according to the Bank for International Settlements.

H/t, Devo at HPC.

Fun Online Polls: The Euro-zone and The Big Freeze

On a very good turnout in last week's Fun Online Poll (thanks to all 131 people who cast a vote), the result was:

Which country will the EU 'bail out' next?
Portugal - 78%
Spain - 11%
Italy - 2%
Other, please specify -3% (Belgium, Greece and the UK were suggested).
None. Financial stability in the Euro-zone has now been guaranteed - 6%

I use the term 'bail out' loosely of course, Ireland appears to be even more firmly under the EU cosh than before. It's a bit like taking a loan from a 'doorstep lender' or paying the Mafia for 'protection'. Suffice to say, the whole Euro-experiment is crumbling at such a rate that Angela Merkel has already started denying that 'they' will double the size of the nominal amount available to the EFSF (currently €440 billion) to be able to 'bail out' Spain if needs be.
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Much hilarity ensued last February when local councils ran out of salt, grit etc after it had been snowing for a couple of days. They've been forecasting snow for the whole of the UK for over a week and it's already hit large parts of the country (even though I've only seen a few flakes fall in London so far).

So that's this week's Fun Online Poll: "When do you think your local council will run out of salt and grit?"

Vote here or use the widget in the sidebar.