The EU's big brother lends credibility to its southern cousins
An extraordinary night of torrid negotiations just about squeaked out a Eurozone rescue package from an emergency meeting of finance ministers in the early hours of this morning.
On top of the decision to make around half a trillion euros available in loans and loan guarantees for Europe’s Mediterranean fiscal defences, probably the biggest factor was the Frankfurt based European Central Bank’s decision to buy eurozone government debt.
This is the so called nuclear option I mentioned on last week’s show. It will be an anathema to many in inflation-averse Germany. But what the ECB is doing is importantly different to the quantitative easing or “printing money” pursued aggressively in the UK and America.
The ECB has I understand been in the markets buying up Greek government bonds and this helping reduced the credit card rates of interest paid by that government.
But it has also been “sterilising” or balancing that off by selling German government bonds, leading to a small rise in the interest paid on German government debt.
This is the EU’s big brother, lending its credibility to help its profligate southern cousins fund themselves more cheaply.
Likewise the remarkable deal that went into the early hours. It was a UK compromise that saw the power over 440bn euros of loans and loan guarantees awarded not to the European Commission (which it seems was engaged in something of a power grab) but to a Special Purpose Vehicle which I envisage will be controlled, understandably, by the Germans.
More on the UK position to come.
There are 6 comments on this post
This is a dangerous organisation that costs us more and more How could Darling agree anything on behalf of the UK . He has no authority at the moment .The sooner we have a referendum on staying in or leaving the better.Unlike many bloggers on here , did that happen , i would abide by the results.
Just where is the money going to come from?
Is it not ironic that the Eurozone has adopted the British approach to dealing with their banking crisis, at the very moment British political opinion appears to have rejected that approach?
It was the Brown-King system of re-capitalising banks and buying up government debt that inspired the US Government to abandon their planned purchases of bank-owned ‘troubled assets’ in the fall of 2008. And to lend capital to US banks whilst the Fed bought US T-Bonds in the market. Mocked in Europe, in our country and by US Republicans, the Brown-King approach has, even so, become adopted by all of their governments. Each government has also adopted the UK prescription of increased government spending to halt any slide into deflation. And they’ve also mostly rejected protectionist approaches too.
Even now, the UK economy is forecast to out-perform both the Eurozone countries in both GDP growth and employment – yet again.
We can only pray that our in-coming government is not so proud of itself that it’s unable to retain the British formula now so flattered by widespread adoption.
Adrian, we’ve already had the referendum on whether the UK should continue to be a member of the European Project.
The result in June 1975 – after exhaustive debates and full disclosure of the long-term implications – was that just over 67% of voters preferred to stay in. CAP and Fisheries policy included.
I well remember that referendum and the public debates. I even read and understood the implications of the Rome Treaty. I voted that our country should continue as a full member. As did most of the British people.
That referendum was on a common market place (including compromises on the appalling fudges you mention), not on political union.
Political union is a more recent imposition.
So printing more Euro money out of thin air, like the American Federal Reserve does and it devalues the currency, is a good thing…. how? US dollar has already lost over 95% of its value since its inception, so are the EU trying to play catch up with devaluation? And this devaluation, how is this good for the people of these countries who now pay more and get less while the banksters and investment scammer walk free with tens of millions in bonuses? Indeed. Will today’s stock market rally represent a dead cat bounce? Time will tell.